JaguarConsumer Weekly Callouts – July 16 (DPZ, PZZA, ELF, TXRH)
In case you missed it, on July 12th, Domino’s Pizza (DPZ) entered into a new global agreement with Uber (UBER). The partnership will allow customers in the U.S. using the Uber Eats and Postmates platforms to order delivery from their local Domino’s. The U.S. rollout will begin in the Fall in four pilot markets, with the expectation that the service will be enabled across the country by the end of 2023. By the end of the week, DPZ shares would close higher by over 12%.
Stifel notes that although customers in the U.S. using Uber Eats will be able to order from Domino’s, the order will be delivered by a uniformed Domino’s driver. Domino’s must feel good about its driver staffing levels, or it expects the initial contribution from the Uber platform will be modest. Stifel suspects it’s the former. The company will also receive data from Uber to help understand delivery efficiency and incrementality. The release also mentions that Domino’s will be the place for customers to access the best deals and its loyalty program, so it will be interesting to know whether there will be a Mix n’ Match pricing scheme on the Uber ordering platform. Domino’s international markets currently not partnering with Uber Eats will begin the assessment process for transitioning this year. And the international franchisees currently partnering with Uber outside of the new global contract will be able to transition to the new global agreement before the end of 2023. Will this news impact Papa John’s (PZZA)? Papa John’s started partnering with third-party aggregators in 2019 (Uber followed DoorDash and Postmates) because they believed the sales would be incremental and to help address driver shortage issues. Papa John’s has cited the symbiotic relationship as a meaningful contributor to sales growth, so competing with Domino’s on the Uber platform could impact their sales growth.
Canaccord Genuity, in their Health, Wellness, and Lifstyle note, highlights that the sales update for the two weeks ending 7/2 showed strong demand for beauty products across every category. Preliminary credit card data for the month of June also showed that sales at cosmetic stores significantly improved in the 2H of June vs. 1H.
“Mass beauty and personal care categories saw mostly positive results for the 2- weeks ending 7/2. Mass beauty, which already saw YOY growth in the 1H of June, further accelerated with cosmetics up +7.1% during the 2-weeks ending 7/2, fragrance up +4.2%, hair care up +7.3%, and skin care up +5.2%.”
As it relates to e.l.f. Beauty (ELF), their weekly sales in the mass channels through 7/2 continued to accelerate vs. the prior period with sales up +72.9% during the 2-week period compared to +59.3% in the prior period. ELF has beat Circana data in the last 2 quarters by ~13 points each quarter, and Canaccord believes ELF is set up for a similar situation this quarter. Note that Circana data excludes Ulta and its own e-comm channel, although ELF reported that Ulta sales last quarter were better than Circana sales. Breaking down the growth, about two-thirds of sales growth in the past 13-week period were due to an increase in units and the remaining came from higher AURs, likely driven by new product innovation with higher price points. Store checks continue to show many products selling out often, including the Suntouchable line, which has started seeing product expansion; Halo Glow products, which also are seeing product expansion; and new lip products.
On Friday in Conversations, we discussed positive restaurant spending trends that came out from BofA. Similarly, RBC Capital was out with a note that focused specifically on the casual dining industry, in which they say that estimated same-restaurant sales accelerated to above +5% in June, likely above investor expectations, and consequently driving casual dining group valuations higher.
On a multi-year basis, top-line trends versus 2019 appeared to remain roughly stable May to June (from ~+11% to ~+10%), demonstrating resilience as investors continue to watch for signs of easing demand amid broader macro concerns. In addition, they have yet to see meaningful signs of demand slowing. And with this resiliency in trends, RBC is also seeing valuations continue to move higher, with their casual dining coverage now trading at 16.5x forward (FY2) earnings, above the trailing one-year average of 15.3x, though still below the trailing three-year average of just under 17x.
One stock that they called out was Texas Roadhouse (TXRH), where they are now modeling Q2 EPS of $1.17 versus their prior estimate of $1.15. “We estimate company-owned same-restaurant sales growth of +8.0%, aided by the strong start to the quarter (+8.6% during the first 5 weeks of the 2Q), as well as the improving overall industry comp trends in June. Looking at the full year, we are now modeling EPS of $4.45 (+12% Y/Y), versus our prior $4.46 and consensus $4.67, impacted in-part by model refinements we are making for the 3Q (most notably as it relates to other operating expenses, as TXRH laps $10M+ of 3Q22 tailwinds on that line, some of which we don’t expect to repeat). We are also adjusting our pricing assumptions for later this year, and now assume +MSD pricing to continue beyond 3Q23. Our price target for TXRH is now $109 (versus $104 prior).”
