Food Retailers 2023 Outlook Call (KR, ACI, COST, BJ, WMT, GO, SFM)
We are hosting our Food Retailers 2023 outlook call today at 12:30 PM ET. Hedgeye's Macro team continues to see further evidence that 1H23 is in Quad 4. The consumer has not seen this level of food inflation in a generation. 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 3.5%. 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 moved BJ's Wholesale Club from the Long list to the Short list. We are also raising Kroger to our Short list from our Short Bias list. We will provide our analysis of the contribution from the gasoline business to BJ's results in 2022 and how that will lead to underperformance in 2023.
Our investment themes:
Our updated position monitor:
Holiday grocery savings (KR, ACI)
According to the Kroger backed data firm 84.51º’s latest survey, cutting back on impulse purchases and buying items on sale/switching to less expensive brands are the top actions consumers will take to save money. 55% of respondents said price is the most important factor in holiday shopping vs. regular grocery shopping followed by 39% saying quality, 34% saying quantity/size, 26% saying convenience, and 17% saying brand. 31% of shoppers said that their shopping will remain the same during the holidays. The top activities consumers said they would be reducing are entertainment (52%), visiting restaurants (47%), and traveling (46%). In November, unit sales of holiday meals sold in supermarkets decreased by 25.3% while dollar sales decreased by 7.5% according to IRI.
Balance sheet improvements (VWE)
Vintage Wine Estates announced an easement on one of its properties, an acreage sale for $9.1M, and an amended credit agreement. The amended credit agreement is backed by real estate for a principal amount of $156.5M, maturing in five years with an interest rate hedge blending to 2.3% for three years. The announcements demonstrate management’s focus on improving the balance sheet and further steps are expected to follow.
