JaguarConsumer Weekly Callouts – April 16 (CTC.TO, ELF, HELE, MLCO, WYNN)
Headquartered in Toronto, Canadian Tire (CTC.TO) is a retail company which operates in the automotive, hardware, sports, leisure, and housewares sectors. After essentially bottoming at the end of 2022, shares have gone from approximately $140 to $180. However, as BMO Capital points out, upcoming results may fare worse than initially thought due to multiple headwinds.
Fire Disruption – Since March 15th, a fire has suspended operations at one of the Canadian Tire banner’s (CTR) distribution centers in Brampton, Ontario. While the financial impact of the fire has not yet been disclosed, the company has indicated that some anticipated costs, including lost inventory, building damage, cleanup, repairs, as well as delayed shipments due to the temporary shutdown of the facility, are expected to impact Q1/23 results. For context, BMO said the impacted distribution center is one out of four major DCs serving CTR in Ontario, and one of seven across Canada.
Consumer Spending – With retail sales in Canada rising 1.4% in January, as measured by StatsCan, and MasterCard reporting Canadian retail sales increasing by 0.1% and 2.6% Y/Y, in January and February, respectively, the type of spending is moving more towards travel, live entertainment, dining and other experiential activities, and away from bigger ticket items including electronics, furniture and home improvement items, which could be a concern for the stock. See Exhibit 3.
This past week, on April 10th, in JaguarLive I commented on how e.l.f. Beauty (ELF) has been performing extremely well. I went on to add that recent channel checks show that ELF’s weekly sales in the mass channels through March 26th remained strong and even accelerated off strong results from the prior week. Sales were up +62.3% during the 2-week period ending 3/26, accelerating from the +59.5% Y/Y growth in the prior 2-week period. With just 1 week left to report in ELF’s March-end quarter, reported sales have tracked far ahead of guidance of +42-46% at +65% Y/Y growth in the trailing 13-weeks. Canaccord Genuity points out that these tracked sales do not include ELF’s ecommerce business, Ulta, and some other retailers.
Truist then came out on Thursday with a “Wal-Mart Walk Thru” note highlighting how for the first few years that ELF was a public company, virtually every product ELF had was listed at $2, $3 or $6. In 2018 the company first started taking selective pricing in response to the China tariffs implemented by the US government (large majority of ELF’s products are manufactured in China). The company also began rolling out higher priced innovations and entered the skin cream category, which carries higher price points. In the past two years, ELF has continued to take selective pricing in response to spiking input and supply chain costs. Today the price points at Wal-Mart look dramatically different with the majority of products listed for $5, $6, $7 or $10, less than 5% listed for $3 and no products listed for $2.
“What is more interesting is as per figure 1, ELF’s retail prices are still below those of key mass competitors such as Covergirl, Revlon, and Maybelline, let alone similar prestige products from Estee Lauder or L’Oréal. Additionally, ELF’s volume growth has accelerated over the past two years, according to scanner data, despite the higher pricing.”
Shares of Helen of Troy (HELE) are down close to 20% YTD with the company announcing that Matt Osberg was resigning from his position as CFO back on March 8th. Brian Grass, retired Helen of Troy CFO, would become interim CFO beginning April 28th. The company’s Q4 earnings report will be released on April 26th after the close.
Looking back to the company’s Q3 conference call held back in January, CEO Julien Mininberg would say: “Hydro Flask continues to hold its #1 position at our largest online retailer, where sales almost doubled during the Black Friday and Cyber Monday period compared to the same period last year. This helped to offset the broader POS decline at brick-and-mortar in the quarter.”
I bring this up because during Oppenheimer’s recent store checks, they observed Stanley product at Dick’s Sporting Goods (DKS) with purchasing limits and picked over inventory. In addition, they continue to see out of stocks on Target.com for the Stanley brand. “We are closely watching competitive dynamics in this higher margin category for HELE going forward. We remain sidelined and are focused on the company’s ability to return to top line growth.”
Based on JPMorgan’s checks, Macau gross gaming revenue for the first 10 days of April is estimated at MOP4B, implying a daily run-rate of MOP400M. This is in-line with the March GGR that came out as a clean beat, hence they view the print as decent/encouraging that suggests mass GGR is run-rating at around 70%+ of pre-COVID levels. Of note, they also flag the potential margin of error in these weekly checks (around 5-10% deviation is possible for any given week), and they feel the actual GGR could be a tad stronger than MOP400M/day.
Their beta call is looking for a “goldilocks” rally. “We (still) remain confident of sizable absolute and relative upside in Macau stocks. Our bull thesis may not be very novel, but can still be powerful: the pace of demand recovery continues to ramp (as proven in March GGR), Street estimates move higher (probably more pronounced into 1Q23 earnings), skeptical investor sentiment gradually improves (hopefully soon), and valuation finally mean-reverts to mid-cycle levels if not re-rates to up-cycles, which in turn produces potential upside of c.40% to our OW ratings on average. Put another way, we envision a ‘goldilocks’ rally where the stocks can grind higher quarter after quarter against the wall of worries, as more investors (particularly long-onlys) return to invest in this space, following four to five years of lull amidst concerns on licence risk, VIP clamp-down, Hong Kong SAR unrest, and COVID-19, among others.”