Albertsons (ACI) IPO, third time is a charm
Albertsons set terms for its IPO in a filing last night. The company is seeking to sell 65.8M non-primary shares between $18 and $20. The timing almost couldn’t be any better for Albertsons’ return to the public market after 14 years of ownership by Cerebus, except that its best comp is trading at 11.3x consensus EPS estimates. At the upper end of the range, the $1.3B offering would value the company at $11.6B and a current enterprise value of $18.3B. Albertsons may end up pulling Kroger’s P/E multiple-up (ACI is cheaper on EV/EBITDA). Kroger is less leveraged at 1.8x compared to Albertsons 2.9x LY. We expect the offering to be well received this time despite the need for a virtual roadshow.
SSS increased 47% during the four weeks ended March 28 and 21% in the four weeks ended April 25. I would like to think that the pandemic gave investors more appreciation for consumer staples and essential businesses in general. A month ago, Apollo led a convertible investment for 17.5% of Albertsons, which provided a significant vote of confidence. The story of how Albertsons got to this point is too long to write here, but we will include it along with our outlook for the company in our grocery industry black book on Wednesday at 2 PM.
Kroger reports ID sales for the record books
Kroger reported $.10 of EPS upside driven by ID sales of +19% vs. consensus of 13.8% and mid-teens whispers. March ID sales increased by 30%, driven by stockpiling. April and May ID sales increased by 20%. So far, in FQ2, ID sales are trending up mid-teens%, and management expects sales to decelerate more now in the quarter. Gross margin expansion of 44bps was driven by sales leverage. The operating and G&A costs were 51bps higher, mostly due to higher labor expenses.
Management said, “…Kroger is not reaffirming or providing new 2020 guidance. While we expect to exceed the outlook shared in our April 1 business update….” That is undoubtedly disappointing in the context that consensus estimates at $2.69 were already above the previous guidance of $2.30-2.40. FQ2 management expects EPS to grow mid to high single digits. Management said a mid-teens% decline in gallons of gasoline sold is a $50-100M headwind in Q2. We are still modeling upside to consensus, and we are comfortable modeling that without guidance. The upside to that guidance might not be enough for shares to outperform, though. Kroger’s implied, relative lack of flow-through of profits from the elevated level of sales could hold back share performance.
We will go through Kroger more in detail in our Grocery Black Book presentation on Wednesday at 2 PM.
A slow return to dining out driven by a smaller segment (SYY)
Nielsen surveyed consumers from June 5-7 in four states California, New York, Texas, and Florida (where restaurants are opened to varying degrees) on their eating out behavior. Of the 1,600 respondents, 41% had been out to eat or drink in the two weeks leading up to the survey. 30% had been out for a meal, and 12% had been out for a drink. The pre-COVID norm is around 80%. Younger respondents had gone out to eat at nearly twice the rate of older respondents, as seen in the following chart. Texas and Florida a month ago had similar percentages as New York, and California do now. One month later, Texas and Florida have seen the percentage of respondents who have dined out increases by 18% to 40% and 14% to 35%, respectively. This would suggest that the sales increase we have seen in restaurants in re-opened states is driven by a smaller group that is visiting multiple times. Of the survey respondents, 71% said they had gone out between two and five times. Two-thirds of respondents have ordered food to go in the past two weeks. Of those, 14% included alcoholic drinks in their to-go orders.
With restaurant industry customer participation at about half pre-pandemic levels, there is a lot more recovery.
