Calling this a beat (SFM)
Sprouts Farmers Market reported EPS of $.57 in Q2, above expectations of $.51 due to better margins. SSS grew 2% with positive transactions. Management said they are seeing signs of the consumer trading down. E-commerce represented 11% of sales. Gross margins expanded 30bps, improving from flat sequentially, driven by shrink and lower distribution costs. The company continues to pass on higher product prices. SG&A increased 6% YOY and deleveraged by 30bps. SG&A growth was driven by new stores, labor, and credit card fees.
Management guided Q3 EPS to $.49-.53, bracketing consensus expectations of $.51. Comparable store sales are expected to increase 1-2%. For the year, management guided EPS to $2.18-2.26 vs. consensus expectations of $2.13 and SSS between 1-2%. Last quarter management revised the EPS outlook for the year to the low end of the $2.14-2.24 range. Management’s confidence has improved from the prior quarter as aggressive price increases are passing on cost increases. SSS of 2% while food at home inflation was 11-12% points to a significant loss of the customer's wallet, likely resulting in future traffic losses. Management calling Q2 a beat appears myopic.
Solvency or Liquidity (APPH)
AppHarvest reported a $.28 loss per share, slightly better than the consensus expectation of $.30. Revenue growth of 39% was below expectations, but the EBITDA loss was slightly better than expectations. The company sold 6 million pounds of tomatoes, down from 8.6 million pounds in the prior year due to a plant health issue. The average price increased to 72 cents per pound, up from 36 cents in the prior year.
Management lowered revenue guidance for the year to $20-25M from $24-32M. The lowered range accounts for potential supply chain delays. Adjusted EBITDA loss is now expected to be -$80 to -$85M from -$70 to -$80M. Capex for the remainder of the year is expected to be $85-90M. AppHarvest filed a $300M mixed securities shelf covering up to $100M in common stock. Management may have figured out how to finance the remaining construction for the new facilities, but any new expansion will require additional financing as well. Liquidity isn’t the only issue with this business model.
Imported beer gains (STZ)
According to CGA, in the on-premise channel, imported beer now represents 21.9% of total beer in dollar sales, up 1.7% points YOY. Imported packaged beer gained 1.3% points, and draft gained 1.0% points. Mexican beer represents 67.6% of imported beer sold in the U.S. on-premise channel. In the on-premise channel, draft and packaged beer are nearly evenly split at 49%/51%. Imported beer skews much more towards packaged at 67% while draft is at 33%.
Draft and on-premise remain significant growth opportunities for Constellation Brands. Modelo is the #2 beer brand overall and the #5 draft beer even though it only has 11% national distribution. The on-premise channel represented 13% of Constellation Brands’ depletion volumes last quarter compared to 15% pre-pandemic.
