Chipotle's Greek Cousin

By?Matthew Gutierrez,?Shawn O'Malley, and?Weronika Pycek?· June 15, 2023

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They say stocks bottom before fundamentals. The latest example came over the past several months.

As you’ll see in our Chart of the Day, stocks have been in an upward trend since the mid-October lows, months before it was clear that inflation peaked and the Federal Reserve was taking its foot off the gas???

Amid all the headlines about recessions, inflation, and high-interest rates, the world’s most valuable companies, such as Apple, Microsoft, and Nvidia, are soaring to new all-time highs this week.

Are we in the early innings of a prolonged bull run?

-Matthew

Here’s the rundown:

Today, we'll discuss the?three biggest stories in markets:

• Beyoncé blamed for high inflation
• Cava raises $318 million in long-awaited IPO
• Beloved Instant Pot maker files for bankruptcy

All this, and more, in just?5 minutes to read.

POP QUIZ

Apple hit another new high this week as its valuation approaches $3 trillion. Which Apple co-founder famously sold his 10% share of the company in 1976 for just $800? Hint: It’s not Steve Jobs. (Scroll to the end for the answer)

CHART OF THE DAY

IN THE NEWS

?? Beyoncé Blamed for High Inflation in Sweden (FT)

What causes?inflation?spikes? War? Supply chain disruptions? Excess demand? Probably. But according to Danske?Bank,?we should add to that list?Beyoncé?as well.

The iconic American pop star, worth $500 million, was blamed for?persistent price pressures in Sweden, as her Renaissance tour drew fans from all over the globe to the Swedish capital.

• Most of the 46,000 attendees per night had to secure accommodations?far from the city center?at?sky-high prices,?broadening the show’s economic impact.
• Due to a limited number of hotels and accommodations in Stockholm,?prices jumped?in locations as far as 31 miles (50 kilometers) from the capital.

Higher prices led to a?smaller decline in overall inflation?than anticipated. According to official statistics, annual consumer price inflation decreased from?10.5% to 9.7% in May. Economists had anticipated a more pronounced slowdown to 9.4%.

• “Beyoncé is responsible for the extra upside surprise this month. It’s quite astonishing…We haven’t seen this before,” said Danske’s chief economist in Sweden.

Why it matters:

While large sporting events have historically distorted economic statistics, a single event doing so is much more unprecedented.

Given it’s been seven years since Beyoncé last hit the road touring the world, it’s no wonder?fans are flocking to European cities.

• Her show has captivated audiences in cities like Brussels, Cardiff, Edinburgh, and London, with seven more dates in Germany, the Netherlands, and Poland?before the madness hits Canada and the U.S.

Many fans traveled to Sweden?for the sold-out concerts due to?relatively cheaper tickets?and?favorable exchange rates, which increased their spending power.

• In February, some of Beyoncé's fans revealed they had managed to secure tickets for her Swedish concerts at?significantly discounted prices?compared to her shows in the U.S.

Ticket prices for Beyoncé's concerts in Stockholm ranged from?$60-$140, while Ticketmaster prices for standard admission to her Las Vegas show range from?$91 to $689. The resale tickets in other U.S. cities sold out for significantly higher amounts.

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?? Cava Raises $318 Million in Long-Awaited IPO?(CNBC)

The restaurant chain making Mediterranean food mainstream in fast-casual dining (Chipotle’s Greek cousin, if you will), Cava, just raised?$318 million?in its initial public offering (IPO). With over 250 locations, the company sports an initial market value of $2.45 billion, up from $1.71 billion – its private value after a fundraising round in April 2021.

• Axios’s Dan Primack?calls it "the?big win?that the IPO market has been desperately waiting for.”

See, the Fed’s interest rate hikes in 2022 caused a sharp stock market selloff, making it?less attractive?for companies to transition from privately owned to publicly traded on stock exchanges (aka IPOing).

The stock market has recovered this year, but the IPO market has bounced back more slowly.

