January retail sales head fake (KR, ACI, SFM) – still bearish on grocers
January headline retail sales decreased 0.8% MOM and decelerated 470bps to 0.6% YOY. January was a difficult comparison against last year, which had strong growth lapping the Omicron variant, except for the grocery store channel. Grocery store sales increased 2.3% YOY in January, accelerating from 0.8% in December. The two-year average decelerated by 20bps to 3.9%. Grocery sales bounced in January, and they will likely decelerate again with disinflation and more promotions as headwinds.
We’re not talking about profitability right now (OTLY, STKL) Buy STKL
Oatly reported a narrower EBITDA loss of -$19M compared to consensus expectations of -$32M. Revenue and SG&A expenses were the source of the upside. In the Americas, revenue grew 2% YOY, improving from the 4% decline in Q3. Volumes grew 9.2%. Foodservice revenue grew 4.5% YOY, but excluding Starbucks, its largest customer, the channel grew 25.9%. That gap widened from 16% in Q3 to 21% in Q4. Management expects Starbucks to be less of a headwind to revenue growth going forward after more constructive conversations. In retail, Oatly reached 25% market share in December. Consolidating its copackers has reduced COGS per liter by 12% in 2023. Oatly reported a $2M loss in the Americas but also said it had its first positive month of EBITDA.
Management guided revenue growth to 5-10%, and the EBITDA loss bracketed consensus expectations. Management is no longer pointing towards achieving profitability in 2024. “Liquidity concerns are misplaced,” which means liquidity is a greater concern. Management said they could outsource more production and reduce CapEx spending if needed. That brings flashbacks to our original Black Book that reviewed the benefits of Oatly outsourcing production to SunOpta. SunOpta can continue to grow and take share from Oatly, but it would have been better collaboratively.
Upside continues in Q4 and 2024 (SN) positive outlook
SharkNinja reported Q4 EPS of $.94 vs. consensus of $.87. Upside was driven by 20% revenue growth and 970bps of gross margin expansion. Cleaning appliances decreased 3% due to weakness in North America. Cooking and beverage appliances grew 32.6%, driven by U.K. sales. Food preparation sales grew 14%, driven by the ice cream makers and compact blenders. The other category grew 166%, driven by haircare products. Gross margin expansion was driven by supply chain tailwinds, cost optimization, and category mix.
Management guided 2024 EPS to $3.45-3.61 vs. consensus of $3.30. Sales guidance is for growth of 7-9%. Gross margins are expected to expand by 80-100bps. The company plans to launch 20-25 new products annually. Product innovation is at the company's core, and the pipeline continues to look robust. As a large household ticket item rather than a consumable, spending trends are more macro-sensitive. Our macro team’s quad framework is leaning more favorably toward SharkNinja. Sales and margin tailwinds look to continue in 2024.
Southeast acquisition (GO) Buy Grocery Outlet
Grocery Outlet announced an agreement to acquire United Grocery Outlet, a discount grocery store with 40 stores in the Southeast. Not only do the companies have similar names, but they share opportunistic buying strategies. The acquisition is expected to be modestly accretive this year. Grocery Outlet acquired Amelia’s, a 16-store chain in Pennsylvania, in 2011. Grocery Outlet took a measured approach to integrating Amelia’s and did not pursue meaningful expansion on the East Coast for nearly a decade after the acquisition. With numerous openings on the East Coast, it should not take Grocery Outlet as long to expand in the Southeast. Grocery Outlet has one of the largest retail store opening potential.
Miss and chase more growth (WEST) On the bench
Westrock Coffee pre-announced Q4 results in conjunction with an update on its Conway RTD facility construction. Westrock Coffee is now adding production lines to increase its extract and concentration capabilities. The company also announced an agreement to establish a JV with Select Milk to build and operate an aseptic multi-serve bottle facility. The facility is expected to produce coffee-based RTDs by Q1 of 2026. To fund the expansion and the JV, the company issued a $72M convertible.
Management guided EBITDA to the low end of its previous $45-50M range for 2023. For 2024, the guidance is for EBITDA to be between $60-80M. The 2022 investor day presentation outlined EBITDA of $88M in 2023 and $123M in 2024. Hitting guidance should probably be a pre-requisite before announcing new expansion plans, or capital raises to fund new additional growth plans.
