Albertsons lock-up extended (ACI)
Albertsons’ five largest shareholders, who are each part of the lock-up agreement from June 25, 2020, agreed to extend the lock-up through September 10, 2022, which is the end of FQ2. The new agreement effectively extends the previous lock-up agreement by two months and ten days. The five shareholders combined own 366M shares or 87% of the shares that were subject to the 2020 lock-up agreement. The extension is ostensibly in support of the potential strategic alternatives the board announced it was reviewing at the end of February. The strategic review announcement was a surprise. While the share price was off the high, it had still more than doubled from the low less than two years before. In addition, Albertsons had a lot of difficulty going public for years and leverage concerns were the biggest overhang. Now it seems the timing of the review was in advancement of the lock-up agreement expiration.
Traffic lagging to Kroger’s banners (KR)
Traffic to grocery stores has slowed again, this time due to higher gasoline prices and other inflationary pressures. Kroger’s banners have lagged the national grocery average as seen in the chart below. Compared to pre-pandemic levels traffic to all of Kroger’s banners are down with the exception of Ralph’s 2.3% increase in May. In the most recent quarter, Kroger cited SSS challenges with items in the consumers’ basket and not traffic. A traffic decline would represent an additional revenue headwind.
The outlook for oats (OTLY, STKL)
Demand for oats outpaced production last year after growing regions in North America experienced a severe drought. Stats Canada has forecast a 16.6% increase in the seeded area for oats in Canada this year. The high prices for oats coupled with the low cost of growing it led to record plantings. That would represent the largest oat crop in the country in 42 years. Soil moisture in the growing region improved due to a heavy snowpack, but that led to a late planting season. Late plantings usually result in lower yields. With the increased acreage offset by lower yields, production this year may end up at average levels. In the U.S. projected oat acreage is flat compared to the prior year, but the planting areas have increased in the north and fallen in the south. That could still result in additional bushels for sale in the U.S. as southern acreage is often planted for feed. Oats represent 8-9% of Oatly’s COGS while it is a pass-through cost for SunOpta’s co-manufacturing customers.
Inflation concerns (GO)
95% of consumers in a recent Numerator survey said their finances have been impacted by inflation. 66% of consumers said they have responded by cutting back on non-essential spend or purchasing items on sales (51%). Dining out was the most popular expense consumers said they were reducing (59%), followed by reducing non-essential food purchases (57%), and apparel (54%). As a discount grocer Grocery Outlet is positioned to gain customer visits with the increasing pressure on consumers' budgets.
