JaguarConsumer Weekly Callouts – October 1 (ATZ.TO, BBY, HD, HGV, LOW, NAPA, TNL, VAC, XLP, Macau)
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-In RBC Capital’s “Picture of the Week” note, analyst Nik Modi highlights that across the packaged food space, volumes in tracked channels remain down -LSD% to -DD% (last 12 weeks) depending on the aisle, and they have yet to see a meaningful improvement. This has raised concern across their food coverage on the pace of volume recovery and potential promotional activity needed to get there, which has led to food stocks to materially underperform: -20% YTD vs Beverages -6% and HPC -5%.
“As we have written about since the start of the year, we believe consumers are feeling macro pressures and have cut back due to a host of factors including (but not limited to) lingering inflation, the reduction in SNAP benefits, rising gas prices, and pressure from the perimeter of the store as fresh items are seeing faster declines in inflation. Student loan repayments (starting in early October) will add another headwind. According to a September Propel survey of SNAP consumers, it is clear that consumers are feeling the pressure and making tradeoffs with more consumers now reporting skipping meals, eating less, visiting food pantries and relying on friends/ family for meals. In fact, 39% of respondents said they have skipped meals which is up 10pts from March levels and 50.6% now report eating less (+19pts from March).”
Related tickers include: Campbell Soup (CPB), General Mills (GIS), Kraft Heinz (KHC), Lancaster Colony (LANC), and J.M. Smucker (SJM).
-For the week ending September 17th, KeyBanc noted that their KBCM Hardlines Traffic Index declined 6.7% Y/Y. They would explain that prior to May 14th, the Index broadly displayed a deceleration in trends, on a YTD basis, likely due to the volatile macroeconomic environment, restrictive financial conditions, and bank failures in March and April. Encouragingly, trends sequentially improved from May 14th to June 25th, with the Index improving from -8.3% Y/Y on May 7th to +2.8% on June 25th. More recently, however, the Index has exhibited a persistent deceleration in trends, falling from +2.8% on June 25th to -6.7% in the most recent week, likely due to elevated interest rates, a reduction in excess savings, and rising gas prices. Breaking this down even further:
• The Electronic Stores category was the weakest constituent in the Index, with indexed traffic down 15.0% Y/Y, sequentially decelerating compared to -13.1% in the prior week. Within Electronic Stores, Best Buy (BBY) indexed traffic decreased 16.3% Y/Y, sequentially decelerating compared to -13.4% in the prior week.
• Home Improvement remains one of the weakest categories in the Index, with indexed traffic falling 11.8% Y/Y, decelerating compared to the prior week. They note that trends have likely been pressured by soft, albeit improving, home-related spending and intent to spend, and a weaker operating environment for Pro Contractors. Within Home Improvement, Home Depot (HD) and Lowe’s (LOW) traffic decreased 11.3% Y/Y and 15.6% Y/Y, respectively.
• Discount & Dollar Stores indexed traffic increased 1.1% Y/Y and sequentially accelerated compared to +0.3% in the prior week. On a six-week average basis, Discount & Dollar Stores indexed traffic increased 1.7% Y/Y (vs. -6.7% for the Index). Within this category, Five Below (FIVE) traffic increased 11.7% Y/Y, accelerating compared to +10.8% in the prior week. Elsewhere, Dollar Tree (DLTR) traffic increased 3.6% compared to Dollar General (DG) traffic decreasing 1.0%. Of note, DLTR (Dollar Tree + Family Dollar average) has outperformed DG during 11 of the past 12 weeks. Finally, Ollie’s Bargain Outlet (OLLI) traffic increased 7.0% Y/Y.
–Aritzia (ATZ.TO) is a Canadian-based design house and fashion retailer of women’s apparel brands. It designs apparel and accessories for its collection sold under the Aritzia banner, as well as selected sub-brand banners (Wilfred, Babaton, TNA, Sunday Best, Super World).
This past week, the company reported their Q2 earnings in which their $534M revenue number represented Y/Y growth of 1.6% (vs. “flat to down” guidance). Comp sales decreased 4.3%, which came in below the -2.0% decline expected by analysts at Canaccord Genuity. U.S. growth was +6.0% while Canada was down 2.7%. In addition, e-commerce sales declined 1.0%. Management noted it is seeing softer traffic patterns Q3 to-date (both channels & geographies), reflecting macroeconomic pressures.
Canaccord Genuity highlighted that gross margins declined 690 bps Y/Y, attributable to a slew of headwinds: (1) Product cost inflation, (2) Normalizing markdowns, (3) Temporary warehousing costs, (4) Boutique/DC-related pre-lease amortization costs, and (5) F/X.
