Facts from the week: Sept 26, 2021
Highlights from $COST $CBRL $NKE $UBER $VWE $FDX $DRI $LEN $KBH $HVT $SCS Housing, Inflation, Supply Chain, Consumer
Summary
Inflation continues to run stronger than most companies expected a few months ago with Costco raising expectations to 3.5-4.5% from 2.5-3.5% in May
Lennar notes that limited supply of housing should extend strong housing conditions while Single Family Housing Starts were strong outside of the West region
Steelcase notes the Delta variant may have delayed some companies returning to the office
September is off to a good start for Darden Restaurants with comps up 7% vs pre-covid levels
Consumer
Costco - $COST
In terms of Q4 comp sales metrics, traffic or shopping frequency increased 9.2% worldwide and 8.8% in the U.S. Our average transaction or basket was up 5.8% worldwide and 5.6% in the U.S. during the fourth quarter. Those numbers including the positive impact from gas inflation and FX.
Some inflationary soundbites, if you will. Price increases on items shipped across the oceans, some suppliers or us paying to 6x for containers and shipping. Price increases of pulp and paper goods, some items up 4% to 8%. Again, we're trying to mitigate those where we can, and we think we've done a decent job of mitigating some of it.
Plastics, resin increases on things like trash bags, Ziploc SKUs, pet products -- resin or [indiscernible] PET products, plastic cups, plates, plastic wrap, many items up in the 5% to 11% range. Metals, again, aluminum foil, mid-single-digit cost increases as well as cans for sodas and other beverages.
I mentioned commodities earlier, oil, coffee, nuts, they remain generally according to our buyers at 5-year highs and so on. Higher import prices on things from Europe like cheeses, but the combination of freight and FX. 3% to 10% increases on certain but not all apparel items. And fresh foods, inflation is up in the mid- to high single digits, with meat leading the way, up high single to low double digits due to feed, labor and transportation costs.
We've also chartered 3 ocean vessels for the next year to transport containers between Asia and the U.S. and Canada. And we've leased several thousand containers for use on these ships. Every ship can carry 800 to 1,000 containers at a time, and we'll make approximately 10 deliveries during the course of the next year.
CrackerBarrell - $CBRL
Nike - $NKE
We now expect fiscal '22 revenue to grow mid-single digits versus the prior year versus our prior guidance of low double-digit growth due solely to the supply chain impacts that I just described. Specifically for Q2, we expect revenue growth to be flat to down low single digits versus the prior year as factory closures have impacted production and delivery times for the holiday and spring seasons. Lost weeks of production, combined with longer transit times, will lead to short-term inventory shortages in the marketplace for the next few quarters.
We expect all geographies to be impacted by these factors. However, those geographies in Asia with less in-transit inventory at the end of the first quarter will experience a disproportionate impact beginning in Q2. For the balance of fiscal '22, we expect strong marketplace demand to exceed available supply. We are optimistic inventory supply availability will improve heading into fiscal '23 against the backdrop of a very strong brand and healthy pull market across all geographies.
UBER
“With positive Adjusted EBITDA in July and August, we believe Uber is now tracking towards Adjusted EBITDA breakeven in Q3, well ahead of our prior guidance,” said Nelson Chai, CFO. “We expect to deliver sequential Adjusted EBITDA improvement in Q4, even as we continue to invest in our growth initiatives.”
Vintage Wine Estates - $VWE
Strong demand in all segments drove unaudited preliminary fourth quarter revenue of $57 million up 37% over prior-year period including acquired revenue
FedEx - $FDX
We are lowering our fiscal 2022 guidance to reflect our first quarter results, which were lower than our expectations. As we look to the rest of the fiscal year, we expect certain factors to extend longer than we originally forecast in June.
Our forecast assumes continued growth in U.S. industrial production and global trade, a gradual improvement in labor availability, current fuel price expectations and existing tax regulations.
With respect to labor, we are assuming that the combination of these actions we are taking that Raj outlined, combined with a steady increase in labor availability as we turn into calendar '22, will allow us to add team members which will drive improvement in our efficiency, productivity and cost structure.
Golf Data
Golf equipment retail sales grew ~1% YoY for the month of August. This comes on top of a particularly challenging YoY comparison (+32% YoY in Aug. '20) and brings YTD sales to +47% YoY with 70-75% of the traditional retail selling season now complete. On a two-year basis (i.e. vs. 2019), retail sales were 33% higher in August and now stand 41% higher than comparable YTD levels. We note that U.S. equipment sales represent ~50% of total global volume. -Truist
Darden - $DRI
For the first quarter, sales per operating week were up 4.8% relative to pre-COVID.
And through the first 3 weeks in September, sales per operating week were up approximately 7% relative to pre-COVID.
