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Delta Air Lines, Inc 1QFY24: Revenue +6%, Adj Op Income +17%

Delta Air Lines, Inc 1QFY24: Revenue +6%, Adj Op Income +17%

Delta reported that consumer spending on services recently passed goods for the first time in 5 years, and there is a runway for spending on services to increase further. Management reported that its core consumers are in a healthy position and travel remains a top purchase priority with generational shifts & evolving consumer preferences driving secular growth in premium experiences. Also, business travel demand has taken another meaningful step forward this year with growth accelerating into the mid-teens y/y as people blend leisure & business trips. Finally, management reported a nice run of weather broadly across its system & the country.

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Foot Locker 4Q23 Comps -0.7%, Gross Margin -3.5%

Foot Locker 4Q23 Comps -0.7%, Gross Margin -3.5%

Foot Locker’s top-line trends accelerated meaningfully from 3Q23, led by ongoing progress in conversion rates as customers responded to strong assortments & digital/in-store incentives.  Management further reported that it entered 2024 with solid momentum despite a dynamic macro & retail market.

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Levi Strauss & Co 1QFY24: Middle-Income Consumer Rebound

Levi Strauss & Co 1QFY24: Middle-Income Consumer Rebound

Levi Strauss feels better about consumers than it did 3-6 months ago, and the company gained share with 18-30-year-olds & the important middle-income demo (the largest target market in its denim category). The company also noted that it continues to outperform the category with regard to higher-income consumers, demonstrating its successful efforts to elevate the brand.

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Walgreens 2QFY24 Total Revenue +10%, Adj Operating Income -26%

Walgreens 2QFY24 Total Revenue +10%, Adj Operating Income -26%

Walgreens expects a challenging FY24 retail backdrop, with comp sales projected to decline -3% y/y. Management reported that shoppers are making deliberate choices to seek value, resulting in channel shifting behavior. The company is responding to these market dynamics by making investments in key value items & focusing on its capabilities to engage with customers in a targeted way.

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Conagra Brands, Inc 3QFY24: Organic Sales -2%, Adj Gross Margin +0.5%, Adj Op Margin -0.5%

Conagra Brands, Inc 3QFY24: Organic Sales -2%, Adj Gross Margin +0.5%, Adj Op Margin -0.5%

Conagra Brands reported 9 months of “elongated” volume recovery & expectations for a continued sequential volume improvement during 4QFY24 helped by its cautious brand investments. Management has been watching the consumer for their readiness to re-establish typical behaviors & is investing to nudge them along as they see increasing signs of readiness. The company also reported value-seeking behaviors with a trade-down from fresh vegetables to frozen & canned vegetables and a little bit of weakness in food service traffic.

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Home Depot’s Housing Market Insights

Home Depot’s Housing Market Insights

Home Depot reported that homeowners have done exceptionally well as home prices have appreciated faster than expected since the 2008 financial crisis while incomes also have strongly increased over the last 3-5 years. While consumers have pulled back on home improvement projects because of sharp interest rates hikes over the last couple of years, the chain’s -3.2% y/y FY23 comp decline should improve to -1% during FY24 as interest rates hopefully subside.

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Lululemon Athletica Inc 4Q23 Revenue +16% Y/Y, Comps +12%

Lululemon Athletica Inc 4Q23 Revenue +16% Y/Y, Comps +12%

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.

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FedEx Corporation 3QFY24: Revenue -2%, Adj Operating Income +16%

FedEx Corporation 3QFY24: Revenue -2%, Adj Operating Income +16%

FedEx reported that U.S. conditions have been weaker than anticipated & 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 & a +17% increase in adjusted operating income driven by ongoing cost cuts & network efficiencies.

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Williams-Sonoma, Inc 4Q23: Comps -6.8%, Gross Profit +4%

Williams-Sonoma, Inc 4Q23: Comps -6.8%, Gross Profit +4%

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 & 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.

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Darden Restaurants, Inc. 3QFY24: Revenue +6.8% y/y, Olive Garden Comps -1.8%, LongHorn Steakhouse Comps +2.3%, Fine Dining Comps -2.3%

Darden Restaurants, Inc. 3QFY24: Revenue +6.8% y/y, Olive Garden Comps -1.8%, LongHorn Steakhouse Comps +2.3%, Fine Dining Comps -2.3%

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.

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General Mills, Inc 3QFY24: Organic Net Sales -1%, Adj Operating Profit +15%

General Mills, Inc 3QFY24: Organic Net Sales -1%, Adj Operating Profit +15%

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.

