Hard Seltzer Black Book Invite (SAM)
We are hosting a Black Book presentation on hard seltzer and the Boston Beer Company today at 2PM ET. Hard seltzer has been a significantly faster disrupter in the beer industry than the last one, craft beer. Nearly every beer producer is either a winner or loser based on its hard seltzer strategy. One of the unique aspects of the explosive growth in hard seltzer has been that the largest two brands have not lost share despite the even faster growth in competitive launches. We do not think that the duopoly’s share can remain steady in 2021 as several aspects of the market will change.
CLICK HERE to access the associated slides (they will become available shortly prior to the start of the presentation, refresh this link for access).
Canopy Growth reported a smaller loss and cash burn (STZ)
Canopy Growth reported a Q1 EBITDA loss of C$92M, C$10M better than consensus estimates. Revenue grew 22% YoY, C$11M above consensus estimates. The topline growth was spurred by medical marijuana sales in Canada and Germany, strong Storz & Bickel vaporizer sales, and the revenue contribution by recent acquisitions. Canadian recreational sales declined 11% YoY. Adjusted gross margin contracted 1300 bps to 7%, due to lower production output, manufacturing variances, and inventory adjustments. SG&A expenses came under control with a decline of 23% YoY. EPS of -C$0.30 was C$.11 better than consensus. Capex declined to C$62M compared to C$212M last year. Cash flow from operations after capex was a use of C$180M compared to C$370M last year. CFO Mike Lee said, “Following our previously announced restructuring actions, we have substantially reduced our expense and cash burn in this quarter in addition to reducing headcount by over 18% since beginning of this calendar year.”
CGC’s new portfolio of Cannabis 2.0 products accounted for 13% of total Canada B2B sales in Q1 FY21. Four Ready-to-Drink ("RTD") cannabis beverages under Tweed, Houseplant and DeepSpace brands are available nation-wide in the Canadian recreational market – over 1.2 million beverage units have been shipped since late March 2020. Constellation Brands has several years before it needs to make another decision about its minority stake, in the meantime we would like to see the cash burn fall further and a cannabis beverage taste like a hard seltzer, with minimal calories and no hangover. Constellation Brands now holds 142.25M shares and 139.75M warrants and C$200M in principal amount of senior notes.
Grocery Outlet’s customer and buying environment are still favorable
Grocery Outlet reported Q2 EPS of $.42 vs. consensus expectations of $.23. Upside was driven by better sales and margins. Revenue grew 24.5% driven by a SSS increase 16.7% vs. consensus expectations of 13.8%. Traffic was down for Grocery Outlet like it has been for other grocers during the pandemic. Gross margins expanded 80bps due to reduced markdowns and shrink. SG&A grew 25.6%, less than gross profit growth of 27.7%, driven by variable commissions (directly tied to gross profits) and COVID-19 cost pressure. Adjusted EBITDA grew 34.7%. Inventory grew 13.1%. Management said SSS trends in Q3 to date are up 10%, but expects it to slow further as the quarter progresses. Management now expects to open 30-32 stores, up by 2, with the real estate market a buyer's market.
With unemployment still in the double digits and supplemental unemployment checks missing and possibly shrinking, the consumer environment is still favorable for Grocery Outlet. There is a larger portion of the population that is looking to spend less on food needs. Grocery Outlet is still finding the buying environment for food as more favorable. The company continues to develop new supply relationships with non-traditional suppliers including foodservice, hospitality, fitness centers, cruises and hotels. Management said increasing private label items is an opportunity they are not focusing on at the moment. Grocery Outlet primarily uses private label to fill in holes in the everyday item assortment as seen in the following illustration. Branded goods at reduced prices sell best and the fact that the company is not looking to increase the private label assortment speaks to the favorable buying environment and future sales prospects.
Our 2020 EPS estimate was significantly higher than consensus and we are raising it further for the Q2 beat. Our EPS power projection of $1.25 is beatable as well.
