10Q takeaways (WMT)
Walmart’s U.S. grocery sales increased 11.6% YOY in Q1. General merchandise sales decreased 5.9%. Health & wellness sales increased by 17.9%. In its Q1 earnings call management explained the strength in health & wellness, “The health and wellness growth is something that we didn’t really expect going into the year that has accelerated quite a bit over the last couple of months.” “Part of that is related to these GLP-1 drugs that are to treat diabetes. We’re certainly seeing an uptick in that. For us, that comes at a lower margin. So that has some impact on our business as well.” Sam’s Club grocery and consumable sales grew 9.7% while health & wellness sales grew 14.5%.
Gross margins contracted 41bps for the U.S. division due to a negative product mix shift partially offset by lower supply chain costs. In the International segment, gross margins expanded 12bps due to lapping higher markdowns partially offset by ongoing format and channel mix shifts. Sam’s Club's gross margins expanded 36bps due to lapping higher supply chain costs. In the prior year, gross margins contracted 38bps, 108bps, and 216bps in the U.S., International, and Sam’s Club segments respectively. The mix shift impact to gross margins won’t improve until general merchandise sales recover, but lower supply chain costs will be a tailwind in 2023. It is astonishing that a prescription medication that is generally covered by insurance (as long as it is prescribed for diabetes) has that large of an impact on sales.
Real spending declines (KR, BUD)
According to Morning Consult’s Economic Intelligence real spending on most consumer categories for U.S. adults declined YOY in April as seen in the following chart. Beverage alcohol was one of only four categories that saw an increase, albeit a modest 1% increase. Spending on groceries decreased 5% adjusted for inflation. Spending on personal care products decreased by 6% YOY. A 5% inflation adjusted decline for groceries reflects price driven sales growth and comparisons to elevated at-home meal consumption.
A Story to Tell (STKL)
The CEO of SunOpta purchased 15,000 shares last week. This week the company will be speaking at two investor conferences. The shares are oversold. The stock has been under pressure after guiding Q2 revenues to be flattish compared with Q4 and Q1. That has everything to do with the timing of new production being shipped from the new factory which was previously disclosed and not a negative revision. SunOpta is on our best idea long list. For a replay of our most recent black book CLICK HERE.