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Sonic 2024 Abbreviated Report

Sonic 2024 Abbreviated Report

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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CVS Health 4Q23: Revenues +12%, Adjusted Operating Income +3.6%

CVS Health 4Q23: Revenues +12%, Adjusted Operating Income +3.6%

CVS reported its 4Q23 total same-store sales increased +11% y/y with same-store prescription volumes up +4%. The rising cost of brand drugs represents one of the biggest challenges in the healthcare ecosystem & signifies the biggest pain point for health insurance payers given that brand & specialty drugs now constitute the majority of prescriptions. To this point, the impact of GLP-1 (new weight loss drug) added $14B in costs to the system during 2022. CVS is challenged by decreasing reimbursements & growing drug mix shift towards expensive branded medications (up +40% since 2019).

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Hyatt Hotels Corp 4Q23: RevPar +9.1%, Leisure Transient +6%, Business Transient +14%

Hyatt Hotels Corp 4Q23: RevPar +9.1%, Leisure Transient +6%, Business Transient +14%

The recovery in travel demand is well illustrated by a +39% increase from 4Q19 to 4Q23 in fees generated by Hyatt’s legacy management & franchise business. U.S. RevPAR (revenue per available room) increased +3% y/y during 4Q23, driven by strong group rate and Europe’s RevPAR increased +9% due to the strength of group & business transient demand. Notably, Greater China RevPAR was up +84% y/y during 4Q23 & +10% from 2019. The group booking pace for full service managed properties in the Americas is currently up +8% for full year 2024 compared to 2023.

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J&J Snack Foods Corp 1QFY24: Sales -1%, Operating Income +3.8%

J&J Snack Foods Corp 1QFY24: Sales -1%, Operating Income +3.8%

J&J Snack Foods reported that many of its retailer customers were experiencing y/y declines in consumer traffic & consumption and resultantly reduced their inventories ahead of the holiday season, especially in product categories like pies, cookies & frozen novelties. Management believes that rapid retail price increases have led consumers to create “food reference prices” that they are waiting to return before they start buying again.

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The Gap, Inc 4Q23: Net Sales +1%, Comps Flat, Gross Margin +5.3%

The Gap, Inc 4Q23: Net Sales +1%, Comps Flat, Gross Margin +5.3%

The Gap reported that its 4Q23 store sales increased +4% y/y while its online sales declined -2% y/y to a 40% sales mix. Comps by brand: Old Navy +2%; Gap Brand’s +4%; Banana Republic -4%; and Athleta -10%. The company managed to increase its gross margin by +5.3% y/y during the quarter, helped by lower input costs & improved promotional activity. A turnaround in its financial performance also included a -16% y/y inventory reduction & $1.1B+ in 2023 free cash flow generation which helped drive the company’s cash balance to $1.9B at year-end 2023.   

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The Kroger Co 4Q23: Identical Sales without Fuel -0.8%, Adj Revenue -0.5%, Adj Op Profit -12%

The Kroger Co 4Q23: Identical Sales without Fuel -0.8%, Adj Revenue -0.5%, Adj Op Profit -12%

Kroger reported that 2023 consumer-at-home spending was pressured by reduced government benefits such as SNAP, higher interest rates & the depletion of excess savings that many families accumulated during covid. As a result, Kroger’s customers clipped 4 billion coupons in 2023 which represented a +33% y/y increase. Management attributed its use of effective promotions with turning traffic positive during 4Q & also indicated that it expects improving consumer sentiment in 2024 (helped by expectations for just +1% inflation this year).

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Casey’s General Stores, Inc 3QFY24: Revenue -0.1%, Inside Comps +4%, Adj EBITDA -2%

Casey’s General Stores, Inc 3QFY24: Revenue -0.1%, Inside Comps +4%, Adj EBITDA -2%

Casey’s General Stores reported strong sales for its Prepared Foods business, reflecting increased quality, menu innovation (including new crispy, spicy chicken sandwiches), and low prices compared to its QSR competitors. Notably, sales of whole pizza pies increased +11% (helped by its new thin crust option), bakery products were up +11% y/y, and apps & side items grew +9%. Growth in Prepared Foods was primarily driven by lower-income customers who are attracted to Casey’s value & quality equation. Management noted that consumers, who have proven to be resilient, have not made real changes to their purchasing behavior.

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Jack in the Box 2024 Abbreviated Report

Jack in the Box 2024 Abbreviated Report

From burgers to tacos to egg rolls to flat sour dough carriers, Jack in the Box’s menu is known for variety and innovation. While Jack is doing an admirable job of executing around a solid strategic plan, the chain is challenged to hold the line on menu price increases during a turbulent macro environment that is badly aggravated by operating cost increases driven by California’s impudence.

