The 2023 Outlook for Food Retailers (KR, ACI, COST, BJ, WMT, GO, SFM)
We are hosting our 2023 outlook call for the food retailers on Tuesday, December 20 at 12:30 PM ET. Food inflation has peaked but will stay elevated despite easing input costs. Following the USDA's lead, the consensus has penciled in food-at-home inflation of 2.5% to 3.5% for 2023. We will show how our starting point for 2023 top-line growth for food retailers is north of 3%. We will also do a deep dive into the changing tailwinds and headwinds for the sector, followed by a critical driver analysis of how each of our covered food retailers (KR, ACI, COST, BJ, WMT, GO, SFM) is impacted.
As part of the company analysis, we are moving BJ Wholesale Club from the Long list to the Short list. Our investment thesis is as follows:
Our updated position monitor:
Flu monitor (PRGO)
The CDC estimates that there have been at least 15 million illnesses from the flu this season through the week ended December 10. The flu test positivity rate is now 25.4% compared to 3% a year ago. The flu has surged since Thanksgiving and could increase again with the holidays. All but three states are experiencing high or very high respiratory virus activity. The cumulative hospitalization rate decreased week over week, but the cumulative hospitalization rate is 7.6x higher than the highest cumulative in-season hospitalization rate for this week going back to 2010-11. 97% of hospitalized adults have underlying medical conditions.
Perrigo’s Q4 is mostly set for the cough & cold season as orders are already in and production is maximized, especially for liquid medicines. A larger or longer cough & cold season would be seen in Q1 results as retailers reorder more inventory.
SPAC merger (BWAC, CASK)
Heritage Distilling Holding plans to go public via a SPAC merger with Better World Acquisition Corp. Heritage Distilling is a craft distiller with a capital-light business model. The transaction is expected to close in the second quarter when it is expected to trade as CASK. The deal values the combined company at an enterprise value of $122M. Heritage Distilling plans to work with Native American tribes across the country to make premium whiskies, gins, vodkas, and RTDs.
