Q2 Holding Pattern (ACI)
Albertsons reported FQ2 EPS of $.63, exceeding consensus expectations of $.56. ID sales growth of 2.9% was slightly below expectations of 3.2%. Digital sales grew 19%, decelerating slightly from +22% sequentially. The disinflationary trends in food have led to slowing food at home sales across the board in retail, as seen in the table below. The traditional supermarkets are seeing the lowest SSS growth rates.
Gross margins ex. LIFO contracted 37bps, narrowing sequentially from a 90bps contraction. Lapping COVID-19 vaccines and higher shrink offset the company’s productivity initiatives. SG&A leveraged 8bps. Management expects slowing food inflation, ongoing labor investment, broad inflationary cost increases, and significant declines in COVID-19 vaccination and test kit revenue. Partially offsetting the headwinds, management expects to see productivity benefits.
We continue to expect the eventual approval of the company’s merger with Kroger after a challenge by the FTC.
Grocery Retail Sales Slow (KR)
Retail sales increased 3.4% YOY non-seasonally adjusted in September (+3.8% seasonally adjusted). Grocery store sales increased 1.6% YOY in September, slowing sequentially from 2.0% in August. The two-year average only slowed 10bps to 4.7%.
Sales at food service and drinking places increased 9.2% YOY in September. The shift in spending to Food Away From Home increased 10bps sequentially to 51.8% of the total as seen in the following chart. Lamb Weston is one of the few Consumer Staples companies that is tied to food away from home spending rather than food at home.
Craft beer flat (TAP, BUD, SAM, TLRY)
Craft beer sales in NIQ-tracked off-premise channels are flat through the first three quarters of the year, improving from -0.3% in the first two quarters. In the last four weeks of Q3, sales increased 0.1% YOY, while over the last 13 weeks, sales increased 2%. YTD, craft’s share has fallen 0.2 share points to 11.6%, imports gained 1.6 share points, and FMBs gained 1.4 share points. The 23.5 share of imports is nearing the 24.8 share of domestic premium beer. Craft gained in the C-store channel with a growth of 7.5%, outpacing the overall beer category growth of 4.4%. In the grocery channel, craft beer sales decreased 1.6% YTD, losing 0.2 share points.
Across all retail channels, craft SKUs decreased 5.6% YTD. Hard seltzer has lost the most shelf placements, with a 17.4% decrease. The shelf space gainers include non-alcoholic +22.4%, FMBs +13.1%, and imports +5.4%. YTD, Molson Coors-owned Hop Valley sales decreased by 12.7%, Terrapin decreased by 20.9%, Blue Moon decreased by 8.3%, and Leinenkugel’s increased by 0.9%. Tilray-owned Shock Top decreased 22.4%. Boston Beer-owned Dogfish Head decreased by 10.8%, and Samuel Adams decreased by 4.6%. AB InBev-owned Kona grew 11.7%, Goose Island grew 9.9%, and Elysian decreased by 7%. Craft’s share of beer has peaked despite the pullback in hard seltzer sales.
