Grocery demand accelerates into Thanksgiving (KR)
The week ended Nov. 22, the total CPG demand accelerated slightly to +16% YOY from +14% the previous week. The edible category accelerated to +16% headed into Thanksgiving. The frozen category +22% led edibles. Frozen beverages +34% was the strongest subcategory during the week. Beverage alcohol sales decelerated to +13%, the lowest growth rate during the pandemic, excluding the Labor day shift.
Albertsons is off the Best Idea Long List (ACI)
We are removing Albertsons (ACI) from the Best Idea Long list. It is not due to lower EPS or SSS estimates; in fact, we are taking both up in Q4. Q4 will mark the cycle high for most grocers. Investors are looking out to a consumer environment with vaccines and the end of government restrictions. Tuesday’s positive stock market reaction to US Foods’ (USFD) announcement that weaker restaurant sales in November will lead to a significant profit miss reinforces our view that investors are looking beyond the current environment. That should also mean investors will look beyond near-term upside from companies getting a pandemic boost, as seen in ZoomInfo’s (ZI covered by Ami Joseph) stock price performance this week. Investor sentiment continues to be "prove it" on Albertsons, and so far, it has. Albertsons has performed well during the pandemic; it is one of three large grocers to have positive traffic trends. Management has been aggressive with its cash flow this year (probably the most frequent concern we have heard from investors pre-IPO) in acquisitions, dividends, share purchase, and pension buyouts.
Our macro team is projecting Quad 2-reflation in the first half of 2021. Consumer staples are one of the worst-performing equity sectors in Quad 2, as accelerating inflation is a headwind. Grocers were also among the largest beneficiaries in the consumer sector from the COVID-19 restrictions and shift to at home eating. Shares remain cheap at 9x F2022 “post-pandemic” EPS estimates. The first lockup period expires close to the end of the year (6 months after the IPO), but we do not expect the holders to sell their permitted 25% limit at current prices.
Kroger (KR) is on our Best Idea Shortlist; our position monitor is below:
Texas on-premise alcohol beverage sales (BUD)
Texas reports its alcoholic beverages sales tax receipts monthly. In November, alcoholic beverage spending declined 19% YOY, improving from -25% in October and -34% in September, as seen in the chart below. On-premise trends were improving before some states passed restrictions on bars and restaurants recently. In Texas, bars were shut down in mid-March then allowed to re-open on May 22 with capacity limits. In late June, bars were shut down again then allowed to re-open once again in October by county. Bars were also allowed to reclassify as restaurants since June as long as food sales exceeded alcohol sales.