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United Natural Foods, Inc 2QFY24: Net Sales -0.5%, Adjusted EBITDA -29%

United Natural Foods, Inc 2QFY24: Net Sales -0.5%, Adjusted EBITDA -29%

United Natural Foods reported that the grocery industry backdrop continues to be challenging even as inflation rates decline sequentially. Despite this improvement, overall unit volumes remain under pressure, driving increased competition from food retailers. Following a prolonged period of high inflation, consumers continue to buy less & are shifting some purchases away from the traditional grocery channel leading to negative volumes across the retail food industry at the expense of share gains by mass merchandisers & discounters. In any case, current unit declines are in line with the past couple of years.

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Dollar General Corp 4Q23: Comps +0.7% Driven by +4% Traffic

Dollar General Corp 4Q23: Comps +0.7% Driven by +4% Traffic

Dollar General reported that positive traffic for the last 2 quarters reveals that their customers are getting healthier. Management can tell by observing transaction data (units & mix) that consumers are finally figuring out their expenses in light of the post-covid inflationary shock. Customers are starting to purchase more discretionary items & a continued increase in CPG promotional activity is expected to encourage even more spend. 1Q24 comps are expected to increase +1.5% to +2%.

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Target 4Q23: Comps -4.4%, Op Income Margin +2.1%

Target 4Q23: Comps -4.4%, Op Income Margin +2.1%

Target reported a mixed consumer outlook, with many feeling stretched & making trade-offs to meet the needs of their families while also indulging in the occasional luxury. The company seeks to deliver a well-curated merchandise assortment which is not just good for managing inventory but is additive to the shopping experience. This brand equity is contrasted with a restaurant with a seemingly infinite menu – endless choice creates decision fatigue which diminishes an otherwise joyful outing.

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Dollar Tree, Inc 4Q23: Plans to Close 1,000 Stores

Dollar Tree, Inc 4Q23: Plans to Close 1,000 Stores

Dollar Tree Inc. plans to close 600 Family Dollar stores during 1H24 and an additional 370 Family Dollar & 30 Dollar Tree stores at the end of their lease terms (8,415 Dollar Tree stores at the end of 4Q). While this means $730MM less in annual revenues, it is expected to boost its annual EPS by $0.30. Management noted that persistent inflation & reduced government benefits continue to pressure the lower-income consumers that comprise a sizable portion of Family Dollar’s customer base. Accordingly, Family Dollar’s discretionary comp declined -12% y/y during the quarter.

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Bloomin’ Brands 4Q23: U.S. Comp -0.2%, Total Revenues +9% Including 53 Weeks, Adjusted Restaurant Level Operating Income +2.7%

Bloomin’ Brands 4Q23: U.S. Comp -0.2%, Total Revenues +9% Including 53 Weeks, Adjusted Restaurant Level Operating Income +2.7%

Bloomin’ Brands reported that bad weather during the first few weeks of 2024 will pressure its 1Q24 comps by -1.3%, and resultantly, management is now guiding to a comp decline of between -50 bps to -2% y/y for the upcoming quarter. All-the-same, management reported that it expects sales growth going forward & noted that its Valentine’s Day week represented the strongest week in its history. Bloomin’ believes its full-year 2024 traffic performance will exceed the category, with its flat to -2% forecasted results expected to top -2% to -3% for the category.

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Chili’s 2024 Abbreviated Report

Chili’s 2024 Abbreviated Report

Chili’s (5th largest casual segment player) enjoys core brand equity as a sit-down Southwest (Tex-Mex) chain that specializes in Big Mouth burgers, sizzling fajitas, chicken crispers and margaritas. While Chili’s has been able to distinguish itself in a crowded FSR space with an attractive Tex-Mex menu, fun experience, leading value and digital strength, the chain has more work to do to bolster its store-level profitability at a time when stressed consumers are looking for more value, not less.

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Home Depot 4Q23: Sales -2.9%, U.S. Comps -4%, Operating Income -13%

Home Depot 4Q23: Sales -2.9%, U.S. Comps -4%, Operating Income -13%

Long-term drivers for Home Depot’s business include: an aging housing stock with 50%+ of homes now 40+ years old; an ongoing shortage of homes of between 2-6MM units; & a sustained work-from-home trend. A shortage of new homes is good for Home Depot’s business as consumers are forced to fix up their aging housing stock & it is forecasted that during 2024 demand will exceed the supply for new homes by 200,000.

