Traffic shift? (WMT)
Traffic to Target (covered by Brian McGough) has been negatively impacted by a boycott that started around May 18. Walmart has not seen its store traffic benefit from the Target boycott. The traffic data points to customers not using the two superstores for the same reason. Walmart is a grocer first, while Target happens to sell groceries. The Target shopper in non-food items does not appear to be shifting to Walmart.
Taking over (PRGO)
Perrigo announced yesterday that Patrick Lockwood-Taylor has been appointed as the new CEO effective June 30. The company announced on May 9, that Murray Kessler intended to retire with a target effective date of July 31. Patrick Lockwood-Taylor has been the President of Bayer’s U.S. business and Regional President of Consumer Health North America since 2018. Previously he was CEO of Oneida and spent more than 20 years with Procter & Gamble. Perrigo found its new leader sooner than expected. The new CEO has the appropriate experience in the industry. Murray Kessler steered the company during a challenging period. He is handing over the control just as our model predicts trends are turning.
FQ3 exceeds guidance (NAPA)
The Duckhorn Portfolio reported FQ3 EPS of $.16 vs. consensus expectations of $.12, but down from $.17 last year. Sales decreased 0.4% organically due to price/mix from the decline in the DTC channel, partially offset by volume growth of 3.5%. Wholesale grew by 10.2%, California direct to trade grew by 4.6%, and DTC decreased by 35.2%. The DTC channel was negatively impacted by the timing of Kosta Browne releases as communicated earlier. Adjusted gross margins expanded 330bps YOY. SG&A grew 4.4% due to compensation expense.
Management raised their outlook for EPS from $.63-.65 to $.64-.66. Revenue guidance was raised slightly from $398-404M to $400-404M, with 7.5-8.5% growth YOY driven by organic volumes. Adjusted gross margins are expected to expand by 200bps. The wine category has been the weakest of the beverage alcohol categories in the off-premise channel scanner reports, keeping expectations low. Even though the category has been unable to pass through higher prices, its volumes have been the weakest. The question for The Duckhorn Portfolio has been when the wine and luxury category trends would catch up with the performance of Decoy.
