Food & Staples Retailing

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WMT 140

16 Aug 2022

Walmart shares pop 5% after the company tops estimates and sticks to full-year guidance
It was just under a month ago that Walmart (WMT $140) shares plunged following dire management warnings on crimped profit margins due to inflation and a consumer who was cutting back on discretionary spending. The shock waves from those comments were felt throughout the industry. This week, we received a different story line. Walmart shares gained over 5% on Tuesday’s open following a revenue beat ($153B vs exp. $151B), an earnings beat ($1.77EPS vs exp. $1.63), and an improved outlook for the full year. Same-store sales at its flagship stores rose 6.5% in the quarter, while Sam’s Club saw a 9.5% gain. CEO Doug McMillon said that the company is now effectively working through the inventory problems which were at the heart of July’s lowered guidance. McMillon also said that behavior changes due to inflation are driving higher-income households into Walmart stores. Whatever the reason, the Street remain generally bullish on the company: out of 39 analysts, 20 have a buy rating and none have an underperform or sell rating on the shares. Walmart is one of the 40 companies within the Penn Global Leaders Club.

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WMT $120

Walmart shares drop 8% after the retailer slashed its profit outlook
(26 Jul 2022) The good news: America’s largest retailer, Walmart (WMT $120), said it expects same store sales, ex-fuel, to rise 6% in Q2 over the same time period last year. The bad news: profit margins are being crushed by inflation and a pullback by consumers in discretionary spending. Put another way, the bottom 40% of wage earners, being harder hit by higher fuel costs and grocery bills, have little left over for apparel and other discretionary items. Unfortunately for Walmart, that is where the fattest profit margins reside. Although the retailer won’t formally report Q2 earnings until the 16th of August, management announced that an oversupply of merchandise (inventories rose some 33% in Q1) at both Walmart and its Sam’s Club locations was forcing it to cut prices, thereby reducing net income. The company is projecting an 8% to 9% decrease in EPS for the quarter, and an 11% to 13% drop in earnings for the full year. Despite the move lower, Walmart is still holding up better than most of its peers. The company’s warning portends rough sailing ahead for lower-priced merchandisers which, unlike Walmart, do not have the luxury of relying on staples to help stabilize sales. Dick’s Sporting Goods (DKS $90), Kohls (KSS $27), and Bed Bath & Beyond (BBBY $5) all moved sharply lower after the announcement. Potential safety plays in the sector? We like well-run, dedicated grocers like The Kroger Company (KR $45) and Grocery Outlet (GO $44).   

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DG $228

DLTR $164

The dollar stores provide a much-needed positive catalyst for the markets
(31 May 2022) Certainly with respect to retailers, it seems all we have been hearing about lately is margin contraction. Consumer Staples companies, which sell the goods people need under all economic conditions, have been maintaining their gross sales levels, but their net profits have shrunk due to higher input, labor, and transportation costs, as well as disruptions in the supply chain. In other words, inflation is killing their bottom line. Assuming the so-called dollar stores (Dollar General and Dollar Tree primarily) would suffer the same fate at their larger brethren such as Walmart and Target, these companies had their respective share prices hammered in sympathy. All the bad news was priced in before the numbers ever came out. This was true more so for Dollar Tree (DLTR $164), which carries a larger percentage of discretionary items than does Dollar General (DG $228). Lo and behold, both companies surprised to the upside, sending shares of DG and DLTR up by double digits. Dollar General announced revenue of $8.8 billion, earnings per share of $2.41, and a negligible decline in same-store sales. The company also raised its full year sales guidance and maintained its bottom-line income projections. Dollar Tree posted revenues of $6.9 billion and earnings per share of $2.37, also beating analysts’ predictions, and raised its full year guidance. How are these low-cost darlings able to withstand inflation better than their larger competitors? Primarily, the answer revolves around management’s effective use of inventory tactics to preserve profits. Dollar General CEO Todd Vasos, for example, explained that the company can shift to substitutes when certain goods go up in price. They have also added self-checkout lanes to over 8,000 stores and have plans to turn another 200 locations into self-checkout only, thus reducing labor costs. For its part, Dollar Tree’s decision to raise the price of its $1 items to $1.25 hasn’t had any detrimental effect on sales. Finally, as could be expected, higher prices are driving more and more Americans to visit these stores; names which they may have shunned in the past. Expect this trend to continue through next year, as the US faces a probable recession. We have long regarded Dollar General as one of our most defensive plays in the Penn Global Leaders Club. Even after the economy troughs in 2023 or 2024 and begins a new expansion phase, the unique value proposition of the company—such as where the stores are located—means it will probably remain a core holding in the strategy.

