JaguarConsumer Weekly Callouts – March 10 (CCL, DTC, EL, ELF, NAPA, NCLH, PRKS, RCL, SVV)

Solo Brands (DTC) – Since pre-announcing Q4 results back on January 8th, which drove approximately a 40% stock price decline, the stock has slid a further 26%. As Citigroup highlighted in their downgrade to Neutral on January 10th, they think the outlook for 2024 remains challenging and they expect greater-for-longer cannibalization from DTC’s omnichannel expansion strategy with limited visibility into when direct-to-consumer channel sales will improve especially as DTC’s high-profile marketing campaigns in Q4 failed to drive a sales inflection. The company appointed a new CFO & Chief Growth Officer in early February building out the management team around new CEO Chris Metz. While these appointments remove some of the overhang on the stock, Citigroup has not yet heard management’s vision for the company & what strategy changes may be on the horizon. They prefer to remain on the sidelines until there is greater visibility into company strategy & the path forward for topline delivery.

Estee Lauder (EL) – Jefferies analyst Ashley Helgans noted that testing laboratory Valisure filed a petition with the FDA calling for a recall of benzoyl peroxide acne products, which the lab found to be contaminated with high levels of benzene, including Clinique being named as a brand with high levels of the carcinogen. The firm expects this to “heavily damage brand perception,” hurting Estee Lauder’s topline as Clinique accounts for about 30% of sales. In addition, Estee Lauder’s plan to rebrand Clinique and bring the brand into the clinically-backed skincare space will be challenged and will require greater investment or redirection, according to the firm.

e.l.f. Beauty (ELF) – BofA said they continue to see the biggest near-term opportunity for ELF with shelf space expansions at Wal-Mart (WMT). Currently, ELF has approximately 8 feet of shelf space at Wal-Mart and around 3 feet at the drug channel, versus around 13 feet at Target (TGT) and around 12 feet at Ulta Beauty (ULTA) versus approximately 20 feet for legacy brands, on average. ELF outperforms on market share in Target, at 18.2% versus 9.8% in tracked channels but is below average at Wal-Mart, 9.4%, and drug, 5.4%. ELF continues to catch up to Target, with incremental gains at Wal-Mart, with a further expansion in summer 2024. “Over time, we expect shelf space at Walmart to exceed that of Target, as the retailer has 13x the number of Walmart supercenter locations versus the number of Target large format stores.”

The Duckhorn Portfolio (NAPA) – NAPA shares would fall over 8% on Thursday after reporting its Q2 earnings. As RBC Capital would summarize, NAPA’s commentary this quarter on the consumer and category was a continuation of the message from last quarter. It noted that the luxury wine category has been growing flat to +1% based on the L12W (ended 1/28/24) in Circana and this trend is expected to persist in the coming quarters. While NAPA does not see trade-down (from $15+ to under $15) and is performing better than the category, it is not immune from the dynamics of the broader consumer environment. NAPA’s topline miss this quarter (-0.4% Y/Y vs. consensus +1.8% and guide of +LSD%) was due to distributor and retailer inventory reductions, as both parties took a cautious view of the market and managed inventories more assertively than expected. This was consistent with what RBC had picked up during our channel checks. Given the category softness and extended inventory reductions, NAPA lowered its 2H net sales growth expectation to +LSD–MSD% from +DD% implied at the end of F1Q.

United Parks & Resorts (PRKS) – Formerly known as SeaWorld Entertainment, B. Riley was out on March 5th highlighting that the city of San Diego released its January revenue-based lease payment for PRKS San Diego park operations, which came in at $547K vs $496K for January 2023, an increase of 10.1% Y/Y. This also represented the highest monthly revenue total for any January. “While this only represents the first monthly Y/Y lease payment increase since June 2023 (and one month does not a trend make), we believe January represents another example of both stabilizing demand for this particular park coming out of the pandemic lows (albeit at much higher levels of consumer spending) along with demand being able to push through adverse weather conditions.”

Savers Value Village (SVV) – Shares of this discount retailer fell by over 7% on Thursday following Q4 earnings. Looking at the guidance, management would guide Q1 sales growth of +1.2% to +2.7% vs the Street at +5.9%, including flat SSS to +1% vs the Street at +3.1%. Management cited January comps were negatively impacted by severe winter weather in key markets (including a 140% increase in store impairment days vs. last year), in addition to cycling a challenging 1-year comparison and holiday calendar shifts. Putting this together, management sees the January weather disruption (and holiday calendar shifts) collectively driving a 150bps headwind to Q1 SSS. As JPMorgan’s Matt Boss would say, when you move past January, management cited an acceleration in comp trends in February and early March, with the month of March the largest volume month of the quarter, and guidance characterized as “appropriately conservative.”

Cruise Lines – Stifel analyst Steven Wieczynski recently hosted a South Florida Cruise Tour, which featured meetings with the usual suspects: Carnival Cruise (CCL), Norwegian Cruise (NCLH), and Royal Caribbean (RCL). In his note, Mr. Wieczynski would say that he has been doing this investor field trip for at least fifteen years now. “Not sure we can ever remember a trip over that timeframe in which all three cruise operators were so upbeat about the current status of their industry both from a demand and pricing standpoint. Normally there is some difference in the current demand/pricing commentary from these different operators, but not this year.”

Commentary across all three operators was pretty much identical which is another reason why Stifel has a hard time understanding the negative narrative being pushed across the investment community about demand/pricing wavering late in 2024 and into 2025. With direct bookings now accounting for a large portion of total bookings, they continue to tell investors that using so-called channel/pricing checks or industry “expert” calls should not be overly relied on for the current status of booking strength. They believe current booking strength has nothing to do with pent-up demand anymore and the fact that the “new to cruise” cohort is well up versus 2019 is a clear sign the cruise value proposition is still pulling new customers into the industry. They ultimately believe the cruise operator’s 2024 initial guidance (will learn more about where CCL takes their guidance in a couple of weeks and this even includes RCL’s revised guidance) will prove conservative and expect significant upside to estimates moving forward. “With booked positions better than historical levels, we believe visibility has never been better as consumers continue to book further in advance. This should allow operators to continue to push price (especially on close-in bookings) as the relative value proposition between cruise and land-based vacations remains elongated.”