Sprouts SSS accelerate further in May
Sprouts Farmers Market presented at a virtual conference this week. Management said SSS in May is trending +13.1% compared to the 10-11% trend in April when adjusted for the Easter shift. Many of the drivers are similar, but management has seen the trend in health-related categories improve. Categories like fresh produce, antibiotic-free chicken, and diet (Keto) related categories have accelerated. E-commerce sales have increased dramatically from 4% of the sales mix before COVID-19 to 12% in May. Management said the new, smaller store format with 25% less square footage and build-out costs have sales in line with the larger format stores. The acceleration in SSS from consumers spending more on food at home is driving our EPS estimates above consensus. With an improved store format, real estate availability improving dramatically, and management targeting at least 10% store growth, the multiple should also expand.
Beer category sales decelerate slightly in the latest week
During the week ended May 16, the overall beer category grew 25.5%, decelerating slightly from the 29.3% growth in the previous week. (It’s worth noting the previous week was a record week.) Hard seltzer continued to grow at a blistering pace of 311%. Premium light beer (Bud Light, Coors Light, etc.) grew 12.6%, below premium grew 6.5%, super-premium grew 24.2%, total craft beer grew 19.7%, FMBs excluding hard seltzer grew 27.7%, and non-alcoholic beer grew 37.5%. STZ’s Corona and Modelo brands grew by 26.8%. Boston Beer company grew 89%. Twelve pack packages grew 46.6%. 12 pack can packages, in particular, grew in dollars more than the total combined gains of the next five largest package formats. Spirits sales increased by 38.8%, while wine sales grew 30.8%. As Constellation Brands explained earlier in the week, the scanner data captures the sales data of what are the strongest retail channels currently and omits independents and state-controlled package goods stores that are more often closed or performing weaker than the large chains. So the scanner data isn’t as accurate as a representation of the off-premise channel as it was in pre-COVID 19 times and, of course, does not include the on-premise channel.
STZ modifies sale to Gallo again
Last night Constellation Brands announced that the terms of the sale to E&J Gallo were modified again to address FTC concerns. The FTC was concerned about the available production for sparkling wine because an earlier revision kept two sparkling wine brands with Constellation Brands. The sale price will now be $1.03B, down ~$70M to reflect the exclusion of the Mission Bell facility. Constellation Brands has said it expects the sale to be completed in FQ2. The relatively minor revision could signal the end of the FTC review is nearing the finish line. Both companies have said they are fully committed to completing the transaction. Constellation Brands will use the proceeds ($250M of the sale price is an earnout) to pay down debt. For more details on what is included in the sale, please refer to our summary below.