BMO Capital analyst Stephen MacLeod was out saying, “Q2/24 was above forecast, but an H2 expectation for ongoing negative comps (down ~MSD) and margin pressure (although moderating from Q2 “peak” pressures) led to 2024E guidance being reiterated (net revenue +2-7%, adj. EBITDA margin down ~600-650 bps). Positively, new store performance is a bright spot (paybacks continue to be 1-year or less) and the new DC has opened as scheduled. While management execution on its 2025E margin rebuild could be positive for the stock, moderating sales and ongoing margin headwinds are likely to weigh in the near term.”
-Shares of The Duckhorn Portfolio (NAPA) were down over 14% this week on two pieces of news. First, the company reported their Q4 earnings which beat on EPS and Revenue, but FY24 EPS and Revenue Guidance came in below expectations. Sales of $100M increased 28% including 75% growth in DTC owing to Kosta Browne timing shift, and 11% overall volume growth (wholesale accounts sold up 10%). However, BMO Capital analyst Andrew Strelzik expects increasing frequency of cautious consumer data points to remain an overhang and create risk. Commentary around consumer shakiness has picked up recently within their coverage, including Darden Restaurants (DRI) calling out wine trade-down within Fine Dining and greater trade-down in other premium beverage categories. “Recognizing impressive resilience of NAPA’s portfolio thus far, mounting consumer pressures and premium wine category’s macro sensitivity likely will remain an overhang to shares for the time being.”
The second piece of news happened on September 27th when it announced that Alex Ryan will be retiring from his role as President, Chief Executive Officer and Chairman of the company. BMO Capital would comment, “The abrupt departure of a 35-year company veteran with a history of driving reliable, superior results inevitably will create a degree of unease until leadership becomes more settled (new CFO just joined in June).”
-It’s the start of a new month which means we got Macau GGR numbers for September, which fell by 13.2% M/M to MOP14.94B, according to a Sunday announcement from The Gaming Inspection and Coordination Bureau. This figure compared with an August GGR result of MOP17.21B, which was the best monthly performance since January 2020. As GGR Asia wrote, Typhoon Saola led Macau’s weather bureau to raise its storm signal to Number 10 – the highest warning signal for tropical storms – on September 2nd. The bad weather led to the temporary closure of the city’s gaming venues for about nine hours as a precautionary measure, and also disrupted transportation to and from Macau.
A number of analysts have suggested that all eyes will now be on the performance during the October Golden Week period. Citigroup said last week that they expected “the highest [post-COVID-19] monthly GGR in October (as high as MOP19B), driven by the National Day Golden Week.” They forecast Macau GGR to average approximately MOP765M a day during October 1st to 6th, going down to a daily average of MOP575M for the remainder of the month. Separately, JPMorgan analyst DS Kim was out on September 25th saying that their checks show 90%+ of casino hotel rooms are booked and sold-out already. Some rooms are still available on popular OTAs (especially those very new ones that opened this month, such as W at Studio City or Andaz at Galaxy Macau), but this does not worry them because: (A) It’s pretty normal to have available rooms even for the peak of holiday in the past, particularly at the OTA levels, (B) This year’s Golden Week is longer and spans over eight days, vs. the typical 7-days, and (C) This is the first holiday since the reopening that all the rooms are available and the number of rooms actually grew 15-20% vs. pre-COVID levels.
“Our checks with gaming hosts indicate a pretty upbeat sentiment, with most expecting G/W to print the highest GGR since the reopening, unsurprisingly so. We continue to expect industry mass GGR to hit 100%+ of pre-COVID levels for October G/W (vs. 94-95% for 3Q23E), which we think is in-line with where the buy-side bar is.”
Related Tickers include: Las Vegas Sands (LVS), MGM Resorts (MGM), Melco Resorts (MLCO), Wynn Resorts (WYNN)
-The wildfires in Hawaii are creating a headwind for timeshare for Q3. BofA’s Placer.ai data suggests foot traffic is still down 50%+ Y/Y at timeshare properties, Maui domestic air traffic is down approximately 40%, and Maui AirDNA data is down 20% Y/Y. On the flip side, Oahu RevPAR was up +3% Y/Y in August and overall Hawaii air traffic is only down 5% Y/Y since the fires. BofA thinks Oahu and other islands could be benefitting from demand shifting out of Maui, and timeshare could be experiencing tour flow headwinds given displacement and higher occupancy elsewhere. Related tickers include: Hilton Grand Vacations (HGV), Travel+Leisure (TNL), and Marriott Vacations Worldwide (VAC).
