UK grocery accelerates (NOMD)
Grocery sales in the UK rose by 12.2% during the 12-week period ended January 24. Sales accelerated from the 11.4% growth in the 12-week period ended December 27 with the reintroduction of national lockdown restrictions. In January, consumers spent £1B more on grocery items than the prior year. 10% more households purchased vegan specific items, and sales increased 23%. Non-alcoholic beer sales increased 12%, but not as much as overall alcohol sales, which increased 29%. Online shopping reached a new high of 14% of sales, driven by the oldest demographic groups. Ocado was the fastest growing food retailer with a sales growth of 36.6%. Grocery inflation was 1.3% in January. The UK is Nomad Food's largest country by sales, representing 31% of overall sales.
Investing ahead of the recovery (SYY)
Sysco reported FQ2 EPS of $.17 vs. $.85 last year, missing consensus estimates of $.34 due to weaker margins. Management said they continued to invest in operations ahead of the recovery in restaurant sales later this year. U.S. Foodservice revenues decreased 23.9%, compared to -25.7% in the prior quarter. Local case volumes declined 19.7%, while total case volumes declined 23.7%. Food cost inflation of 1.6% was up 60bps sequentially. International Foodservice revenues decreased 33.8% in constant currencies, worsening from -27.1% in the prior quarter. The company reports having a 50% better customer closures rate than the industry’s 8%, as seen below.
Gross margins of 18.2% contracted 70bps and were 20bps lower than expected. The allowance for doubtful accounts increased slightly to 8.9% of accounts receivable, up 40bps sequentially. Sysco has eliminated minimum delivery sizes on regular order days to accommodate restaurants that have reduced volumes during their businesses' additional restrictions. January improved from December – most likely from the stimulus checks.
After the pandemic's initial months focusing on the balance sheet, management has been more on offense. Sysco has been making operational changes, servicing its customers, and gaining new accounts. Management remains confident that vaccine distribution will remove the restrictions most governments have placed on restaurants in the coming months. Sysco will host an investor day in May. The timing is expected to be ahead of the larger recovery, but sequential progress into the event is planned. We are removing Sysco from our short bias list.
Our updated position monitor is below:
On-premise opening, but sales decelerating (BUD)
BeerBoard, which tracks $1 billion in draft sales nationwide, reported the on-premise businesses' open rate was 90% between Jan. 28-31, up from 85% between Jan. 14-17. The open rate was the highest since November 6-8. The volume of draft beer sold was 44% below the prior year and 9.9% lower than the Jan. 14-17 period. Florida and Tennessee were the best performing states at -34%, while Illinois, Michigan, and Minnesota were all down about 2/3. Domestic beer comprised 52.4% of the volume poured, down slightly from 54.4% in the Jan. 14-17 period. Craft beer volume share expanded to 32.9% from 31.4%. Import volume share ticked up to 14.7% from 14.2%.
