Q3 cracks showing (KR)
Kroger reported FQ3 EPS of $.95, exceeding consensus expectations of $.91. ID sales ex. fuel decreased 0.6%, in line with recently lowered consensus expectations. Excluding the Express Scripts contract, ID sales increased 1%. Digital sales grew 11%. Inflation decelerated by 270bps sequentially. Management expects the pace of disinflation to continue to slow and inflation to be positive at year-end.
Gross margins increased 3bps on a FIFO basis, decelerating from +35bps sequentially. The company increased investments in price and advertising. OG&A expenses deleveraged by 30bps due to higher wages and the Express Scripts cancellation which was 40bps higher than expectations.
Other highlights:
- Management said that they have certified substantial compliance with the second request issued by the FTC.
- Management said the CPG companies are funding more promotions as their supply chains have improved and as tonnage has been disappointing.
- “We continued to see rapid growth in GLP-1 drugs in our retail pharmacies.”
- “…keeps us on track to close our proposed merger with Albertsons in early 2024.”
- “Most of the data that we’re seeing would tend to point towards more of a typical year next year for food-at-home with food-at-home inflation being in the low single-digits range.”
- “If you look over the last 50 years, there has only been two years out of the last 50 where it’s been negative, where there’s been actual deflation in a year.”
Management is guiding F2024 EPS to a range of 4.50-4.60, up from 4.45-4.60 previously. ID sales ex. fuel are expected to be up 0.6%-1%, down from 1-2% previously. Kroger’s customers are challenged by tighter household budgets, the company is losing share in grocery to lower-priced retailers, gross margins are under pressure from promotions, and expense growth is being driven by higher wages. Kroger is a Best Idea short.
MORE $ FOR PEAS (STKL)
Ripple Foods raised 49M in a fundraising round. The last round was a series E that raised 57.3M two years ago. The company has raised 268M to date since its founding in 2014. Ripple Foods uses yellow peas as its primary protein source for plant-based beverages. The company produces Ripptein, its proprietary pea protein, by extracting it from peas in a process that isolates the protein from elements of the pea associated with its flavor. Its plant-based milk has half the sugar and 50% more calcium than 2% milk and eight times the protein of almond milk. Pea milk sales decreased by 4.8%, and units decreased by 2.8% in the 12 weeks that ended July 16, lagging dairy milk sales, which decreased 2.5% in the same period. Expect plant-based milk volume growth to return with more modest levels of pricing.
On-premise drives spirits in October (DEO)
Sales of spirits in October increased 5.9% YOY and 3% in volume in the on-premise channel in control states. Price/mix was up by 2.9%. Overall, spirits volumes in control states increased by 0.5% YOY, with sales dollars up by 2.6% and price/mix up by 2.1%. Tequila and American whiskey have led spirits. The Tequila category is seeing a shift from super and ultra-premium brands to premium labels in control states, with price/mix up 1.1% in October compared to +2.7% in the trailing 12 months. Wine volumes decreased by 3.4% in October, with sales dollars declining by 2.2% in control states. The spirits category has modest price increases, helping volume growth.
