The sauce is good (SOVO)
Sovos Brands reported Q3 EPS of $.14, in-line with consensus expectations. Revenue and EBITDA were both slightly ahead of expectations, while below operating profit items were slightly higher. Total sales grew 16.9% with price of 14.4% and volume growth of 2.5%. In comparison, Q2 volumes grew 13.3% and price increased 8.7%. All three brands decelerated sequentially. By brand Rao’s grew 33.7%, noosa grew 2.4%, and Michael Angelo’s decreased 3.7%. Birch Bender’s declines were described as expected. Rao’s sauce sales grew 24.3% while units grew 14.7%, decelerating from +30.3% and 23.4% respectively. Outside of sauce, Rao’s sales grew 45.5%. Michael Angelo’s and noosa sales were impacted by not repeating a single customer’s promotional event which had an 8% headwind to total company volumes.
Gross margins expanded 170bps YOY with the acceleration in price increases, improving from 270bps of YOY contraction in Q2. Gross margins also benefited from lapping higher shipping costs. EBITDA margins contracted 30bps YOY, but sequentially improved 110bps.
Management raised revenue guidance from $825-835M to $840-850M. EBITDA guidance of the lower end of the $116-122M range was reiterated. We recently added Sovos Brands to our Long Bias list. The company’s sales are decelerating while margins are inflecting (gross margins expanding). Last quarter the company recorded a write-down for Birch Bender’s while this quarter Michael Angelo’s sales declined and noosa was barely positive. We are going to need more visibility with the other brands before moving SOVO to the Long List.
October comps (COST)
Costco reported October comps ex.-gasoline and Fx of +8.6% with the U.S. up 6.1%, Canada up 8.8%, and other international up 7.9%. Comp traffic slowed from +4.7% in September to +3.5% worldwide. In the U.S. comp traffic slowed from +2.6% in September to +1.7%. Food and sundries remained up LDD% while fresh food slowed to +MSD% from +MSD-HSD% in September. Non-food items slowed from +MSD% in September to +LSD%. The club channel has the lowest rate of food inflation. Traffic and units are still trending up for Costco, unlike other food retailers.
Canadian beer (TAP)
Total beer volumes in Canada decreased by 2.3% in September, decelerating from +1.8% in August. Domestic beer volumes decreased by 1.9% in September, decelerating from 1.7% in August. Imported beer volumes decreased by 5.8% in September, decelerating from 3% in August. YTD beer volumes are down 4.1% in Canada despite the easier on-premise comparisons. One of the challenges to the on-premise industry is a labor shortage which is limiting hours of operation. For Molson Coors the Canadian on-premise channel is still trailing pre-pandemic levels.
Texas on-premise alcohol beverage tax receipts (BUD)
Texas reports its alcoholic beverages sales tax receipts monthly. In October, alcoholic beverage receipts increased 6.8% YOY. That represents a deceleration from September’s 13.4% growth. Sales were 18.6% greater than in October 2019. In Texas, bars have been mostly open with limited restrictions since October 2020. October was flat month over month after declining for four consecutive months, a seasonal trend not seen in 2019.
