Shift to digital business likely accelerated by the COVID crisis but management is working to quickly adjust cost structure to adjust to the shift away from studio. The transition could lead to some noisy quarters but underlying trends are strong.
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Duncan stressed that exclusive agreements are “conditionally exclusive” and that there are clauses in each contract that incentivize partners to continue growing the channel.
We conducted a proprietary survey of over 100 supermarket managers to get their thoughts on the industry. Below are our key takeaways:
BJ’s reported solid 1Q results with comps increasing +27% and exited the quarter north of 20% growth (trends continuing QTD). We think the results highlight the impact of BJ’s store locations that are predominantly in the northeast (which has seen outsized impact from COVID-19), warehouses with significant capacity for growth (e.g. ~26k members per store at BJ’s vs. Costco at ~60k) and a sales mix that is non-discretionary at 85% grocery.
Target reported solid topline results in 1Q (ended April) but margins were under pressure as the company faced headwinds from unfavorable channel and category mix shift. 1Q print was better than the company’s preannouncement (on 4/23) that called out QTD comps of +7.0% (vs. +10.8% for all of 1Q) and more than 500bps of operating margin compression (vs. 400bps for all of 1Q). We will look for additional color on 2Q to date trends and gross margins during the call that begins at 8AM EST.
We recently conducted checks across the meat supply chain from farm to store – below are our key takeaways: 1) Grocery sales remain elevated May to date up +10-20%, with the meat category outperforming the overall store in the last week; 2) Protein supply at the wholesale level has improved after bottoming at the end of April and 3) Processing plant output could be down 20-30% currently and we’d expect some lingering disruptions from new safety measures.
A large organic/natural food retailer (NGVC) reported elevated sales in April with trends continuing into May (comps up +17%), which we think is likely a positive readthrough to our broader food retail coverage (especially for pure play grocers). Importantly comp trends in states that have started to reopen haven’t seen a significant deceleration. Guidance does imply significantly less flow through of sales growth over the next two quarters as there is some unfavorable mix shift from online orders and incremental labors costs.
Ahold 1Q results saw US adj comps (ex-FX/Fuel) up +14. 6% with a +34.2% increase in March and sales remain elevated in April (although lower than March). The company also reported margin improvement in the first quarter with US operating margins up +180bps YoY, but management is still expecting margins to be flat for the full year. Online will also be a bigger focus in 2020 and Ahold is pulling forward its roll out of click & collect locations to meet demand.
With recent meat processing plant closures, there is not enough capacity to process live animals. This has dramatically lowered livestock pricing/farmers profits since there is excess supply of live cattle. However, the limited processing capacity is also reducing product availability in the grocery & restaurant channels, which has caused protein prices to spike for consumers. Below are our key takeaways from our recent discussions with various industry contacts:
After speaking with over 100 pharmacy managers during the last week of March we came away with the following takeaways: 1) Independent pharmacy reimbursement rates expected to decline again in 2020; 2) Online pharmacies and chain stores are slated to be market share gainers this year (e.g. Pill Pack, Capsule) – grocery store pharmacy market share growth expected to lag peers; 3) Independent pharmacy managers feedback on Pharmacy Benefit Managers (PBM) consolidation has been almost universally negative.
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