Our total Walmart basket is up very slightly from the prior week, with the largest changes being potato chip price increases (+12.6% sequentially, -1.3% y/y) mostly offset by pretzel price decreases (-7.8% sequentially, -5.2% y/y). Our total Walmart basket remains up y/y (+1.0%) driven primarily by HPC (+1.8% y/y) and Pet (+4.4% y/y). Of note, CPB continues to face difficulty on the pricing front, and although the move in pretzels is seasonal, the price decrease for the spring/summer seasons this year happened later and is around 7% below last year’s spring/summer decrease. Coupling this with our view on the difficulties facing the company in its core soup category and we remain Underweight rated on CPB ($32 PT), which is set to report its 3Q19 earnings on 6/5.
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Topics this weekend…
Walmart’s World – WMT’s 1Q20 was strong, but we think is supportive of our underlying Underperform thesis longer-term
Amazon A to Z – Pedal to the Metal
Hardlines Happenings – Tariff impact analysis on HD, LOW, and BBY
Target’s Tidings – TGT earnings preview
Quote of the Week – Ford CFO Time Stone’s comments on AMZN/Whole Foods
Topics this week…
Walmart’s World – 1) Is Walmart underinvesting in labor?, and 2) 1Q20 Earnings Preview
Consumables Corner – Birth rate data hits lowest level since 1986
Amazon A to Z – 1) Amazon has best-in-class shipping, and 2) Amazon is unrivaled in fulfillment
Quotes of the Week – Amazon is supporting employees starting their own package delivery businesses
Our total Walmart basket is up slightly from the prior week primarily driven by HPC as a result of a $0.72 (6%) price increase on Clorox disinfecting wipes. However, we would note the sequential moves among food companies are showing mostly down or flat pricing movement (see the one week sequential chart on page 1). Further, the 4 week rolling average has become slightly negative for almost every company we track with Mondelez and Nestle declining the most (see four week sequential chart on page 2). In our opinion, this is something to be watched if the weakness we have seen in our survey over the last couple weeks gets worse.
On 5/9, after the market closed, SpartanNash (SPTN, Peer Perform), issued preliminary sales, adj. EBITDA, and adj. EPS for 1Q19 and revised its FY19 outlook. For 1Q19, the company expects adj. EPS of $0.23 to $0.24 (prior guidance of $0.33 to $0.37; Wolfe $0.37) and adj. EBITDA of $54mm to $55mm (Wolfe $61mm). For FY19, the company now expects net sales growth of mid-single digits (unchanged), adj. EBITDA of $190mm to $205mm (prior guidance of $210mm to $220mm; Wolfe $221mm), and adj. EPS of $1.20 to $1.50 (prior guidance of $1.70 to $1.80; Wolfe $1.76). The equity was down 6% after hours. SPTN will report full first year results on Monday 5/20 before the market opens with the earnings call at 8:00am ET.
Ahold’s 1Q19 EPS was in line with our estimates and slightly below Consensus, with lower-than-anticipated sales offset by higher underlying EBIT margins, driven by margin expansion in the U.S ahead of expectations. The Ahold team is moving the U.S. omnichannel ball forward, to transition from a mostly next-day service (Peapod) to same-day delivery and pick-up. With investments catching up to cost savings and the $90mm to $110mm strike impact, we expect a margin drag on its overall U.S. operations for FY19. Outside the U.S., labor cost inflation in CSE, weak comps and a slight decrease in its Belgium market share, and higher transportation costs in the Netherlands led to a 3.1% y/y decline in non-U.S. EBIT dollars. That said, Ahold is a strong international operator, and we expect better comp sales and tighter cost control to help international profitability for the balance of FY19.
Topics this week…
Walmart’s World – Walmart is taking its eyes off the ball
Consumables Corner – 1) Earnings preview for HAIN, and 2) Beyond Meat’s successful IPO highlights changing consumer trends
Amazon A to Z – Another promotional tool from Amazon for CPG companies
Quotes of the Week – U.S. Foods CFO discussing outlook for grocery inflation
AD-NL reported its 1Q19 results at 12:45am this morning (05/08/19), generating EBIT of €695mm, in-line with our €694mm estimate and underlying EPS of €0.39 (Wolfe €0.39, Consensus €0.40). Sales of €15.9bn were 1.7% below our €16.2bn estimate, with U.S sales growing at 1.1% ex-currency, below our 2.7% ex-currency estimate. Netherlands sales were up 3.5% y/y (Wolfe 3.7% y/y), Belgium down -2.2% (Wolfe +3.4%), and CSE up 2.4% ex-currency (Wolfe +6.3%). Underlying EBIT margins expanded by 30bps in the U.S. (Wolfe 5bps degradation), were down -20bps in the Netherlands (Wolfe +5 bps), up +5 bps in Belgium (Wolfe +10 bps), and were down approximately 50 bps in CSE (Wolfe down -10 bps).
Topics this weekend…
Consumables Corner – 1) Hy-Vee reduces its minimum order requirement for free delivery or pick-up, 2) Ahold Delhaize earnings preview (AD-NL, Outperform, €25 PT), and 3) Chewy gets promotional ahead of its IPO
Amazon A to Z – First the home, then the garage, now your Ford!
Quotes of the Week – Charlie Munger’s thoughts on the only Amazon-proof company
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