Adding to the Long list (KVUE)
Kenvue’s IPO is priced at $22 with 172.8M shares. We held our pre-IPO Black Book earlier in the week. We are adding Kenvue to our position monitor as a Best Idea long. For a replay of our presentation and valuation framework CLICK HERE.
Restocking cough & cold (HLN)
Haleon reported Q1 revenue growth of 13.7% with organic growth of 9.9%. Price was up 7.1% and volume/mix was up 2.8%. The company said growth was across all categories except VMS which declined due to the strong comparison for Emergen-C in the U.S. and Omicron. Growth was strong across all geographies with EMEA, LatAm, and APAC growing double digits and MSD% growth in the U.S. Adjusted operating profit grew 9.5%, but only up 3.3% in constant currencies due to higher costs of being a stand-alone company somewhat offset by operating leverage. The adjusted operating margin contracted 90bps (-140bps in constant currencies) to 23.1%. Management said private label has lost share most recently and price elasticity has not changed.
- Oral Health organic revenue grew 6.6%.
- VMS organic revenue decreased by 3.7%.
- Pain relief organic revenue grew 11.0%.
- Respiratory Health organic revenue increased by 33.0%.
- Digestive Health & Other organic revenue increased by 7.3%.
Management expects organic revenue growth to be at the upper end of the previous 4-6% guidance range. The other elements of guidance are unchanged. Kenvue’s geographic mix is about evenly split between the U.S. and international. Consumer Health trends have several tailwinds currently, it is a good time for Kenvue to go public.
In-Line Q1 (LBLCF)
Loblaw reported Q1 EPS of C$1.55, in line with expectations, against difficult Omicron comparisons. Food retail SSS increased 3.1%, decelerating from +8.4% sequentially. Store traffic increased while basket size decreased. The timing of New Year’s was a 1.1% headwind. Discount stores outperformed market stores. Food purchased from store CPI increased 10.5% during the quarter, in line with the company’s internal food inflation. Drug retail SSS increased 7.4%, decelerating from 8.7% sequentially. Front SSS increased by 10.3% while Rx SSS increased by 4.7%. Drug retail sales were led by beauty and cough/cold products. E-commerce sales decreased by 1.1%.
Overall gross margins expanded by 40bps while retail gross margins expanded by 20bps. Gross margins benefited from a higher mix of front SSS in the drug stores which offset a slight decline in food retail which was negatively impacted by increasing costs. Management said they are seeing more inflationary cost pressure from the large multinational CPG companies than they would have expected at this time. EBITDA margins expanded by 10bps. Management continues to expect EPS growth in the low double-digit range.
Canadian grocers enjoy higher margins than their U.S. counterparts and have expanded more during the pandemic. The grocery industry in the U.S. is the most competitive part of retail. Food inflation has become a higher profile issue in the media and politics in Canada than in the U.S.
