TX on-premise alcohol tax receipts (STZ)
Texas reports its alcoholic beverages sales tax receipts on a monthly basis. In May, alcoholic beverage receipts increased by 1.7% YOY, decelerating for the third straight month. April receipts increased by 7.5%. May receipts also decreased by 4.2% sequentially. Using the beer away from home CPI of 5%, May was the first month of transaction decline in on-premise locations since the first year of the pandemic. Texas is the second largest state for Constellation Brands.
Another disappointment (UNFI)
United Natural Foods reported FQ3 EPS of $.54, missing consensus expectations of $.65. Revenues were in line with expectations, but margins were lower due to a “challenging operating and macroeconomic backdrop.” The company experienced lower procurement gains and higher shrink somewhat offset by incentive compensation reversing.
Inflation decelerated from 10% in FQ2 to 8.2% in FQ3. Management said that “consumers are adopting smaller basket sizes and more value-oriented items.” Mass merchants gained share which hurt wholesale volumes. Reduced government benefits hurt retail sales. Commodity inflation slowed surprising management and negatively impacting margins. Volume declines steepened due to higher price elasticity.
Management lowered the EPS outlook for the year to $1.80-2.30, down from $3.05-3.90 previously. Revenue guidance was maintained. FQ3 was another disappointment as management’s lack of macro awareness cost the company dearly. Food inflation had been a benefit for the company leading it to over-earn as its inventory was marked up while in distribution centers.
California’s senate passed SB 553, a bill that prohibits employers from forcing non-security employees to confront shoplifters. The bill will now move through the State Assembly’s policy committees. SB 553 will add more costs for retailers and increase shrink.
Foreclosure? (APPH)
AppHarvest may have to close one of its largest indoor grow facilities. The company is in default on $66M still owed on a $91M loan that has its 60-acre Richmond, Kentucky facility as collateral. The creditor is demanding immediate repayment. There are provisions in the loan agreement that could lead to foreclosure proceedings against its main Morehead facility as well. The company said it is in full compliance with the loan terms and is working to resolve the issue which it believes is due to a misunderstanding.
The USDA’s annual report on Mexican tomatoes forecasts exports to grow 5% in 2023. The report cited the increasing adoption of greenhouse technologies and robust U.S. demand for growth. Tomatoes from Mexico account for 91% of the tomatoes imported into the U.S. 67% of tomato production is grown under controlled conditions in Mexico, whether it is greenhouses, shade houses, or high-tunnel systems. That enables Mexico to supply the U.S. market year-round.
It was our contention it was always just a matter of time. It was surprising how easily indoor grow companies were able to find cheap sources of funding which led to supply vastly exceeding demand. The facilities are not worth the capital invested in them to grow tomatoes or anything else. It’s not obvious what the lender would want with the properties.