Housing
Single Family Housing Starts - US Census
Lennar - $LEN
Deliveries of 15,199 homes – up 10%
New orders of 16,277 homes – up 5%; new orders dollar value of $7.5 billion – up 19%
Backlog of 25,819 homes – up 31%; backlog dollar value of $12.0 billion – up 52%
Revenues of $6.9 billion – up 18%
Stuart Miller, Executive Chairman of Lennar, said, "During the third quarter, our company and the homebuilding industry as a whole continued to experience unprecedented supply chain challenges which we believe will continue into the foreseeable future. As a result, our third quarter deliveries of 15,199 homes were about 600 homes below the low end of our guidance. Additionally, we are adjusting our fourth quarter delivery guidance to, more or less, 18,000 homes, reflecting this supply chain constraint."
Mr. Miller continued, "Despite missing our delivery guidance, new home demand remains strong, even as the market reverts back to traditional seasonality. This is reflected in our 5% year over year sales growth and third quarter homebuilding gross margin of 27.3%, which was the highest quarterly percentage in the Company's history, and a 420 basis point improvement over the prior year. The improvement was driven by price appreciation as revenue per square foot increased 14% while cost per square foot only increased 8%.
Mr. Miller concluded, "The housing market has proven to be strong in the current environment as demand continues to outstrip limited supply. Accordingly, both limited supply and production will prevent excess production and extend the strong housing market conditions.
KB Homes - $KBH
Three Months Ended August 31, 2021 (comparisons on a year-over-year basis)
Revenues grew 47% to $1.47 billion, their highest third-quarter level in 14 years.
Homes delivered increased 35% to 3,425.
Average selling price rose 11% to $426,800.
Havertys - $HVT
Havertys sales for the third quarter to date of 2021 are up approximately 21.2% over the same period last year and comparable store sales are up 19.5%. Written business for the third quarter to date over the same period last year is up 2.7% and comparable written business is up 1.0%. This pace of business compares to the full third quarter of 2020 over 2019 and that period's increases in sales of 3.9% and written business of 22.8%.
“Our business continues to be strong as we work to deliver customers’ purchases and help them create their vision of home,” said Clarence Smith, chairman and chief executive officer. “Merchandise availability impacts our business and supply chain disruptions remain a concern, particularly as lockdowns continue in Vietnam," Smith concluded.
Steelcase - $SCS
Orders grew 24% compared to prior year and 12% compared to first quarter
Second quarter revenue impacted by supply chain disruptions, which are expected to persist into third quarter
Third price increase of fiscal 2022 announced in response to continued significant inflationary pressures
Outlook for third quarter reflects revenue growth of 22% to 27% over prior year
“The rise of the Delta variant has caused some U.S. customers to delay their return-to-office plans and has led to temporary uncertainty that may explain recent softening we have seen in our pipeline of project opportunities and requests for proposals in the Americas,” said Jim Keane. “Nevertheless, our orders were quite strong throughout the second quarter and remained strong in recent weeks, which is reflected in our third quarter revenue outlook. As the U.S. implements vaccine and testing mandates, businesses may see a more certain path to bringing people back to the office."
Inflation
Costco: Now I was asked back in March at our second quarter earnings call, at what level we felt inflation was running overall on the sell price side. I stated that our best guess at the time was somewhere between 1% and 1.5%. I updated that 16 weeks earlier -- 16 weeks ago on our May 26 third quarter call, and we estimate to be in the 2.5% to 3.5% range. As of today and talking with our senior merchants, we would estimate overall price inflation of the products we're selling to be in the 3.5% to 4.5% range.
Cracker Barrel: For the full fiscal year 2022, the Company expects Commodity and wage inflation in the mid-to-high single digits;
FedEx: Of these headwinds, the difficult labor market had the largest effect on our bottom line, representing an estimated $450 million in additional year-over-year cost, the majority of which impacted our FedEx Ground business. As we look into the impact of labor cost in the business, I want to break this impact into 2 components: higher wages and the impact of network inefficiencies. Of the $450 million, we estimate that $200 million was incurred in higher wage and purchase transportation rates. This included higher wage rates and pay premiums for team members and higher rates paid for third-party transportation services. In addition to the higher wage rates, we estimate that network inefficiencies of approximately $250 million contributed to the total impact of labor shortages on the business. These costs include additional line haul, higher usage of third-party transportation, cost to reposition assets in the network, overtime and recruiting incentives, all to address staffing shortages.
Steelcase: "The extraordinary inflation in steel, logistics and many other commodities impacted our gross margins more significantly than we expected in the second quarter, and we now project inflation will have a more significant impact on our results over the remainder of this fiscal year than we had previously expected," said Dave Sylvester, senior vice president and CFO. "The industry forecasts for steel costs have been revised upward and projected to last longer as they have been updated each month over the last year. Last week, in response to these unprecedented levels of inflation, we announced our third price increase of this year. We expect it will take until the second quarter of fiscal 2023 for the benefits from these three price increases to offset the current level of inflation."
Odds and Ends
There have been 18 instances since 1950 (in 72 years) that the S&P is up at least 15% during the first three quarters of the year. In the previous 17 instances, the median return for Q4 is +5.40%...that is only Q4. Up at least 18% YTD has only happened 11 other times since 1928, increasing the odds for a chase late in the year, to catch-up to the CNBC headlines. - JP Morgan
Fed Balance Sheet
Thanks for reading and enjoy your Sunday!
@RationalResear