• Primack writes that Cava’s?successful IPO?suggests “institutional investors are again willing to look at new names.” Its shares doubled in their debut Thursday morning, trading (appropriately) under the ticker “CAVA.”
• The last 18 months have been the?slowest for the IPOs?since the 2008 financial crisis.

After acquiring its Mediterranean rival, Zoes Kitchen, in 2018 for $300 million, the company has spent the last five years?converting its locations into Cava restaurants.

• And business has been improving: Last year, its sales climbed to $564.1 million, up 12.8% from the year before. In the first quarter of 2023, Cava delivered an impressive?28% same-store sales growth.

Why it matters:

Although the company is still losing money,?investors’ warm reception?of its stock indicates faith in a clear path toward profitability, as the company plans to use proceeds from its IPO to expand into more locations.

Not only could Cava’s offering?kickstart the IPO market?generally, but it also blazes a path for other restaurant chains to go public, such as the Brazilian steakhouse Fogo De Chao and Korean BBQ chain Gen Restaurant Group, as well as Panera Bread and Fat Brands’ Twin Peaks, which have all expressed interest in ‘going public.’

• One market strategist added, “Nobody wants to be the first one to go public, which is why I think we tend to see companies in the same sector go public in batches.”

MORE HEADLINES

???The European Central Bank continues to?raise rates?as its economy stutters

??? Retail spending?topped?analysts’ projections in May

?? TikTok to?invest?billions in Southeast Asia

???? ?? Beloved Instant Pot Maker Files for Bankruptcy?(NYT)

Yet another?pandemic darling?is in trouble.

Sales of the?Instant Pot, an appliance that cooks food in several ways, surged during Covid-19. But its maker, Instant Brands, has struggled to find new fans for its product. The product's manufacturer?filed for bankruptcy?on Monday.

• What appealed to so many people was its ease: Drop in some meat, onions, peppers, tomatoes, and spices, then head for work and run errands and return to cooked chili.
• The product hit the market in 2010 and became a top seller among the self-proclaimed "Potheads" who used Instant Pots to create dozens of recipes. College kids, busy parents, and retirees alike loved it.

Per market research company Circana, dollar and unit sales for multicookers — appliances that cook food — declined?20%?from April 2022 to April 2023.

Now, Instant Brands is filing for Chapter 11 bankruptcy. The move will secure?$132.5 million?in funding, allowing it to stay intact and restructure rather than liquidate Its business.

The company's president noted that “after successfully navigating the Covid-19 pandemic and the global supply chain crisis, we continue to face additional global macroeconomic and geopolitical challenges that have affected our business. In particular,?tightening of credit terms?and?higher interest rates?impacted our liquidity levels and made our capital structure unsustainable."

• Translation: The company couldn’t earn enough to support its debt.
• In other words, the company fell short on cash after slowing sales, just as vendors and suppliers tightened payment terms. Instant Brands faced interest payments in June, but its cash positions worsened, so it chose to pursue bankruptcy financing instead of a short-term loan.

Why it matters:

Multicookers and air fryers posted "double-digit dollar sales" in 2020, per NPD Group. But a University of Pennsylvania professor noted that "the official excuse" Instant Brands "is giving is the debt burden," adding "that's a common refrain from these retail companies that go into bankruptcy, that they're?carrying too much debt."

• Instant Brands isn't alone in struggling to grow sales after a pandemic-fueled spike. Many people stayed home during the pandemic and embraced activities such as cooking, grilling, exercising, and home improvement.
• But lockdowns ended, economies re-opened, and many people didn't buy another Instant Pot,?Peloton, or home improvement project. Companies like Zoom also have faced headwind after headwind coming out of the pandemic.

For context, Peloton bike sales surged during the pandemic, but the company laid off 20% of its workforce last year and?lost $439 million.

TRIVIA ANSWER

Ronald Wayne?was the third co-founder of Apple, along with Steve Wozniak and Steve Jobs. In 1976, he sold his 10% share of the company for $800. Today, his 10% would have been worth nearly $300 billion.

SEE YOU NEXT TIME!

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