WMT LONG BLACK BOOK TODAY
We are hosting our Walmart presentation at 12:30 ET today CLICK HERE for the webcast and materials.
After two negative guidance revisions, Walmart’s estimates appear to be inflecting positively. The consensus EPS estimates for Q3 reflect a more significant deceleration in sales trends and headwinds from markdowns than our model. Walmart is the fifth largest holding in the Consumer Staples XLP ETF, so many analysts must consciously decide whether to be underweight or overweight. We think now is the time to be overweight Walmart. Walmart’s competitive dynamics have implications for numerous competitors as well as the supply chain. As the largest food retailer, its promotional intensity can set the pace for the industry. As the largest customer for numerous CPG companies, its pricing plans can have an outsized influence on margin trends.
The investment themes for the WMT call:
BIG CHANGES COMING FOR SBUX
WSJ "SBUX is rethinking everything." Stories like this about SBUX are planted in the WSJ by the SBUX PR/Media team to prepare investors for big changes are coming for the company. Longer-term, it's a net positive, short-term it will be expensive, suggesting that estimates need to come down.
When I read this story in The WSJ, the first thing I thought was the company is sending up smoke signals that fixing the company will be expensive and a multi-year process. There are big changes coming to the company, and management does not want people to be surprised at the upcoming analyst meeting. Yes, they are doing this from a position of strength, but they also need to slow the spread of unionization, and improving working conditions for employees is part of that plan.
The article says, "U.S. stores designed a decade ago struggle to meet today’s consumer demand. Cafes that once averaged 1,200 orders a day are now trying to make 1,500. Executives recently visited one East Coast cafe that averaged $1 million in annual sales a decade ago. Now, it is ringing up nearly $3 million in sales in the same 1,500-square-foot space. Many U.S. locations need to be overhauled, said Katie Young, who as senior vice president of global growth and development is in charge of figuring out what new cafes should look like. Having so much demand is a privilege for Starbucks, but also a problem, she said."
The quote from the person in charge of what the cafe should look like suggest the company cooperated with this article. Including the images of a time and motion study by the company. If the company looks at how employees move around the store, big changes are coming.
CMG will not be immune
CMG is raising prices aggressively, and consumers are starting to take notice.
More stories like this one in the Dailydot is not good for CMG. "I remember when it was $6-7’: Chipotle customer says single bowl came out to $25, sparking debate." According to a Deloitte survey. "While consumers might be more accepting of higher prices when they’re driven by pandemics and wars, their patience around corporate greed looks to be thin." Getting a handle on price elasticity in the restaurant industry is not easy, but we know consumers don't like to be taken advantage of. Views on pricing have split the consumer industry right down the middle, and in the Deloitte survey of executives at consumer packaged goods companies, roughly half felt they could continue to raise prices without materially affecting demand - half believe they can’t. The Dailydot story suggests that there is a clear lack of trust brewing. Whether or not CMG is charging unfair prices is irrelevant; what matters is that people believe it’s happening.
