ICR Conference
The ICR Conference is one of the largest consumer investment conferences of the year. Numerous companies in Restaurants and Consumer Staples are scheduled to present at the ICR Conference on January 9 and 10. We have published a Primer to provide a reference guide for many of the presenting companies in our Restaurants and Consumer Staples sectors. The Primer provides an investment summary for our focus companies presenting at the conference. Each company section provides an investment overview, brief company synopsis, and questions/discussion points for the management teams. Make sure to bring our Primer with you to the conference.
Webcast Replay: CLICK HEREConference Primer Download: CLICK HERE |
Brand to watch (GO)
Grocery Outlet was the only grocer in Placer.ai’s “10 Top Retail Brands To Watch in 2023.” According to Placer.ai, Grocery Outlet’s visits were up 10.1% YOY in Q3 while visitors were up 11.8%. In November, visits were up 10.7% YOY, decelerating slightly from 11% in October. In the first three weeks of December visits were up 8.2%, 13.3%, and 12.4%. Grocery Outlet’s 60% savings compared to conventional grocers is a traffic driver in a highly inflationary environment.
Flu Monitor (PRGO)
The CDC estimates that there have been at least 22 million illnesses from the flu this season through the week ended December 31, up two million from the previous week. The flu test positivity rate is now 15% compared to 3% a year ago. The flu had surged since Thanksgiving but is declining in most areas. The cumulative hospitalization rate was more than 3.5 times higher than the highest cumulative in-season hospitalization rate observed for this week since 2010-11. 12.8% of deaths that occurred during the week were attributed to pneumonia, influenza, or COVID-19, above the 6.8% threshold for an epidemic.
Perrigo’s Q4 is mostly set for the cough & cold season as orders are already in and production is maximized, especially for liquid medicines. Most retailers are short of cough & cold medicine. A larger or longer cough & cold season would be seen in Q1 results as retailers reorder more inventory.
From Long to Short (STZ)
We are moving Constellation Brands (STZ) as a Consumer Staples Best Idea Long to a Short Bias.
Constellation Brands stands apart (and not in a good way) from nearly every Consumer Staples company by raising prices in 2023 by less than in 2022 while cost increases are accelerating from 2022 to 2023. Beer price increases will decelerate to +1-2% while costs accelerate to +HSD%. Over the past decade management has been disciplined by keeping annual price increases between 1-2%. The steady price increases are an integral part of its "growth algorithm." In 2022, management made a concession to the elevated inflationary environment by stepping up the pace of price increases slightly to 2-3%. In comparison, the overall beer CPI in November was +6.6%, with AB InBev and Molson Coors recently adding another round of price increases. Constellation Brands implemented an additional price hike in October and the consumers' reaction was swift, putting an end to any thoughts of further increases. What is worse - a strategy of not wanting to raise prices or not being able to? Regardless of the answer the result is the same for Constellation Brands in 2023 - margin contraction.
Constellation Brands' beer business will not be saved by the other segments. The cannabis industry continues to be stymied on the federal legalization front, weighing on Canopy. The upper end of the wine industry has been relatively immune to the broader economic pressures. However, costs are rising for the industry just like other CPGs and price increases have been challenging to pass through.
Has the weaker outlook already been discounted? The share price has fallen 18% from its most recent high in early December. Management has guided to a slight margin contraction in 2023. Despite the undemanding valuation relative to its peers and history, the outlook is for negative earnings revisions. Will 2023 remain on plan? Stay tuned for additional details.