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DG $222

Penn member Dollar General announces plans to open 1,000 new Popshelf stores to attract a wealthier clientele
(03 Dec 2021) We added Dollar General (DG $222) to the Penn Global Leaders Club—the home for holdings we expect to own for years—when shares of the discount retailer were discount priced themselves, at $71.06. It has been a relatively straight trajectory up from there: shares of the $51 billion Tennessee-based retailer are now trading north of $220. With more than 18,000 stores across the United States, the company's bread-and-butter customer base has been households with annual incomes of 40,000 or less, and we consider the investment an excellent defensive play for any economic downturn. Now, Dollar General has an interesting plan to widen its total addressable market. The company has been testing a concept store called Popshelf which is designed to attract a younger, wealthier group of shoppers. The roughly 9,000 square foot stores have been so popular that management has announced an aggressive plan to open 1,000 Popshelf locations by the end of fiscal 2025. Targeting suburban women with household incomes of between $50,000 and $125,000, the stores will present a bright and lively image, with the mix of goods changing frequently to create a "treasure hunt" vibe. Shoppers searching for unique gifts, holiday decorations, or party supplies should be able to find what they are looking for, all at a reasonable price. We applaud the move, and look forward to checking out one of the new locations. For the first time in its 80-year history, Dollar General also announced it would be delving into the international market, opening ten stores in Mexico by the end of FY 2022. Despite our success in the position, Dollar General continues to be an overlooked gem by so many retail analysts. That is simply a mistake on their part. For all of its tremendous growth within the Club, it carries a tiny price-to-earnings ratio of seven and an enviable financial position. While others chase multiples that don't exist (because they won't turn a profit for years—if ever), give us an income-generating machine like DG any day. 

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KR

Under the Radar: The Kroger Co.
(08 Jan 2021) It may come as a surprise to many, but The Kroger Co. (KR $32) is the nation's largest grocery store chain based on sales ($122B in 2020), with the company operating nearly 3,000 supermarkets throughout the country. And CEO Rodney McMullen has kept his 138-year-old firm looking fresh, with online ordering and curbside pick up at 72% of the stores, and home delivery options for 97% of the customer base. Kroger Ship, which launched last year, marks a major new push into eCommerce. The program provides online customers access to over 50,000 items in categories such as organic foods, international foods, housewares, and toys. Two new highly-automated fulfillment centers are slated to open this spring, which should further reduce the company's cost of fulfilling online orders. With a tiny multiple of 8.5 and a pullback in the share price, this consumer defensive value play truly appears to be an under-the-radar gem ripe for the picking. 

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WMT

Walmart to close on Thanksgiving this year, give staff another bonus
(22 Jul 2020) We recall the days when about the only store open on Thanksgiving and Christmas was Walgreen (WBA). Heck, we even remember the Blue laws, which kept nearly all stores closed on Sundays! How times have changed. One thing is changing back to the old ways, at least for one season: $375 billion mega-retailer Walmart (WMT $132) has announced it will remain closed for Thanksgiving this year. The move makes sense. Not only will social distancing make holiday shopping more challenging, the pandemic will also force management teams to change the way they market and execute sales for the busiest season of the year. Walmart, a member of the Penn Global Leaders Club, is simply taking the lead, and we can expect many more retailers to follow. In addition to the closure, the company also announced a new round of bonuses for employees to thank them for their efforts during the pandemic. The company will spend $428 million for the latest round of bonuses, bringing the total 2020 aggregate bonus spend up to $1.1 billion. Something tells us that this year's online shopping activity on Thanksgiving Day will make up for the missed in-store experience.

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ACI

Analysts are giddy over newly-IPO'd Albertsons; are they right to be?
(22 Jul 2020) This isn't the first rodeo for the firm, as Albertsons Companies (ACI $16) was publicly traded up until 2006, when the debt-laden grocer was forced to sell assets and become acquired by SuperValu and hedge fund Cerberus. So why did the second-largest North American grocer (behind Kroger—KR) decide to become a publicly-traded entity yet again? Actually, Cerberus has been looking to offload the company for some time, even planning an IPO back in 2015. Back then, however, a soft retail environment forced management to hold off on the plans. Today, as grocery chains are benefiting from increased business due to the lockdown and restaurant closures, management decided to forge ahead with the offering. It was less than spectacular. Despite looking for an initial share price between $18 and $20, the market priced the shares at $16—and they proceeded to fall 3.44% on the day, closing at $15.45. So why are a dozen or so major analysts suddenly initiating coverage with a "Buy" rating, especially with privately-held German rival Aldi about to go on a US building spree? The comments range from "positive macro-trends as more Americans work from home," to "expanded curbside pickup." Yawn. Here's what we see: A debt-to-equity ratio (leverage of debt holders over equity holders) of 3.825, compared to Kroger's 1.440 and Walmart's 0.777, and a non-distinct business strategy with no moat. The price targets range from $18 to $21 per share, but we wouldn't touch the shares, even below their IPO price.