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Lowe’s Companies 4Q23: -6.2% Comp Decline Reflected Consumer Caution

Lowe’s Companies 4Q23: -6.2% Comp Decline Reflected Consumer Caution

Despite near-term consumer uncertainty, Lowes remains bullish over the medium & long term given the following business drivers: healthy disposable personal income; ongoing home price appreciation; an aging housing stock; the chronic undersupply of homes; millennial household formation; baby boomers deciding to age in place; & a sustained number of people working from home.

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Sprouts Farmers Market, Inc 4Q23: Revenues +8%, Comps +3% & Adjusted EBITDA +12%

Sprouts Farmers Market, Inc 4Q23: Revenues +8%, Comps +3% & Adjusted EBITDA +12%

Sprouts Farmers is becoming a leading specialty food retailer that provides a broad assortment of differentiated, healthy, fresh, high-quality products that are hard to find. This strategic approach & specialty positioning allows the chain to focus on a highly profitable slice of the $1.6 trillion food-at-home space instead of trying to compete in an over-crowded broadline grocer space.

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Marriott 4Q23: Global RevPAR +7% y/y, Adjusted EBITDA +10%

Marriott 4Q23: Global RevPAR +7% y/y, Adjusted EBITDA +10%

Marriott recently reported at its 9/23 investor conference that consumers have been prioritizing experiences over goods post-covid. According to Mastercard, as of March 2023, spending on travel & experiences increased +65% over 2019 levels, compared to spending on goods, which had risen only +12% over 2019. Further, a recent survey by the American Society of Travel Advisors found that nearly 50% of respondents in the U.S. ranked a vacation as their top discretionary spend. This is 2x the second choice of home improvement or renovation. This momentum carried over into Marriott’s 4Q23 results.

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ARKO Corp 4Q23: Fuel Gallon Comps -7.5%, Merchandise Comps -2.8%

ARKO Corp 4Q23: Fuel Gallon Comps -7.5%, Merchandise Comps -2.8%

ARKO Corp (sixth largest convenience store operator) is positioning 1Q24 for a high-single-digit decline in retail fuel gallons and a mid-single-digit comp decline for merchandise. Management says it doesn’t want to blame bad weather for a weak start to 2024 & perhaps a better explanation is to look at the impact of inflation on the lower-income consumers in its rural markets (40% of the chain’s stores are in towns with <20,000 people & 20% in towns that have 20,000 to 50,000 people.) However, management also noted that national fuel gallon demand is down -7% during 1Q, so it seems that the entire country is driving less. While part of this phenomenon must be attributable to an increasing EV mix, it raises the question: is everyone really hunkering down at home??

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Dine Brands Global, Inc 4Q23: Applebee’s Comps -0.5%, IHOP Comps +1.6%

Dine Brands Global, Inc 4Q23: Applebee’s Comps -0.5%, IHOP Comps +1.6%

Both Applebee’s & IHOP generated positive 2023 y/y comps in a difficult FSR operating environment. Applebee’s going forward sales should benefit from its new website & mobile app (improving the brand’s digital experience) and an emphasis on value & alcohol promotions. IHOP looks to build upon its 11 straight quarters of positive comps by recruiting more customers to its loyalty program (which represents a substantial growth opportunity).

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Sweetgreen, Inc 4Q23: Comps +6% & Revenues +29%

Sweetgreen, Inc 4Q23: Comps +6% & Revenues +29%

Sweetgreen, an emerging “Better for You” fast-casual dining chain that includes 225 restaurants in 18 states & D.C., is moving towards profitability. Notably, the chain’s new “Infinite Kitchen” automation, capable of improving store-level margins by +7% by generating 500 bowls/hour, points to a new future for restaurant operations.

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Pizza Hut 2024 Abbreviated Report

Pizza Hut 2024 Abbreviated Report

Pizza Hut enjoys substantial scale and strong brand equity as the 2nd largest national player in the $1B+ chain pizza segment by domestic system sales and is currently repositioning towards a modern delivery concept. While Pizza Hut’s positioning is improving, the brand must still compete around value in a tough economic environment while it simultaneously completes its asset conversion sufficient to finish its evolution into a relevant competitor in the very challenging pizza segment.

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Dutch Bros Inc 4Q23: Comps +5%, Revenue +31% & Adjusted EBITDA +76%

Dutch Bros Inc 4Q23: Comps +5%, Revenue +31% & Adjusted EBITDA +76%

Dutch Bros reported a record 2023 in terms of development, opening 159 new shops across 13 states. Over the past 5 years, the system has opened 500+ shops, growing its company-operated shop count from 90 to 542 at an average annual growth rate of +43%. Development benefits from a record AUV which is driving substantial margin expansion.

