“Business conditions are improving. They are improving week over week. The worst is behind us.” Sysco CEO Kevin Hourican - May 29.
U.K. grocery re-accelerate (NOMD)
Take-home food sales in the U.K. increased by 14.3% in the 12 weeks ended May 17. According to Kantar, the growth rate is the highest since records began in 1994. The three month period includes the stockpiling weeks as well as two months of stay at home restrictions. Sales for the latest four weeks grew 17.2%, accelerating from the 9.1% growth in the previous four week period. The trend toward fewer visits, but more spent per visit continued in the latest month. Consumers visited the supermarket 3.5 times per week on average and increased their spending by nearly 50% per trip. Online shopping now accounts for 11.5% of all grocery sales. Nearly 20% of British households have ordered groceries online in the past month. Online retailer Ocado saw sales increased by 32.5%. Independent grocers saw sales grow 63.1%, while Tesco grew 12.7%, Sainsbury grew 12.5%, Asda grew 6.5%, Lidl grew 16.5%, and Aldi grew 10.4%.
Nomad Foods, as the leading frozen food manufacturer in Western Europe, is well-positioned to benefit from the shift in meal consumption. The U.K. is Nomad Foods’ largest market at 31% of sales. Nomad Foods is the Best Idea Long, for our Black Book replay and materials: CLICK HERE
The shape of the recovery (BUD)
Florida’s phase 1 reopening plan began on May 4 when restaurants and retailers were allowed to operate at 25% capacity. As one of the earlier states to start to reopen, Florida’s trends may point to the shape of the recovery for the country. Bars and nightclubs were closed in the state on March 17. The closure rate of bars and lounges in the state was 70% when the state lifted the restrictions on indoor visits, according to Womply (a CRM provider). 10% of the bars and lounges reopened over the month before a recent spike of additional closings has taken the percentage closed to 64%. Many restaurants and bars have said the restrictions on the indoor capacity of 25% or 50% make it very difficult to operate a profitable business. On-premise alcohol consumption will have a lengthy recovery period if bars are slow even to open.
The average daily revenue for open bars and lounges was up 53% on May 27, but that removes the closed businesses, as seen in the following chart. Bars that have been able to open with outdoor areas have benefited while many others remain closed. The average daily revenue for all bars and lounges in the state has steadily improved as well but was still down 45% on May 27.
Sysco cites week over week improvement
Sysco presented at a virtual conference on Friday. Management said, “This most recent week was the biggest week over week increase that we have seen since the COVID crisis began.”
Hedgeye’s response - As the restaurants in several states reopen their dining rooms, albeit, at reduced capacity, sales should recover sequentially. The unknown is how much the consumer has shifted spending to food at home, how permanent is that shift, and how many restaurants will close.
Sysco took a $153M reserve last quarter for doubtful accounts. Management said their current collection rate of receivables continues to exceed their projections. Management also said, “We do anticipate some additional reserve impact in Q4.”
Hedgeye’s response – If collections are better, why would additional reserves need to be taken? Is it the duration of the recovery?
From the end of the quarter to the time of the conference call (May 5), Sysco’s sales had recovered 15% points, from -60% to -45%. Management said sales have now recovered 22% points from the low.
Hedgeye’s response - Two weeks later (two-thirds of the quarter) sales have recovered an additional 7% points to -38%. The consensus estimate for FQ4 is for a 39% sales decline while the consensus estimate for the following quarter is -25%.
Sysco is a Best Idea Short, for our Black Book replay and materials: CLICK HERE