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WMT

Walmart rises 7.77% on the day it announces Prime-like service
(07 Jul 2020) Shares of seasoned Penn Global Leaders Club member Walmart (WMT $102-$128-$133) spiked nearly 8% after the $363 billion retailer announced it would be rolling out a new Amazon (AMZN) Prime-like service to be called Walmart+. According to tech news site Recode, the subscription-based service will launch in July and cost $98 per year. For that fee, members will enjoy same-day home grocery delivery, gas discounts, special "member-only" deals, and a number of other perks. After Amazon made it big, many retail analysts were ready to write the epitaph for the Arkansas-based retailer. It didn't take long for a skilled management team, however, to figure the out e-commerce business—or hire the best and brightest minds for the job—and prove the naysayers wrong. We have little doubt that Walmart+ will be a rousing success. And we will have a straightforward yardstick for measuring that success: Amazon currently boasts roughly 150 million Prime members.

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PFGC

Under the Radar investment: Performance Food Group
(23 Jun 2020) To say that most people have never heard of Performance Food Group (PFGC $29) is probably an understatement. In fact, as the third-largest food-service distributor in the country, it is fair to say that many people have not even heard of the company's two bigger rivals: Sysco (SYY) and US Foods (USFD). There are many reasons we like Performance, from its size to its financial situation to its current undervalued state. As opposed to Sysco, with its $30 billion market cap, Performance is a $3.8 billion mid-cap with strong growth potential. The company, which has turned a profit every year for the past decade, was pummeled for obvious reasons during the pandemic—it delivers food to restaurants. We believe its fall from $54 per share in mid-February to its current price fails to take into consideration the strong relationship it has built with its clients, and the nascent comeback in the food industry in the US. We would value the shares north of $40.

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DG

WMT

TGT

Three Global Leaders Club members were stalwarts during lockdown
(20 May 2020) Considering there are only 40 positions in the Penn Global Leaders Club and 197 industries from which we have to choose, it may seem somewhat unusual that we hold three names in the strategy from the same industry: Discount Stores. As it turns out, all three, Dollar General (DG $180), Walmart (WMT $126), and Target (TGT $122), were relative rock stars during the pandemic-induced market meltdown. While the Dow is still down 14% year-to-date, Target is only down 5%, Walmart is up 6%, and Dollar General is up nearly 16%. While we are still waiting for DG to report Q1 earnings (on the 28th of May), both Walmart and Target have already reported scorchingly-hot numbers for the first three months of the year. Here are a few metrics we pulled out of Walmart's earnings report: same-store sales rose 10%; customers spent 16.5% more per visit; digital sales rose 74%; traffic at the Sam's Club unit rose by 12%; operating cash flow doubled—to $7 billion. Of course, this begs the question, can these discount retailers keep up their momentum as things return to normal? Considering the battered state of the US (and global) consumer, we still have a strong conviction toward all three names.

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KR

Penn member Kroger jumps 12% after its 2019 Investor Day leaves analysts impressed. (06 Nov 2019) We only hold around 40 companies at any one time in the Penn Global Leaders Club. Out of our five strategies, this is the one we rarely use tools such as stop-loss orders to protect positions, as these companies are, as the name implies, industry leaders. Perhaps the one holding we have had trepidation about lately in this strategy has been America's leading grocer, Kroger (KR $21-$28-$32). Back in August of 2018, we wrote glowingly of CEO Rodney McMullen's vision, and the company's well-executed journey into Asian markets through its Alibaba (BABA) partnership. It should be noted that shares of Kroger were selling for $30 at the time. Yesterday, after a sanguine Investor Day helped drive the shares up nearly 12%, they sit near $28 per share. As for the event, management announced a $1 billion stock buyback program, raised its 2020 EPS guidance to $2.30-$2.40, and detailed a new branding campaign, complete with a new logo, slogan, and cute little "Kroji" characters to "keep Kroger fun." The store's Restock Kroger plan is also paying off, and the company has a number of enormous fulfillment centers in the works to remain competitive in the online food ordering space. All that being said, management needs to execute near-perfectly in this hyper-competitive, low margin industry. Unlike Walmart (WMT) and Amazon (AMZN), it doesn't have other lines to fall back on. Hence, our trepidation. We are rooting for Kroger to succeed against Amazon and Walmart—two companies we also happen to hold in the PGLC. However, after this recent run-up in share price, we will probably do something unusual within the strategy and place a stop on the shares to protect our gains.

