Restaurant & Staples Q&A
We are hosting a live Q&A call on July 21 at 10 AM ET.
We will explore the following topics:
- Recent trend changes in consumer spending.
- Discuss the pushback and feedback from our recent Black Book calls.
- Discuss the most common and noteworthy inbounds we have received in the past month.
- Revisit changes to our Position Monitors.
- Discuss our expectations for Q2 earnings season.
- Provide updates on some of our best ideas.
We will also take live questions.
Restaurants/Consumables Pro Subscribers CLICK HERE for event details (includes video and materials link)
China Opening
YUMC is a LONG
In statements to the World Economic Forum on Tuesday, Chinese premier Li Keqiang indicated China would continue to pursue reopening policies, including the resumption of international travel. According to Chinese state media, the premier, that has become the face of reopening across China, cited improvements to visa and COVID testing policies, cross-border travel for work, and international flights are on track for a return—opening up after COVID was called a "fundamental national policy" by the high-ranking Li. The reopening of international travel stands to benefit China and critical industries such as casinos in Macau and travel and retail stocks that rely upon Chinese tourists. Indeed, Chinese tourists spent over $250B while traveling abroad in 2019, bolstering numerous tourist-facing industries such as hotels, airlines, cruise lines, and luxury retail. As such, the return of big-spending tourists after a more than two-year hiatus could be a boon to many of those same industries.
The positive signal in China likely added another element of optimism to the broader rally in consumer discretionary stocks on Tuesday.
DPZ Earnings
DPZ is scheduled to report 2Q22 earnings before the open tomorrow, and we will get a small look into current trends and the health of the consumer
- Comps US (-4.9%) with Domestic (-5.0%) and International +0.3%
- Revenue $1.05B; U.S. Company-owned stores $114.4M; U.S. franchise royalties and fees $124.6M; Supply Chain $624.9M; International franchise royalties and fees $71.2M
- G&A 9.1% yielding an Operating margin of 16.8% and EPS of $2.91
Trends from 1Q22 likely continued into 2Q22:
- 1Q22 was a challenging quarter, particularly on the top line for the U.S. business - "We got off to a slow start in January due to the Omicron surge, which impacted our stores and supply chain centers, further limiting our capacity to serve customer demand, particularly in the delivery channel."
- "After a return to modestly positive U.S. same-store sales in February, we turned negative again as we began to overlap the impact of the 2021 Federal Government Stimulus in March and have continued to face that overlap in April."
- "While we saw momentum continuing to build in Q1 in our U.S. carry-out business and digital carry-out, we are disappointed in our Q1 delivery results and still have a lot of work to do to restore growth in that important channel."
- Delivery Constraints - 1Q22 delivery same-store sales declined by 10.7% relative to Q1 2021, driven by order count declines offset in part by higher ticket
- Significant inflation - Faced significant inflationary cost increases across the business in Q1. Those cost pressures, combined with the deleveraging from the decline in U.S. same-store sales, resulted in earnings falling short of our high expectations for the business.
- Capacity Constraints - Staffing challenges continued during Q1, resulting in reduced operating hours and other service-related challenges in many stores across the U.S. business.
- F.X. - Changes in foreign currency exchange rates negatively impacted us by $0.08
- Inflation - "we now expect the increase in the store food basket within our U.S. system to range from 10% to 12% as compared to 2021 levels.
- Below Trend - Global retail sales growth, excluding the impact of foreign currency in 2022, will likely drop below the low end of our 6% to 10% two to three-year outlook.
B.J.'S WHOLESALE CLUB BLACK BOOK TODAY (B.J.)
We are hosting our Black Book presentation on B.J.'s Wholesale Club at 2 PM ET today.
B.J.'s Wholesale Club is a Quad 4 outperformer on an absolute and relative basis. Food retailers benefited from the shift to at-home consumption during the pandemic. Just as COVID-19 restrictions were finally lifted throughout the country and consumers were resuming their lives, food inflation and soaring gasoline prices have altered their behavior again. B.J.'s Wholesale Club's value proposition is positioned to gain share as consumers look to stretch their food budgets. B.J.'s is an attractive capital preservation long for the quad environment with the highest probability of occurring. We see upside potential in both EPS estimates and the multiple as the company takes to share and accelerates new store openings. We are a long Grocery Outlet and B.J.s in food retail and short Kroger, Albertsons, Loblaw, and Sprouts Farmers Market.
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