JaguarConsumer Weekly Callouts – July 2 (CHD, CL, CLX, ELF, GIS, MNST)
According to court documents last week, Monster Beverage (MNST) plans to acquire most of the assets of Bang/VPX out of bankruptcy for $362M. The acquisition is subject to FTC approval, with an outside date for completion of August 3rd after which time Bang is likely to seek liquidation (conversion from chapter 11 to 7). Relatedly, the FTC has indicated it would issue a second request under HSR preventing the parties from closing a sale at least until they could substantially comply with the request.
Should Monster successfully acquire Bang/VPX, Stifel estimates acquiring Bang would be approximately 2% accretive to Monster’s 2024 EPS, including cost synergies at 10% of Bang sales including foregone interest income from the $362M cash purchase price. “Our estimates assume 2024 sales for Bang of $240M, 3% of Monster’s estimated 2024 sales, with a 20% EBIT margin. We estimate ~10% of Bang’s sales as cost synergies, split evenly between COGS and SG&A expenses, including $3.6mm in savings from the annualized salary of former CEO Jack Owoc.”
With regards to the impact on shelf space and market share, Bang’s current 1.9% market share of the U.S. energy drink category would be slightly additive to Monster’s current 34.5% share, making combined market share a likely contributor to the FTC issuance of a second request. That said, Bang’s shelf space and market share have meaningfully decreased over the last 12 months. Its share was around 3% in January 2023 while it was around 6% in June 2022, significantly limiting Monster’s ability to increase shelf space for the brand, per Stifel. They also think it unlikely Monster materially changes Bang’s price point or product positioning, with the closest competitor Monster’s wholly-owned Reign brand.
Credit card data from Bloomberg’s SpendTrend, which utilizes PoS data, showed that sales through mid-June sequentially improved vs. May across total retail and also for both cosmetic and drug stores. Canaccord Genuity points out that e.l.f. Beauty (ELF) weekly sales in the mass channels through 6/18 reaccelerated after slowing a bit in the prior period. Sales were up +59.3% in the 2-week period ending 6/18, up from +48.7% in the prior period. ELF sales are up +53.7% Y/Y growth for the first 11 weeks of the quarter and gaining momentum vs. the Street just a touch under +49.7%. With ELF beating Circana data (which excludes Ulta and their own e-comm site) in the last 2 quarters by about 13 points each quarter, Canaccord has greater confidence that ELF can continue to execute and can keep the growth going as they finally expand their shelf space in Ulta in the 2H of this year.
“We note ELF’s recent growth has been driven by about two-thirds unit growth and one-third coming from higher AURs. ELF has been able to raise their AURs by pricing new and innovative products at higher price points and new products continue to perform very well with the new Suntouchable skincare often out of stock and the new lip products also out of stock. ELF has historically been able to quickly get hot items back in stock and recent store checks are showing that products are getting restocked. Looking ahead, we believe that ELF can continue to as they expand their shelf space at Ulta and in the drug channel later this year. We also believe ELF continues to roll out new and innovative products and has a strong pipeline to help drive higher AURs for the foreseeable future.”
According to Shelter Animals Count, in Q1’23, total community intakes into animal shelters increased +3% while outflows (which accounts for adoptions, transfers, return to owner, etc.), only grew at +2%, implying a greater number of animals staying in shelters relative to leaving. The largest driver of shelter outflows has historically been animal adoptions and YTD dog adoption rates for Q1 were highest in 2022 (56%) but have since dropped over a point down to 54.8%, while cats have the same adoption rate as 2022 (72%). Additionally, approximately 3.3% more canines entered the shelter system than left in Q1.
RBC Capital points out that within their coverage, names with exposure to pet products include General (GIS), Colgate-Palmolive (CL), Church & Dwight (CHD), and Clorox (CLX). Over the last few years, they have all benefited from the surge in pet adoptions and attracting new households to their brands. Even now, within the broader realm of pet products, food and consumables have been the most resilient compared to more discretionary pet supplies. “However, we see slowing pet adoptions as a potential leading indicator for a slowdown in the category. In tracked channels, the pet category is still up low double digits in recent months but has slowed from +mid-teens growth in late 2022-early 23. Numerator Insights data also suggests a moderation in household penetration and buy rate in recent months, both are still positive Y/Y which can’t be said for all categories. General Mills also called out mobility as a headwind for subcategories like treats/wet food with consumers spending less time at home. With that being said, we still see a longer-term continuation of the “Humanization of Pets” with many millennial families delaying family formation with pets acting as their surrogate child. And while consumers are still willing to spend on their pets, the economic reality of the current environment could cause consumers to trade down.”