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APRN

​BYND

Blue Apron jumps 30% after the company announces it will begin featuring Beyond Meat in its kits. (16 Jul 2019) The two IPOs could hardly have been more different. Blue Apron (APRN $6-$10-$58), which went public two summers ago (hard to believe it has been that long), came out of the gate around $150 per share and proceeded to slide all the way to $6. Beyond Meat (BYND $45-$172-$202), on the other hand, opened around $50 per share and has been on a tear, regaining the $170 mark on Tuesday. After the meal kit delivery company announced it entered into a partnership with Beyond Meat, however, its shares suddenly spiked 70%. While they didn't hold all those gains, it was still up 30% at the close of business. Blue Apron announced it would begin selling kits with Beyond Meat products in them by the end of summer, to include the "caramelized onion and cheddar burger." As for BYND, the shares were up 3%, to $171.60, on the day. We continue to stand by two claims: most people underestimate the potential of the plant-based meat industry going forward, and Beyond will be the industry benchmark for others to follow. We bought the company near $50 per share as a long-term investment, not a trade.  Nov 2023 Update: Were we ever wrong on this call. BYND sits at about $6 per share and APRN is being taken private by food delivery company Wonder Group for around $83M. that reflects a $13/share price, though shares had been trading around $5 recently. As for BYND, Impossible has been cleaning its clock. Wise decision for Impossible not to go public yet. 

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WMT

Retail, the Good: Walmart blows away quarterly expectations, jumps 10%. (16 Aug 2018) Early in Thursday trading, the Dow was up over 300 points; about one-third of that was due to one company—Penn Global Leaders Club member Walmart (WMT $78-$100-$110). The $294 billion retailer (which started the day out as a $265 billion retailer) released its Q2 earnings report Thursday morning, and the numbers were remarkable from top to bottom. Revenues came in at $128 billion versus $122 billion in the same quarter of 2017, while earnings per share grew from $0.96 to $1.29 over the same period. Same-store sales in the US grew 4.5%, or about double what was expected, and online sales at the company grew a whopping 40%. With skilled digital mastermind Marc Lore (former CEO of jet.com, which WMT purchased a few years ago) at the e-commerce helm, brands are now rushing to get their goods into the Walmart online platform. As soon as the report was announced, WMT shares spiked by over 10%. CEO Doug McMillon has been the driving force behind the Walmart renaissance, and we expect the company to see continued growth moving forward. ​

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KR

Kroger's management team continues to impress; makes move into Chinese online market. (14 Aug 2018) We have held up iconic food retailer Kroger (KR $20-$30-$31) as the one glittering jewel in an industry under attack by rising food costs, shrinking margins, and online retailer Amazon (AMZN). Now, in a direct shot back at Amazon, the 135-year-old grocer is teaming up with Chinese e-commerce behemoth Alibaba (BABA) to sell its products digitally to the Asian market. Kroger will have a digital storefront on Alibaba's new platform for international brands, known as Tmall Global, selling products under the grocer's Simple Truth brand. Recently, Kroger acquired British online supermarket Ocado, and meal kit startup Home Chef. CEO Rodney McMullen continues to prove himself as one of the most visionary leaders in the industry.  At its current price of $30 per share, KR has a tiny p/e ratio of 7 and a market cap of $26 billion. ​

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RAD

The Albertsons deal to buy Rite Aid is dead, which means the grocer will remain private. (09 Aug 2018) Both privately-held grocer Albertsons and publicly-traded drugstore Rite Aid (RAD $$1-$1-$3) are in a really tough situation. Both have been getting their clocks cleaned by the competition in their respective industries, and this plan to merge, which we wrote skeptically about this past January, was somewhat of Hail Mary pass.  Now, that deal is dead. The cause of death was a failure of Rite Aid to get enough support among shareholders, who probably made the right decision in their rejection. This merger would have valued the joint company at around $24 billion; right now, RAD has a market cap of just $1.6 billion (the company dropped 11% on news of the terminated deal). RAD had a market cap of $9 billion in January of 2017. With the aggressive but sound strategic moves of Walgreens (WBA) and CVS (CVS) over the past several years, what can Rite Aid possibly do at this point to spring back to life? Same for Albertsons. When Kroger (KR) was getting hammered following the Amazon (AMZN)/Whole Foods deal, we were busy picking the chain up for our Global Leaders Club. Why? The adroit management team at Kroger, led by CEO Rodney McMullen, had a solid plan to answer the online retailer's encroachment into the industry. Albertsons and Rite Aid are two blah companies in two hyper-competitive industries. How in the world would the merger of two also-rans create a dynamic new synergy? It was, in our opinion, simply a way for Albertsons to tap into the flow of money within the capital markets. Would-be investors should thank Rite Aid shareholders. ​

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KR

Penn member Kroger spikes nearly 15% in two trading days. When Amazon (AMZN) ramped up its pressure on the retail food industry with its purchase of Whole Foods, iconic grocer Kroger (KR $20-$29-$31) immediately took it on the chin, hitting a new 52-week low. We then added the company to the Penn Global Leaders Club, as this appeared to be another classic example of the markets not being efficient. Were this a poorly-run company, the story would be different, but Kroger has exemplary management in place and is not sitting still while an interloper eats its market share. Evidence of management's success came in the form of the most recent quarterly earnings report. Total sales increased 3.4%—to $37.5 billion—over the same quarter a year ago, and net earnings rose from $0.58 to $0.73 per share, year-over-year. These are dividends being paid from CEO Rodney McMullen's "Restock Kroger" initiative, designed to transform Kroger into a tech-savvy, 21st century food retailing juggernaut. Investors applauded the quarterly results by sending the shares up nearly 15% over the past two trading sessions. ​

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WMT

Walmart to expand its online grocery delivery service to 100 cities by end of year
(14 Mar 2018) Penn Global Leaders Club member Walmart (WMT $69-$88-$110) announced that it would expand its home grocery delivery service to 100 cities by the end of the year, up from the current six cities. That will mean nearly 40% of the US population will have access to home delivery by the world's largest grocer within the year. Here's how it works: you, the shopper, will order Walmart groceries online; store workers will receive the order and pack the goods; the packages will be handed off to a third-party delivery company for the trip to your front door. The store has already signed a delivery agreement with Uber Technologies, but other crowdsourced companies will be added this year. This is so much better than Walmart's curbside grocery pickup service which it rolled out over the past two years. The benefit of delivery is greatly diminished if the customer must actually drive somewhere to get the goods. Great move.  

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WMT

If you've been waiting to get Walmart shares at a cheaper price, now is your time
(20 Feb 2018) Shares of $310 billion Global Leaders Club member Walmart (WMT $69-$95-$110) were off about 10% in early trading—dragging the Dow down as well—after Q4 earnings disappoint. It wasn't that sales didn't still grow at America's largest retailer, it was just that they didn't grow as rapidly as they did for rival Amazon (AMZN). While comparable-store sales grew for their 14th consecutive quarter, Walmart's online sales grew at "just" 23% over the holiday quarter. That may sound impressive, but they (sales) were up 29% in the same period a year prior, and 40% over at Amazon. Here's our take: there are still some growing pains (like merchandise stocking issues) from the company's acquisition of online retailer Jet.com. Walmart will get this down to a science. In the meantime, shares are on sale. 

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ABS
(pending)
​RAD

Grocery chain Albertsons, with its IPO still on hold, announces acquisition of remaining Rite-Aid stores
(20 Feb 2018) Privately-held grocer Albertsons announced that it was in advanced talks to buy the remaining 2,500 or so Rite-Aid (RAD $1-$2-$6) stores which were not purchased by Walgreens (WBA) in a 2017 deal. The merger, which is set to take place this summer,  will value the grocer at roughly $24 billion. That valuation is important for investors to know, as Albertsons' IPO is still in a holding pattern. The company, primarily owned by hedge fund shop Cerberus Capital Management, announced it was going public in 2015, under the symbol ABS, but the listing was postponed due to "weak market conditions" (at least that is Albertsons' story). The year prior, Albertsons had purchased iconic grocery chain Safeway, and was in the process of buying 70 A&P (Great Atlantic & Pacific Tea Company) stores. The Rite-Aid purchase, according to an Albertsons press release, will create a "food, health, and wellness leader." That may be wishful thinking—the competition in the space is fierce.

