The Honest Company had a strong first-day performance in its public market debut yesterday. Earlier this week, we hosted a pre-IPO Black Book. CLICK HERE for the replay.
Loblaw’s Q1 lags U.S. grocers (L CN)
Loblaw reported Q1 adjusted EPS of C$1.13 vs. the consensus estimate of C$.87, up to C$.16 from the prior year driven by releasing C$20M of the credit loss provision this quarter compared to a C$50M increase in the prior year.
Retail sales grew 0.7%, with Loblaw SSS up 0.1% and Shoppers Drug Mart SSS down 1.7%, with pharmacy SSS up 3.5% and front end SSS down 6.4%. Digital sales grew 133%. Canada’s restrictions on openings and activities were much greater than the U.S. in Q1. The average food retail price was up 3.9% - flat sequentially, but management said that was driven by mix and package size, not inflation. Retail gross margins expanded 50bps.
Management said in the four weeks since the end of Q1; food SSS has declined slightly while drug SSS has trended positively. Management said the financial performance in Q1 has continued into the first four weeks of Q2, positioning Loblaw to exceed its full-year EPS growth outlook of 10% growth excluding the 53rd week last year. In Canada, 29% of the population has received at least one vaccine dose compared to 32% of the U.S. population being fully vaccinated. Loblaw is on our short list; the headwinds to its business will lag the U.S. by a quarter.
Reynolds sees inflationary pressures ahead (REYN)
Reynolds Consumer Products reported Q1 EPS of $.36, in line with expectations, up 20% YOY. Revenues grew 4%, driven by price increases and lower promotional levels. The February storms were a 2% headwind to the topline. Adj. EBITDA grew 4%. Cooking & Baking revenues grew double digits while adj. EBITDA grew 33%. Hefty Waste & Storage revenues grew 1%, with the February storms offsetting the price increases by 3%. Hefty Tableware revenues decreased 4%, and EBITDA decreased 3%. Presto Products revenue decreased slightly, driven by a 6% negative impact from the February storms. EBITDA for Presto Products decreased by 22%.
The CEO said this is one of the toughest commodity cycles he has ever seen. The company implemented one price increase in Q1, and another increase is underway. A third price increase is planned in Q3. Due to the timing of the price increases, cost pressures from commodity and logistics rates will pressure Q2. Management guided Q2 EPS to $.36-.39, below the consensus of $.54. Revenue growth is expected to be +HSD%, above the consensus of -2%. The year is expected to be $1.83-1.94 vs. $1.96-2.03 previously and a consensus of $2.01. Management pointed to four drivers that will lead to accelerating growth this year – consumer consumption, price increases, innovation, and increased supply chain capabilities. Commodity cost pressure will lead to a lag in recapturing the costs, accelerating revenue, and gross margin percentage pressure from margin dollar price increases. Reynolds is on our long list.
Nestle launches Wunda (Oatly)
Nestle is launching Wunda, a plant-based milk brand, to compete with Danone’s Alpro brand and Oatly. Wunda is a pea-based milk alternative? It will be launched in France, the Netherlands, and Portugal in the coming weeks. A broader European rollout will follow. Although Nestle is entering the category late, its size, brands, and channel power give it advantages. Nestle’s Head of Dairy for Europe, the Middle East, and North Africa said, “We wouldn’t go [into this market] if we didn’t believe that we were in a position to win.” Nestle’s sales of plant-based alternatives grew double digits to $109M last year.
The alternative milk market in Europe is $2.8B, larger than the $2.4B U.S. market. In the U.S., pea milk has an LSD% share of alternative milk, but peas are more common in the diet of Western Europeans. Wunda uses the yellow pea for its protein and takes several steps in the manufacturing process to create dairy milk-like taste.
