Call Details:
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We added Costco to our Best Idea Long list. Costco is a Quad 4 outperformer on an absolute and relative basis. Our macro team is calling for four more quarters of Quad 4, a favorable setup for Costco's share performance.
Food retailers benefited from the shift to at-home consumption during the pandemic. Just as COVID-19 restrictions were finally being lifted throughout the country and consumers were resuming their lives, food inflation and soaring gasoline prices have altered their behavior again. Costco's value proposition is positioned to gain share as consumers look to stretch their food budgets. Costco 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 share and accelerates new store openings. Since we get the most pushback on Costco's pandemic comparisons and valuation, we will exhaust both topics.
The proposed merger between Kroger and Albertsons will alter the competitive dynamics in consumables retail. Since the pandemic outbreak, the CPG industry has been characterized by supply challenges, inflationary price increases, and a drop in competitive intensity. Even if the merger is ultimately approved by the FTC, the regulatory review will be lengthy. Costco is set to take advantage of the interim period while the traditional supermarkets jockey for positioning. Looking out at the competitive landscape in consumables retail over the same duration as the management teams of Kroger and Albertsons reinforces our long positioning for Costco.
We will update food retail industry trends, make our case for warehouse clubs gaining share within food retail and gaining share of wallet.
Our investment themes:
