The grocery club store marches on (BJ)
BJ reported Q3 EPS of $.99, up 9% YOY vs. consensus expectations of $.84. Merchandise SSS were 5.3% vs. consensus of 2.6%. In groceries, perishables, and sundries SSS rose 6% while general merchandise SSS rose 3%. Membership fee income grew 8.7% against the most difficult comparison, slowing from 11.3% sequentially. The member count rose 6% with higher tier members up 4% points to 38%. Gasoline gallons rose 11% on a comp basis. Digital grew 43% with 80% being fulfilled by clubs.
Gross margins ex. gasoline contracted 30bps, improving from -50bps sequentially. Inventory was 19% higher YOY, down from +33%. The four DCs the company acquired is responsible for ~7% points of the increase. Management raised guidance for the year to $3.70-3.80 from $3.50-3.60. Q4 SSS are expected to be up 4-5%.
Investors are correct in being concerned about the health of the consumer after Target highlighted it. Management believes the slowdown in October was due to the comparison and does not see the trend continuing in November. “We’re very pleased with where our consumer is.” With disinflation coming, revenue growth will have less of a nominal tailwind. Inflation will remain elevated and eating at home will also remain elevated as the pressure on household budgets is not lessening. BJ’s and other gas retailers have benefited from a higher margin gas business this year, but the multiple placed on that income stream has always been low. BJ’s focus on consumables and momentum in membership fee income provides considerable visibility for Quad 4 in 2023. BJ’s is on our Best Idea Long list.
SNAP’s support (WMT)
Starting on October 1, SNAP recipients saw their payments increase to reflect the higher cost of living. This year’s COLA adjustment was much larger than in previous years due to the high rate of inflation. The maximum benefit for a family of three increased 12.5% to $740. The emergency SNAP allotment remains in place, but will expire once the national emergency is declared over.
16% of U.S. households are SNAP recipients. SNAP spending accounted for 13% of total food and beverage sales in 2021 and 12% so far in 2022. SNAP recipients are spending 2% less on food and beverages in 2022, but their non-SNAP spending is down even more at -7%. Michigan SNAP recipients will receive an additional $95 in food assistance in November. The state announced this week that 1.3 million residents in more than 700,000 households will be eligible. Food stamps have been a major contributor for low-income households since the pandemic began.
Winn-Dixie for sale (KR, ACI)
The WSJ reported that Southeastern Grocers is exploring a sale. The company canceled its IPO plans last year. Southeastern Grocers operates some 420 grocery stores, 200 pharmacies, and 140 liquor stores in the south. A sale of the owner of Winn-Dixie and Harveys would likely complicate the merger review between Kroger and Albertsons. It also brings attention to the outlook for supermarkets cycling the tandem impact of the pandemic and record food inflation. It’s possible a strategic is interested like Ahold, but it’s more likely a private equity firm purchases Southeastern Grocers.
