Another round of pricing (LANC)
Lancaster Colony reported FQ4 EPS of $1.06 vs. consensus expectations of $.80. The better results were driven by revenue 17% above expectations. Sales grew 17.3% driven by pricing and some pull-forward ahead of the SAP implementation. The pull-forward is estimated to have contributed $25M or 6.5% to growth. The pull-forward contributed $.15 to EPS. Retail segment sales grew 8.8% driven by pricing while volumes decreased 2%. Foodservice sales grew 28% with pricing accounting for 24% of the increase while volumes grew 2%.
Margins are inflecting. Gross margins contracted 330bps due to higher raw materials, packaging and freight partially offset by higher pricing. Sequentially gross margins improved 480bps as price increases took effect. The company took another round of pricing at the beginning of August as cost increases have not subsided. SG&A expense decreased 2.8%. The lower tax rate in FQ4 was a $.10 benefit. The restructuring charge was $.03 greater than the prior year.
The dressing and sauce capacity expansion is scheduled to be completed in the fall, benefiting sales and margins. With FQ4 results the company is through the worst of the margin compression and the expansion will be another driver in F2023. We raised Lancaster Colony higher on our long list several weeks ago as our visibility in margins is improving.
At the low end (WMT)
Family Dollar consumables comped up 4% despite supply chain challenges in OTC related categories while discretionary comps decreased 4.1%. Family Dollar will be accelerating price investments to improve the value proposition and drive traffic to the stores. Management explained, “Just as we saw the dynamic environment, the pressure on our customers and the inflation, we decided that now is the time to win these customers for the long term and get it right.” Management also said they have seen gains in private label. “We’ve seen in the industry where private brands have outpaced national brands for 24 weeks in a row now. That hasn’t happened in five years.” Rick Dreiling, the new Chairman of Dollar Tree, said with the support of the vendor community Family Dollar margins will improve over time.
Dollar General reported a 4.6% SSS increase driven by accelerated growth in market share of consumables products and a slight increase in traffic. Dollar General said customers were shopping closer to need and noted an increase in trade down. “During Q2 customers appeared to be making trade-offs of some of their food choices, contributing to an increase in private brand penetration within our consumables business. We also saw growth in the number of higher-income households shopping with us, which we believe reflects more consumers choosing Dollar General as they seek value.” Dollar General also said it sees freight expense improving and switching from a headwind to a tailwind in the coming quarters.
The dollar store channel has been the weaker channel for some time now. While there is a trade down benefit like the mass and club channels, the majority of the existing customers are experiencing spending pressure. Walmart said three-quarters of new customers are mid to higher-income shoppers. Family Dollar is the largest public chain to call out a step-up in price investments, but a few private grocers have already started investing in price.
De-SPAC approved (RVAC)
Riverview Acquisition shareholders approved the merger with Westrock Coffee. The merger will close today and Westrock Coffee is expected to begin trading on August 29 as the ticker WEST. After the redemptions and prior to payment of transaction expenses Westrock expects to receive $296M in gross proceeds. We presented our Black Book on the company earlier, to view the replay CLICK HERE.
