Simply overbought (SMPL)
Simply Good Foods reported Q1 EPS of $.29 vs. consensus of $.21. Net sales grew 51.9% due to the Quest acquisition. Legacy Atkins sales increased 0.2%, including the 1.7% headwind from the sale of SimplyProtein. Atkins and Quest's performance exceeded internal expectations due to better e-commerce sales, and the timing of shipments for retail seasonal inventory builds. Atkins's Q1 retail takeaway decreased 5.7% but improved throughout the quarter with September down 8%, October down 5.3%, and November down 3.4%. Quest Q1 retail takeaway grew 15.2%. Gross margins contracted 20bps due to mix but have been relatively stable.
Management anticipates 1H revenue of $455-465M and adjusted EBITDA of $85-95M, up $30M and $8M respectively from prior guidance. The guidance revision returns estimates to where they were a quarter ago when management issued lower than expected guidance. The company has now anniversaries the Quest acquisition, so reported growth rates would meaningfully decelerate. Investors appear to be anticipating a quick return to eating on the go and dieting when the vaccines are more distributed. There is a lack of visibility that the Atkins brand will capture weight loss interest post-vaccine that is incongruent with the recent share price appreciation.
The 20x EV/EBITDA valuation on current year estimates is pricing in a significant acquisition target that the company can extract meaningful synergies to compensate for a premium price. The current share price gives the company a currency to use. Simply Good Foods remains on our short bias list as we see the $5+ move in the shares from the S&P 600 index addition reversing in the intermediate future.
England’s level 5 restrictions (TAP)
England's new level 5 restrictions include alcohol sales from pubs and restaurants only for home delivery, not curbside or takeaway. For non-pub brewers, on-premise sales represent ~30% of sales, as seen in Anheuser Busch InBev’s off-premise mix depicted in the chart below. Alcohol consumption in the country will likely continue to be down YOY due to the large mix consumed on-premise. The annual market report from the Wine and Spirit Trade Association shows that beer sales fell 10%, and wine sales fell 5% last year. Northern Ireland and Wales are weeks into lockdowns, and most of Scotland is under stay-at-home orders.
Alcohol sales in supermarkets were up a third in the three months ended November, according to Kantar. The additional restrictions have led to an acceleration in off-premise beverage alcohol sales, as seen in the following chart. Molson Coors has the second largest market share in the U.K. at ~20%, while Anheuser Busch InBev is the largest.
Texas on-premise alcohol beverage sales decelerate (BUD)
Texas reports its alcoholic beverages sales tax receipts monthly. In December, alcoholic beverage spending declined 29% YOY. This is a deceleration from -19% in November and -25% in October, 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.