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AMZN

Amazon Go opens, the company's first cashier-less store
​(23 Jan 2018) Imagine walking into a super-clean 7-Eleven store, picking up everything you need, and then simply walking out. No lines, no interaction, just you and the goods. Amazon (AMZN $803-$1,349-$1,353) is bringing that concept to reality with its Amazon Go stores, the first of which just opened to the public in Seattle. The company's "Just Walk Out" technology automatically records everything a shopper takes, and then charges them on the way out. The secret of Amazon's massive success has been in bringing convenience to Americans, with lower general costs coming in a distant second on the benefits chain. With Amazon Go, the company continues to push the envelope, forcing others to re-think their business strategies. And, in the end, the consumer is the real winner. The convenience store racket is about to become yet another industry disrupted by the $650 billion retailer.

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WMT
​KR

The end of the cashier?
​(10 Jan 2018) Food and retail superstores Walmart (WMT $65-$100-$102) and Kroger (KR $20-$28-$35) are about to roll out technology that will transform the way we shop. Specifically, it will end the days of trying to find the shortest checkout lane and then fumbling through gossip rags as we wait to pay for our goods. Walmart is calling it “Scan & Go,” while Kroger’s platform is named “Scan, Bag, Go,” but the two have the same objective: allow shoppers to scan items as they place them in their cart, and then pay with the simple tap on a smartphone app. The technology now exists to complete such transactions, as Amazon (AMZN) has proven. WMT and KR will begin rolling out the systems at hundreds of locations this year. Both companies have said they plan to simply re-deploy cashiers to perform other tasks designed to enhance the customer experience. 

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APRN
​KR

Albertsons will buy Blue Apron competitor Plated for around $300M
​(21 Sep 2017) Here’s something that should send shivers up the spine of executives at meal delivery firm Blue Apron (APRN $5-$5-$11), which has already seen its market cap cut in half: Imagine how easy it would be for national grocery chains to replicate this business model. After all, they have all of the products in-house, at thousands of locations across the country; plus the built-in customer base! It looks like Albertsons has figured that out, though they are not starting from zero. Instead, the private equity-owned grocer (Cerberus Capital Management owns them) picked up Blue Apron competitor Plated for around $300 million ($200 million plus residuals). There is only one way this ends good for Blue Apron, and that is if another national grocer buys them out. Considering their value has already dropped from $3 billion pre-IPO to $992 million at current prices, that is looking quite possible. Then again, why wouldn’t a smart outfit like Kroger (KR) simply build their own meal delivery company from scratch and market to their tens of millions of faithful shoppers?

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KR

Despite good earnings report, Penn member Kroger falls
(08 Sep 2017) In the second quarter of 2016, grocery store chain and Penn Global Leaders Club member Kroger (KR $20-$21-$36) recorded $26.5 billion in sales. This past quarter, the grocer raised that figure to $27.6 billion—its fourth-straight revenue beat. The industry equivalent of same-store sales rose 0.7%, or roughly double what was expected. Digital sales rose an impressive 126% thanks to the company’s new ClickList online ordering system. And shares of the company are down 10%. I used to work with an old-school broker who would say to clients, “well, the price is down, time to scoop up some more!” I rarely subscribed to his philosophy, but it would apply with Kroger. Conservatively, we would place a fair value on the company at north of $30 per share. Now, if the market would just come around, we would be sitting pretty. Unfortunately, they are still blinded by the light of the Amazon/Whole Foods deal.  

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WMT

Despite solid quarter with strong sales, Wal-Mart takes a breather 
​(17 Aug 2017) The quarterly sales number was certainly there for the world’s largest physical retailer. Wal-Mart’s (WMT $65-$81-$82) Q2 results, released Thursday morning, show a 12th consecutive increase in same-store sales and increased traffic—both at the company’s stores and via the firm’s website. Revenues rose 1.8% from the same period last year, to $123.6 billion. Net income, however, fell 23% from last year, to $2.9 billion. That can be explained away by the company’s repurchase of debt following a bond tender offer. Online sales increased 60% from the same period last year. Shares of the Penn Global Leaders Club member are off about 2% following the report, but they have been trading near a 52-week high.

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WFM

(19 Jun 2017)  How Amazon's purchase of Whole Foods will re-shape the retail food industry.   On paper, it wasn't exactly a mega-deal.  With a market cap of under $10 billion before the offer came in, Whole Foods Market (WFM $28-$43-$43) had been floundering due to increased competition and management problems.  Now that the $476 billion online behemoth Amazon (AMZN $682-$987-$1,017) has agreed to purchase the struggling food retailer for $13.7 billion, it will reshape the industry, for sure.  However, don't expect Amazon to impact the likes of Kroger (KR $20-$22-$38) and Wal-Mart (WMT $65-$75-$80) the way it did Border's and Barnes & Noble.  In the Penn Wealth Report, Vol 5., Issue 02, we delve into the acquisition and how it will change the way Americans shop for food, and what it means for other players in the industry. Take me to the story.

