Position Monitor Changes (CELH, BUD, LW)
We are reordering several companies on our position monitor, reflecting recent updates.
CELH – Celsius moves to the top of our Best Idea Longs. Sales growth is decelerating as it laps the distribution agreement with PepsiCo, but exceeds everything in beverages. Our estimates are above consensus expectations on better velocity and shelf space gains. Celsius has the largest opportunity in addressable markets in international and demographic groups. The company has just recently entered Canada. It also has the best competitive position among female consumers in the energy drink category.
LW – Lamb Weston moves a few slots lower on our Best Idea Longs, incorporating recent concerns about the ERP implementation, which would be short-term in nature. The negative traffic McDonald’s reported in the U.S. in Q4 has raised concerns about the consumer’s spending trends in food away from home in response to elevated menu price increases. Less affordability in food away from home is a top-line headwind.
BUD – Anheuser Busch InBev moves off our Best Idea Short list to the Short Bias list, encompassing the easy comparisons in the U.S. in Q2 and momentum in marketing ahead of the Spring shelf resets.
STZ – Constellation Brands will likely be the biggest winner of shelf space in the beer aisle based on velocity trends in 2023.
BRCC – Black Rifle Coffee is added to the Long list as a tail duration long. Despite the longer duration view, the new management team has quickly made changes that will be apparent in both the top line and margin trends in 2024. Bagged coffee is now the product focus, leading to better margins. New chain distribution gains will likely be announced in the coming quarters. Achieving profitability and gaining conviction in its path towards gaining share in the 400 billion cup U.S. market will drive share price outperformance.
Front-end decline (PRGO)
CVS reported SSS growth of 11% in Q4. 9% overall growth in its pharmacy reflects increased prescription volumes, brand inflation, and growth in vaccinations partially offset by new generic drugs, reimbursement pressure, and a decrease in store count. Pharmacy same store sales grew 15.5% while front-end same store sales decreased 3.1%, decelerating from -2.2% sequentially. CVS has closed 630 stores to date as part of its store closure initiative and is on track to close 900 (U.S. base of ~9,100) by the end of the year. Due to prescription files, CVS retains a high percentage of scripts, but front-end sales are mostly lost when a store is closed. As the largest OTC drug manufacturer, Perrigo will see the sales from closed stores shift, but it can be a headwind with fewer shelf placements.
January sales (COST)
Costco reported January SSS growth of 2.2% in the U.S. The reported SSS decelerated from 7.4% in December. However, the New Year’s calendar shift negatively impacted 3 to 3.5%. Adjusted for the calendar shift, SSS accelerated from 4.4% in December to ~5.5% in January. Non-food sales outpaced the growth in food sales for the first time in years, with the strongest categories being jewelry, tires, and HBA. Food and sundries were still call-outs as better performing categories, but the lower inflation rate has been a headwind to the reported comp. E-commerce accelerated to 20.9% from 17.4% in December. The inflection in the non-food category provides more visibility in SSS being at least +MSD%.
