JaguarConsumer Weekly Callouts – August 20 (KVUE, Lodging, Student Loans)

Shares of Kenvue (KVUE), for those not aware, is a consumer health company that was spun off from Johnson & Johnson (JNJ) in early-May. The company is broken down by 3 main segments:

Self Care – Makes up 40% of Revenue and includes brands such as Tylenol, Motrin, Nicorette, Zyrtec
Essential Health – Makes up 31% of Revenue and includes brands such as Listerine, Band-Aid, Neosporin
Beauty/Skin Health – Makes up 29% of Revenue and includes brands such as Neutrogena, Aveeno, Rogaine

RBC Capital points out that the company’s brand portfolio across cold, cough, flu, and allergies has actually been gaining share. Most recently, within pain care Kenvue has gained an average of 150 bps of share on a monthly basis over the last 6 months, led by their flagship brand Tylenol. In Upper respiratory (cough/cold/flu), the company has gained around 30 bps. Over the same time, Private Label has been losing share by approximately 120 bps in pain and 75 bps in Upper respiratory. RBC believes KVUE’s brands have a strong presence in their respective categories, inspire trust in consumers, and have added new “sticky” households through the pandemic. For example, prior to the pandemic, Tylenol household penetration in the U.S. was at 32.1%, jumped 520 bps to 37.3% in 2021 and remains at 36.2% or 420 bps higher than pre-pandemic levels. The brand’s repeat rates are also now up to 40.6% or 290 bps higher than pre-pandemic levels.

Since being spun off, shares have been slowly trending lower, closing Friday at $22.87. Could this be a result of potential talcum powder liability? RBC analyst Nik Modi makes sure to point out that Kenvue is “ring-fenced” from any talc liability in the U.S. and Canada where over 60,000 parties have filed lawsuits alleging harm from contaminated Johnson & Johnson talcum powder.

“We understand that currently, Kenvue is subject to just 4 lawsuits outside the US/Canada. Having covered all major sectors within consumer staples over the past 20 years, we have seen many stock overhang situations that have become top of mind topics for investors. Often times, these litigation and liability concerns become long-drawn-out processes that take time to fully resolve. As it relates to Kenvue, while there are still risks, we believe most of this risk has been mitigated by J&J taking on the liability in the US and Canada and the product being discontinued globally this year. Additionally, past case studies suggest that staples stocks can still work despite litigation/settlement concerns as long as fundamentals remain healthy. We believe the U.S. tobacco industry is a great case study on how investors tend to treat large-scale litigation/liability. Using 2000-2005 (when tobacco litigation risk was at its peak), we observe that as long as fundamentals remained healthy, tobacco stocks outperformed, only seeing one day “shocks” on a negative headline.”

This past Thursday in our Conversations podcast (Subscribe HERE), I called out a few different lodging names, with the common link being that U.S. travel patterns were coming in weak vs international travel. For example, Hersha Hospitality’s (HT) nine resort-oriented hotels saw EBITDA decline 24% Y/Y as U.S. vacationers headed abroad. Next up is Braemar Hotels & Resorts (BHR) who said that in Q2, luxury resort RevPAR declined 11.4%. As B. Riley points out, “as affluent vacationers make their way abroad, mostly to Europe, demand in the U.S. has waned. In addition, some affluent travelers have begun to trim spending due to concerns over the economy.” Lastly, Marriott Vacations (VAC) said they are starting to see travel patterns deviate, as Americans are traveling more internationally with inbound travel to the U.S. remaining more muted. In Q2, this hurt sales at the company’s higher-end U.S. travel locations, but increased contract sales in Europe and Asia increased by 56%.

This all leads me to BofA’s most recent aggregated credit and debit card spending on Lodging for the week ending August 12th, which was down 6% Y/Y, decelerating from down 4% Y/Y in the month of July.

U.S. RevPAR was up 2%, with occupancy flat and ADR up 2%. You can thank Taylor Swift for her presence in L.A. during the period, as RevPAR for that city was up 23%. The overall U.S. RevPAR numbers pale in comparison to global metrics, which show RevPAR up 26% in APAC ex-China, +28% in China, and +12% in Europe.

In JaguarLive on Friday, we shared the following student loan survey results conducted by BTIG Research. I thought it was worth bumping up to the Home Page. BTIG analysts conducted a proprietary survey of over 15,000 people to gauge how consumers will adjust their spending in response to the resumption of student loan payments in the fall, with a particular focus on Foot Locker (FL) and Revolve (RVLV), as they view these companies as being among the most exposed. Key takeaways included:

• 20% of respondents have student loans, with the highest % among ages 25 – 34 (23%).

• Respondents have an average principal payment of $38,000 and monthly payment of $356 (12.5% of after-tax income) all of which skew higher for ages 25-34.

• 63% said they will begin making payments when they are set to resume in October, while 10% are unsure, and 19% said they cannot afford to make payments.

• Consumers are planning to cut spending across all discretionary categories surveyed as payments resume, with the largest segment indicating they plan to spend “significantly less” (50% – 100% less). Apparel saw the highest % planning to spend less (67%), while footwear was close behind at 65%.