Concerning Consumer Retail Traffic Trends, Lulu, Darden & FedEx Earnings & More
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NoBull’s analysis & benchmarking of the leading 80+ retail companies are presented in the following 4Q23 reports: (1) Corporate Analysis Summaries; (2) Same Store Sales Benchmarking; (3) Financial Performance Benchmarking; (4) Retail Stock Performance; and (5) Economic Dashboard. Notably, quarterly financial results for the retail sector were generally healthy despite a difficult macro environment which has been particularly punishing on the lower income demo. Learn more about NoBull's All-Inclusive Subscription Services.
How can restaurant/retail traffic decline every year unless something is shrinking? We understand how traffic declined during the notorious covid lockdowns, but it seems that these declines have continued for at least the next 4 years with no definitive end in sight. Are the same number of consumers shopping less frequently? Are there fewer consumers? We have yet to hear a logical explanation for this troubling trend which should be a major concern for every retail stakeholder…
In our last analysis, we mentioned that we have yet to hear a logical explanation for the troubling trend of the persistent post-covid traffic declines which should be a major concern for every retail stakeholder. In our opinion, a look at the labor participation rate provides a clue worth exploring.
The chain restaurants reported solid 4Q23 same store sales comp results which were mostly in-line with the last several quarters. While traffic continues to represent an industry challenge, the chains have been successful in passing through menu price increases while also driving a favorable product mix. Industry players have been mostly successful in offsetting sales weakness from the lower income demo with sales growth from the more affluent. Fortunately, the possibility of interest rate cuts later this year could help spur a rebound in lower income demo spending, providing a boost to the industry, but especially to those chains most oriented towards the less affluent.?Learn more about RR's Subscription Service.
While the market continued to exhibit irrational exuberance during March, restaurant stock performance was more grounded in macro-economic realities.
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Lulu reported a slower start to FY24 because of a shift in U.S. consumer behavior. The company guided towards 1Q24 revenue growth of +9% to +10% y/y, with a flat gross margin, and full-year FY24 revenue growth of +12% y/y ($10.7 to 10.8B range) which was lower than the $11B consensus, causing LULU shares to sharply decline.
General Mills reported an evolving operating environment, including moderating but still positive inflation, changing consumer channel preferences, and stabilizing competitive supply chains. Management also noted a continued stabilization of the away-from-home food environment, with a modest increase in overall traffic. Growth in quick-service restaurants & non-commercial channels (including education, travel, & leisure) was partially offset by declines in full-service restaurant channels.
Darden’s difficulty driving lower-income consumer traffic was especially challenging for its fine dining segment and the company plans to lean on menu consistency and everyday value at LongHorn & Olive Garden going forward. The company’s Fine Dining mix declined -2% during the quarter, subsequently improving to a low 100 bps decline at the start of the current quarter.
Williams-Sonoma reported that covid changed how society worked & lived as most began to spend an unprecedented amount of time in their homes, driving a surge in demand for home furnishings which resulted in supply chain inefficiencies and higher vendor costs. After record 2022 results, the company’s revenues started to slow as interest rates increased & home sales declined. While post-covid consumers were resilient, they shifted their spend away from home expenditures into experiences & entertainment. However, management’s ability to transform its operations, cut costs & improve supply chain inefficiencies drove a near doubling of its profitability vs. pre-covid.
FedEx reported that U.S. conditions have been weaker than anticipated and also that global trade weakness has remained challenged for longer than expected. All-the-same, volumes are stabilizing as the company laps weaker demand from a year ago. FY24 outlook: low single-digit sales decline and a +17% increase in adjusted operating income driven by ongoing cost cuts & network efficiencies.
Sonic Drive-In enjoys strong brand equity (particularly in core South & Central Plains markets) around its drive-in format with car stalls, friendly carhops and a plethora of specialty drinks & frozen treats. While Sonic is executing well around its strong & distinct brand equity while strategically increasing its value game, the opportunity remains for the chain to drive a higher check by increasing its food mix and to improve its new build economics.
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