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WFM

(Fr, 16 Jun 2017)  Amazon to Buy Whole Foods for $13.7 Billion
Internet retail giant Amazon (AMZN $682-$986-$1,017), with its net worth of $471 billion, announced on Friday that it has agreed to purchase organic food retail pioneer Whole Foods Market Inc. (WFM $28-$43-$38) for $13.7 billion, or $42 per share.  Shares of WFM spiked 30% on the news.

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WMT

(18 May 2017)  Wal-Mart's US e-commerce sales surged 63% in Q1.   $228 billion retail giant Wal-Mart (WMT $63-$76-$77) was up 2% in early Thursday trading on strong quarterly sales.  Same-store sales at the retailer were up for the 11th straight quarter (1.4%), but the real story is the company's success at battling Amazon in the e-commerce arena.  Wal-Mart's first quarter e-commerce sales surged by an incredible 63%, buttressed by the purchase of online retailer jet.com.  Revenue for Q1 came in just shy of $118 billion.

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WFM

(10 Apr 2017)  Selling Whole Foods in Global Leaders Club after 10% spike.  Activist investor Jana Partners has just gobbled up a nearly 10% stake in organic grocer Whole Foods (WFM $28-$34-$36), with the apparent strategic goal of taking the company private.  It was just six months ago that we reported on WFM's end to its ill-fated co-CEO scheme, and we were hopeful of a turnaround.  That hasn't happened as of yet, with the company facing a barrage of competition from other organic players and more traditional grocers increasing their organic shelf space.  As for Jana, the hedge fund is in the throes of one of its worst spells in its 15-year history.  The writing is on the wall, and we don't like what it spells—we took advantage of the 10% spike in share price and exited.

SFM

(20 Mar 2017)  Less than four years after going public, Sprouts may be taken private.  Financial engineering.  The investment phrase we detest more than any other.  When a company goes public, it typically means an enormous economic windfall for the executives sitting atop that company's structure.  But what about the remaining stakeholders, like the everyday investors?  It was just August of 2013 when Whole Foods wannabe Sprouts Farmers Market (SFM $17-$22-$30) went public.  Now, after the share price has been cut in half, the company is in talks with privately-held Albertsons (owned by private equity firm Cerberus Capital Management) to be gobbled up.  Another windfall for the top executives.  No wealth creation by the creation of exceptional products and services, just financial engineering.

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KR

(02 Mar 2017)  Penn member Kroger beats on top and bottom lines.  Grocery powerhouse Kroger (KR $29-$32-$41) reported Q4 earnings that beat expectations both with respect to top-line revenues and bottom-line profits.  The company generated $27.6 billion in revenue for the quarter, a 5.5% increase from the previous year, with $506 million flowing down for net profits.  That being said, competition in the space is fierce, and the company's stock price is off about 11% year-to-date.  We are placing the company on a watch list pending results of management's new plan for growth.  Kroger is one of 40 companies in the Penn Global Leaders Club.

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WFM

Management shakeup served up with Whole Foods’ conference call

(03 Nov 16)  Whole Foods Market (WFM) is one our favorite food and staples retailers.  As a matter of fact, we currently own it in the Penn Global Leaders Club.  That being said, we have taken issue with their co-CEO leadership structure.  Nope, there can be only one leader at the top of an organization; having joint-ownership of a firm’s biggest issues and strategies can only lead to strife and confusion.  Fortunately, along with a top and bottom line beat, the company also served up a solution to the problem in their third quarter conference call.

First the numbers.  On $3.5 billion in revenue (almost identical to Q3 of ‘15), the company brought in $88 million of net income.  That is a 54% increase from last year, but a 58% drop from the average net income of the previous three quarters.

The company is about 50% along on its $300 million cost-cutting program, and is pushing ahead with its “365” store concept.  These stores are smaller, focusing on convenience, price, and technology.  Think of a high-tech Trader Joe’s.  With only three of the stores open thus far, it is simply too early to gauge the program’s level of success. 
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As for the leadership brouhaha, the company has appointed John Mackey, one of the company’s founders, as the sole CEO.  Walter Robb, who has done a fine job at the helm in his own right, will step out of the co-CEO role but retain his spot on the board of directors.  (Reprinted from this coming Sunday's Penn Wealth Report)

 (OK, got it.  Take me back to the Penn Wealth Hub!)

