Our Walmart CPG price tracker through last week shows a continuation of price cuts, especially in Food. Our Food basket is flat sequentially and down 1.1% y/y, while our HPC basket is down 0.3% sequentially and up 0.9% y/y. For U.S. based food companies, we continue to see risk around the pricing environment if Walmart reinstates a new round of price cuts.
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SPTN reported 2Q19 earnings on Wednesday 8/14 after the market close (preliminary headline results were released on 8/12). On 8/12, SPTN also announced a leadership transition, naming its former CEO (and current Chairman of the Board) Dennis Eidson as interim CEO (replacing Dave Staples). SPTN’s revenue and profitability growth remains subdued, while the pricing environment, in our opinion, is likely to get tougher before it gets better (see our Midweek Musings – Here We Go Again…). Supply chain costs continue to come in higher than anticipated and the Military business profitability continues to diminish. If the new leadership team at SPTN is able to address and overcome some of these challenges in the next few months, the company could see an improvement in its margin profile. That said, balancing the company-specific issues and a tough industry climate with a valuation that appears to be reasonable, we remain Peer Perform rated on the equity.
Topics this week…
Consumables Corner – 1) Walmart appears to be implementing prices cuts, 2) CPI and PPI data continues to spell bad news for grocery retailers, and 3) SPTN earnings preview
Walmart’s World – WMT earnings preview
Quotes of the Week – Grocery Outlet (GO, Not Covered) Vice Chairman, MacGregor Read, on store expansion
This morning (8/12/19), SpartanNash announced the appointment of Dennis Eidson to the roles of interim President and CEO following Dave Staples’ resignation, effective immediately. Dave Staples has been CEO of SPTN since 2017, however, Dennis Eidson was previously CEO from 2008-2017. The company also announced its decision to exit its Fresh Kitchen operations, which were acquired through Caito Foods in 2017. Further, SPTN released preliminary 2Q19 results for net sales ($2.00bn vs our $2.04bn and Consensus of $2.01bn) and adj. EPS ($0.34 vs our $0.40 and Consensus of $0.37) and lowered its FY19 guidance for EBITDA and adj. EPS.
Topics this week…
Consumables Corner – Southern California pricing data shows heavy deflation in the fresh category
A to Z – Amazon is having more of an impact on the consumables industry than most realize, in our opinion
Quotes of the Week – Ahold Delhaize (AD-NL, Outperform, €25 PT) CEO, Frans Muller, on strike recovery actions
Tariffs continue to be a tax on U.S. consumers and no sector, company, or consumer is likely to be untouched. Indeed, with List 4 of tariffs being brought into play this past week and the market’s sharply negative reaction, we wanted to take a look at the potential impact it would have directly on consumers and companies’ sales. Tariffs are effectively a tax on U.S. consumers/companies and could result in lower spending although some sectors will be more impacted than others according to our research. Based on our prior research around consumers’ marginal propensity to spend (here) coupled with a sensitivity analysis around average tariff rates and the amount of which are borne by the consumer, it appears housing, transportation, food away from home and entertainment (electronics) could face the most significant pressure.
Topics this week…
Consumables Corner – 1) Another market and more examples of why the Golden Age of private label is upon us 2) Smucker’s 1850 still has little traction and 3) SFM, THS, and NGVC earnings previews
Target’s Tidings – Solid remodels, but execution in consumables remains an issue
Quotes of the Week – Proctor and Gamble (PG, Not Covered) CEO, David Taylor, on the competitive environment and product innovation
Our Total Walmart basket rose this week as our Pet and Food sub-baskets moved higher. Indeed, our Food basket moved up approximately 0.1% from the prior week largely driven by price increases on Hidden Valley Ranch Dressing (CLX), Betty Crocker Fudge Mix (GIS), and Mini Wheats (K). Turning to the Pet category, our basket was up approximately 1.3% from last week as the promotional activity we saw on Smucker’s Milk-Bones has since reversed back to normal levels. Our HPC basket remained flat to last week as the category has continued to hold relatively stable since the beginning of May. On a y/y basis, Walmart’s National Basket remains up (+0.9%), Food remains deflationary (-0.5%), and HPC and Pet baskets are inflationary (+1.8% and +4.7%, respectively).
Topics this week…
A to Z – 1) The anti-competitive drumbeat is clearly increasing for Amazon, raising the risk to investors regardless of the merit, 2) Prime Day (two days) one week later, 3) AMZN earnings preview, and 4) upcoming webcast on cloud adoption hosted by Steve Milunovich
Hardlines Happenings – We expect 5G deployment to provide a multi-year benefit to BBY and AMZN sales, however, it is too early to reflect this in our models
Quotes of the Week – 1) Kimberly-Clark (KMB, Not Covered) CEO, Michael Hsu, on the operating environment and health of the consumer, as well as on private label and pricing, and 2) Teradyne Inc (equipment supplier for test and industrial applications) CEO, Mark Jagiela
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