Albertsons: More U Members
Albertsons reported in-line comparable-store sales results to its industry on a 1- and 2-year stacked-basis (results were also boosted by strong pharmacy sales-- perhaps helped by weight loss drugs (GLP-1s)--which represented half the comp growth). Loyalty members increased by a surprising 1.5M members to reach 37.4M total members at quarter end. 1.5M is nearly 2x the quarterly adds in the year ago period. The company no longer holds analyst calls to discuss results due to the pending merger with Kroger, but we can analyze recent visitation trends.
Placer visitation shows traffic softer quarter-over-quarter. With food at home inflation running at +3.7% and pharmacy a significant driver, poundage/volume was down. We suspect that the 1.5M membership gains are the result of increased benefits (lower prices) for Albertsons for U members, especially on fresh items. Fresh as a category was down slightly in revenue for the quarter. We see Kroger and Whole Foods also employ this strategy of hot promotions on fresh items as sourcing is a competitive strength and because prices for nationally branded package food remain too high and aren’t differentiated when inflation is too hot for consumers (in other words, it isn’t a traffic/market share driver).
As we recently discussed, Kroger and Albertson recently announced plans to divest/ sell 413 locations to C&S Wholesale. The 413 include QFC, Mariano’s, Carrs, and potential Albertsons locations in Arizona, California, Colorado, and Wyoming. For the quarter, one can see that QFC outperformed the national average, whereas others underperformed.
Dollar General: Turning to The Old Guard, Following Dollar Tree's Precedent
In a world of frequent unprecedented events, we should not be too surprised that retired CEO Todd Vasos is returning to Dollar General, effective immediately. Vasos has signed a four-year contract and replaces Jeff Owens. Readers will recall that Vasos’ prior predecessor and mentor at Dollar General was Rick Drilling (Vasos was brought into Dollar General by Drilling in 2008). Following Drilling was a tough act and by most standards, Vasos succeeded. More recently, readers will recall that Drilling is now leading Dollar Tree/Family Dollar and has been putting the hurt on Dollar General--see below for year-to-date visitation trends between Dollar Tree/Family Dollar and Dollar General--with a strategy of significant reinvestment at Family Dollar. And so now, the two old “lions” are going to face off on the savanna of U.S. dollar store retail.
With the CEO change, Dollar General lowered its fiscal 2023 outlook, with comparable-stores sales now expected to decline between a range of -1.0% to flat (versus earlier expectations of -1.0% to +1.0%) and a -5% decline in its midpoint earnings per square guidance ($7.30 per share versus $7.70 prior). Analysts now expect a lower medium-term outlook with calendar 2025 estimates coming down about -$90M as the company re-invests in store standards, service levels, and price. By contrast, Family Dollar has invested $700M in these areas, which would equate to $2B when adjusted for Dollar General's larger size (based on our estimates). Dollar General will only deploy $2B--or whatever the number ends up being--if they expect to get a meaningful return on the investment from higher sales and expense/ systems restructurings.
According to Dollar General management, the company's profit margins are at trough levels because of execution issues, which we believe would amount to $800M in inefficiencies. Assuming Vasos and Dollar General can recapture that $800M while also restructuring to find $200M in cost-out opportunities, that would leave $1B that would need to come from higher sales. Assuming, incremental margins of 20%, that would mean $5B of incremental sales. Given this year’s sales of around $39B, $5B is a big number. But over a five-year period, it would equate to a 250-basis point lift in sales, which seems doable. Both Vasos and Drilling will want to be “king of the savanna,” and so, we expect a fierce battle, which will be good for consumers in the near-term, and potentially, for the Fed’s battle on inflation.
It's That Spooky Time of Year: Spirit Halloween Scaring up Some Serious Traffic
While you can always get your costumes at Walmart or Target, for those shoppers that like to get into the swing of things, Spirit Halloween pops up every year to fulfill your most hair-raising wishes. Trick-or-treaters are shopping earlier this year and in greater numbers.
Compared to last year’s trajectory, we may see a new record for visits to Spirit Halloween if the trend continues. Comparing 20 days prior to Halloween in October 2022 compared to October 2023, visits are up 50%. While much of this growth can be attributed to new store openings, our data indicates that visit per venue has increased by a high single-digits clip year-over-year.