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Despite the Spate of New Market Entrants, Whole Foods Remains the Dominant Organic Player

(Th, 07 May 15)  When I was a little kid, my sisters and I would be lugged to the local Kroger or A&P grocery store to help with the family shopping for the week.  I remember three things in particular: the “grocery store music,” the sugar cube I would sneak from the little coffee area set up for customers, and the free sugar cookie the nice lady at the bakery would give us each week.  (I can now see why we had a serious sugar addiction in the 70s.)  

Fast forward to more modern times, and the shopping experience has become, shall we say, a lot more mundane.  Perhaps it is because we have been buying our groceries at one of the ubiquitous supercenters, but the lack of service, the racks and kiosks shoved in what used to be the walkways, and the one-handed cart-pushers with a cell phone up to their ear...what a drag.  Last week, however, something happened that made me reminisce back to the coffee stand and the box of sugar cubes.  We visited a brand new Whole FoodsWFM.

A few months ago I was ready to write the epitaph for WFM, considering that, down one local street, you could run into a Sprouts, a Natural Grocers, and a Whole Foods all within a reasonable distance of one another.  Not to mention the new organic sections in big chains such as Wal-Mart and Target.  It seemed as though the competition had caught on to the Austin, Texas-based company that helped change the American diet.  Then I had my in-store experience.
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It began with a trip to the quaint little taproom nestled in a windowed corner by the bakery department.  With twelve local craft brews on tap, three local wines, and a trove of hard liquor, I had a gleam in my eye that the bakery lady at the A&P must have seen when she handed me my sugar cookie.  After a few beers in this kid-friendly section (they also serve soda pop and fresh menu items), we strolled through the aisles like tourists at a Marrakech market—minus the snake charmers and crazy-eyed monkeys.  It was a trek, not a dreaded grocery store trip.  

Sure, we knew it would be more expensive than a typical supercenter trip, but we were prepared for that going in.  Actually, we were surprised to see the number of items that were either on special or reasonable in price.  We found the staff to be both friendly and helpful.

The company is not sitting still.  Later this summer CEO Walter Robb will introduce a new store concept to complement the current design.  We expect something “hip and cool,” with technology playing a key role, and with slightly lower prices in the aisles.  Stay tuned.

On Thursday morning, following an earnings report that showed an 11% increase in profit, investors punished WFM for disappointing margins, driving the stock down 12%...to see what action we took, be sure and check out next Sunday's Journal of Wealth & Success, Vol. 3, Issue 19.
(OK, got it.  Take me back to the Penn Wealth Hub!)

Global Leader’s holding Kroger spikes on Q4 earnings report.  
(Th, 05 Mar 15, 0930)  Penn Global Leader’s Club member KrogerKR spiked up 6% today on the back of an excellent fourth-quarter earnings report.  The company’s earnings rose 23% on strong sales and a higher fuel margin thanks to lower gas prices.

The company has been on a buying spree over the past few years.  In January of 2014 it picked up higher-end food retailer Harris Teeter, and last summer it bought online vitamin seller Vitacost.  We continue to like their growth trajectory in an industry that can be pretty boring.
   
Traditional Food Firms Getting Squeezed out of the Aisle by Healthier Choices
(12 Feb 15)  Kellogg…Kraft…ConAgra…Campbell Soup…Smucker…it is as if they all got together and decided to announce the bad news as a Greek chorus.  Your first thought might be that the stronger dollar is crimping the international sales of these giants, and that is true; but the story goes a lot deeper.

On Thursday, these firms began to lower their earnings outlooks on the back of sour quarterly reports.    Kellogg, the largest maker of breakfast cereals, not to mention Pop-Tarts and a host of other sugary snacks, now projects forward-looking growth of just 1% to 3% annually.  Campbell Soup, maker of Pepperidge Farm snacks and V8 juice, will report later this month and preemptively told investors to expect flat sales amidst currency headwinds and changing consumer tastes.  They are trying to rectify the challenge with purchases of such brands as Bolthouse Farms juices and Plum Organics baby food.

J.M. Smucker, which owns Folgers and Dunkin’ Donuts coffee, in addition to its line of jams and jellies, said that weakness in their coffee segments hurt the top and bottom lines.  Perhaps that is because they raised coffee prices last June by 9% or so.
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A number of these firms are in the midst of major restructuring efforts, to include the loss of at least a couple of CEOs and an effort to win back market share.  But with more entrants, especially in the high-demand health food segment, they have their work cut out for them.  Investors who have relied on the steady income stream from these stodgy old food companies tread with caution—a regular dividend increase does not equate to a healthy profit.