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Papa John’s International, Inc 4Q23: North America Comps +2%, Revenue +9%, EBITDA +16%

Papa John’s International, Inc 4Q23: North America Comps +2%, Revenue +9%, EBITDA +16%

Papa John’s reported that a more cautious consumer is placing more pressure on transactions through its organic delivery channel even as its third-party aggregator sales continue to accelerate. Resultantly, its comps declined -1% for the first 8 weeks of 1Q24 & management now expects full-year 2024 comps at the lower end of its +2% to +4% target. Fortunately, February sales strengthened after softening in January & the pizza segment is well positioned, having taken less pricing relative to the other QSR segments. The chain’s 2024 sales should also benefit from new 2.0 marketing initiatives.

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Mondelez International, Inc. 4Q23: Net Revenue +7%, Adjusted Op Inc +12%

Mondelez International, Inc. 4Q23: Net Revenue +7%, Adjusted Op Inc +12%

Mondelez’s 4Q characterization of consumers: waiting to buy on promotions & not buying with the same frequency; downsizing & purchasing an increased volume of smaller formats; an increase in club & e-commerce channel mix; and less disposable income from SNAP reductions. However, the company’s volume outlook is positive given its view that U.S. consumers have the most favorable perception of economic prospects in the last 2.5 years.

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Best Buy Co., Inc. 4QFY24: Enterprise Comps -4.8%, Adjusted Op Inc +7%

Best Buy Co., Inc. 4QFY24: Enterprise Comps -4.8%, Adjusted Op Inc +7%

While inflation has been slowing, prices for the basics like food & lodging are still much higher and consumers are prioritizing & making trade-off spending decisions according to Best Buy. Also, there continues to be a consumer propensity to spend on services like concerts & vacations in lieu of goods. Consumer electronic (CE) demand is pressured by: a relatively stagnant housing market; significant pull-forward of CE demand during the first 2 years of covid; less CE innovation post-covid; & remaining CE supply chain challenges.

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The TJX Companies, Inc. 4QFY24: Consolidated Comps +5%, Driven by Transactions

The TJX Companies, Inc. 4QFY24: Consolidated Comps +5%, Driven by Transactions

The TJX Companies (including T.J. Maxx, Marshalls & HomeGoods chains) reported solid results for another quarter by supplying the burgeoning demand from a younger demo for its affordable luxury merchandise. The company’s impressive growth is notable given tepid industry sales for both the clothing & accessories and furniture & home furnishings retail categories.

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Dutch Bros 2024 Abbreviated Report

Dutch Bros 2024 Abbreviated Report

Dutch Bros is a $1B coffee chain which continues to rapidly expand East from its West Coast (Oregon) origin. Coffee connoisseur fans love the chain’s engaging customer service and a virtually unlimited selection of affordable, tasty, caffeinated beverages. While Dutch Bros enjoys strong brand positioning, the chain must continue to struggle through the challenge of expanding into new markets at the same time its core younger demo struggles with ongoing economic pressures.

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PepsiCo, Inc. 4Q23: Net Revenue -0.5%, Adjusted Operating Income +9.5%

PepsiCo, Inc. 4Q23: Net Revenue -0.5%, Adjusted Operating Income +9.5%

PepsiCo reported a slowdown in its U.S. food & beverage categories during 4Q driven by: elevated prices; disposable income pressure; & a pivot away from in-home to away-from-home consumption in its U.S. business. Management feels good about the consumer in 2024 given: a low unemployment level; wage growth expected to exceed inflation; and an expected decline in interest rates by the summer. This confidence supports its guidance for +4% revenue growth for 2024.

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Jack in the Box inc. 1Q24: Jack’s Comps +0.8%, Del Taco’s Comps +2.2%

Jack in the Box inc. 1Q24: Jack’s Comps +0.8%, Del Taco’s Comps +2.2%

As Jack in the Box’s customers earning under $75k (especially those under $45k) are attaching fewer low-priced items to their orders, the chain is focused on ensuring sufficient deals to encourage as much attachment as possible. Despite anticipated 1H24 sales challenges (including January’s adverse weather), full-year FY24 comp guidance is still expected to be up low to mid-single digits.

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Krispy Kreme 4Q23: +13.7% Organic Revenue & +14.7% Adjusted EBITDA Growth

Krispy Kreme 4Q23: +13.7% Organic Revenue & +14.7% Adjusted EBITDA Growth

Krispy Kreme expanded its point of access by +17.8% during 4Q23 as the brand succeeded in expanding into new grocery & convenience store channels. Sales strength also reflected demand for its holiday-themed premium doughnuts and healthy e-commerce growth. Full-year 2024 guidance: organic revenue growth of +6% to +8%; and adjusted EBITDA growth of +8% to +11%.

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