JaguarConsumer Weekly Callouts – March 3 (CLX, COCO, EVRI, IGT, Macau, Travel Tracker)
Clorox (CLX) – Over the last few weeks, Citigroup had several conversations with investors on Clorox while also hosting an investor lunch in NYC to discuss the key bull/bear debates. Since their upgrade to Buy in November, they have been arguing that the recovery post the August cyberattack was moving faster than expected with conservative guidance bars both on the top line and margins. They fully acknowledge this is now better understood by the market and stock upside is more limited after CLX’s 32% increase over the last four months (outperforming staples peers by ~2,300bps). “However, we still see two potential positive catalysts ahead: (1) Improvement in scanner data trends in late March/April with spring shelf space resets, (2) Further beats in FQ3/FQ4 giving investors more comfort in valuing CLX on a normalized earnings power in the ~$7.50-8.00 range.”
Vita Coco (COCO) – Shares were up nearly 15% following its Q4 earnings results, which came in better than expected amid the rise in ocean freight rates in the wake of the Middle East conflict. Vita Coco reported Q4 net sales +15.4% Y/Y, 6.3% ahead of Visible Alpha consensus. Total volumes increased +15.6%, with price/mix -0.2% due to volume growth and pricing pressure in the company’s private label business. Vita Coco Coconut Water net sales increased +8% globally, with volumes +3% and pricing +5%, with VCCW Americas net sales +9% and International -3%. Gross margins beat by 70bps and increased 1,300bps Y/Y driven by lower Y/Y transportation costs, volume growth, and higher branded pricing. The company also started 2024 with good momentum in tracked channels, with retail sales +9% in Circana data YTD. According to Morgan Stanley, COCO expects sales growth to be muted in 2024 (guidance of flat to +2.3%), however, with solid underlying growth offset by the previously disclosed loss of the private label oil business at a strategic customer, and as the company cycles some opportunistic promotions and bulk sales which it doesn’t expect to repeat. Meanwhile, management is confident in COCO’s ability to navigate the recent rise in ocean freight rates through cost discipline and pricing if needed, despite continuing to have lower contractual coverage than the around 75% coverage it had pre-Covid. While rates from Asia to the U.S. have risen since the Middle East conflict, spot rates are well below what the company faced in 2021-22, and COCO is able to secure rates below quoted spot levels. Guidance assumes that recent ocean freight rates hold for some time and then moderate, with the recent rise in rates likely to hit the P&L in Q2.
Gambling (EVRI/IGT) – According to a joint press release this past week, International Game Technology (IGT) will spin its gaming and digital business on a taxable basis and merge the entity with Everi Holdings (EVRI). The combined entity will rename as IGT, while the remaining lottery business will identify a new name. Stifel sees this as a mostly satisfying, albeit not entirely expected outcome for IGT’s outstanding strategic review. Investor preference was likely for an outright sale, though a spin-out still marks a key step in the lottery re-rate thesis they outlined recently. The pool of addressable buyers was always finite, which coupled with high cost of capital, likely made spin-out the more viable option.
“In terms of a combination with EVRI vs. standalone spin-out, we have mixed feelings. On the one hand, 1) IGT’s global scale better monetizes EVRI’s content & FinTech offerings, 2) The combination of EVRI’s leading cash access (>60% market share) & digital wallet solution and IGT’s slot accounting systems business (~15% market share) makes for a powerful all-in-one cashless solution, 3) IGT’s leading brands can be better monetized in class II markets through EVRI’s relationships, and 4) scale should help both companies better compete in the hyper-growth, though increasingly competitive, iCasino content opportunity. On the other hand, 1) IGT’s fundamentals were seemingly healthy on a standalone basis, 2) Slot businesses have proven difficult to integrate culturally & operationally historically, 3) Slot floor managers at times prioritize diversification amongst suppliers (though quality of content above all else), and 4) Merging the two businesses introduces more risk of disruption to the R&D process vs. a standalone spin.”
Macau – In case you missed it, Macau’s Gaming Inspection and Coordination Bureau reported February gross gaming revenues of 18.49B patacas, representing a 79% increase versus the prior year’s 10.32B patacas/+33% comp. The monthly result came in well behind the +85% ConsensusMetrix consensus forecast. February GGR was also down 4% on a monthly sequential basis. Stifel would issue a note saying, “As we mentioned in previous notes, Macau expectations for February became extremely elevated once Chinese New Year was finished and dialogue from company management teams indicated how strong the holiday period was. Analysts then raised February GGR estimates too high, which made the setup for the last couple of weeks of February too hard to achieve. We don’t think it’s a demand issue here, that’s for sure. We just think expectations got elevated too quickly, which is why February GGR results “missed.”
Travel Tracker – Each month, JMP Securities released their online travel tracker, which aims to highlight relevant macro, industry, and company specific trends using a variety of third-party data sources to highlight: 1) How intra-quarter sentiment or performance expectations are shifting, and 2) Any longer-term trends that may be emerging. In the most recent note, analyst Nicholas Jones highlights:
-Consumer confidence increased sequentially for the third consecutive month and hit its highest level since December 2021. January ADRs were up slightly Y/Y, driving higher RevPAR as occupancy rates were roughly in line with last year.
-This month, they broke down various elements of U.S. PCE into key components of travel and experiences for consumers. For stays, net foreign travel, and air transportation they see “revenge travel” as largely complete and look for mostly normalized patterns from here with upside from Copa America and the 2024 Summer Olympics — which they see as expected for Booking Holdings (BKNG), Airbnb (ABNB), and Expedia (EXPE).
-They see potential for further upside for live entertainment, excluding sports, as evidenced through Taylor Swift’s significant success through her Eras tour. They see spectator sports as having strong tailwinds for the next few years, supported by the Copa America in the U.S., the 2024 Summer Olympics in France, and the 2026 World Cup in the U.S. The trends likely benefit OTAs, ticketing companies, and sports exposed businesses (i.e. Live Nation (LYV), Vivid Seats (SEAT), SeatGeek, GameTime, and Fanatics).
