Cedar Grove Capital Management

Share this post

Consumer & Retail Report #1: 7/10 Recap

www.cedargrovecm.com
Weekly Recap

Consumer & Retail Report #1: 7/10 Recap

Summary of the Week in Consumer and Retail

Paul Cerro
Jul 10, 2022
5
Share this post

Consumer & Retail Report #1: 7/10 Recap

www.cedargrovecm.com

Welcome to the launch of our first weekly Consumer and Retail recap where we share noteworthy headlines, updates, and insights. Never spam.

My latest report (XPOF: Unit Growth the Driver of Operational Leverage) went out at the end of last month. It’s a visual follow on to my original research on XPOF back in February. Hope you enjoy it and comment with any feedback!


Table of Contents:

  1. Company Announcements

  2. Shareholder Activism

  3. Update on M&A

  4. Insider Buying

  5. Regulatory Updates

  6. Macro News


Company Announcements

  • Peloton PTON 0.00 sweetens employee pay incentives as it fights to boost morale and stage a turnaround. Under this plan, eligible team members will have their post-IPO options repriced to Peloton’s closing price on July 1 of $9.13. The company is also accelerating the vesting requirement by one year for eligible unvested restricted stock units that have more than eight vesting dates left in their vesting schedule.

    • Why this matters? - While this may be good for employee morale and retention efforts, it’s terrible for existing equity holders. With more shares potentially hitting the market sooner than anticipated, increased shareholder dilution is to be expected in any event of a turnaround.

  • Grove Collaborative GROV 0.00 announced its retail expansion into three big-time retailers: Kohl’s KSS 0.00, Giant Eagle, and Meijer.

    • Why this matters? - Grove went public through a SPAC and has thus suffered damage for doing so (not that it’s unwarranted). This headline helped push the stock up almost 100% on the news as if it makes sense. Would be an interesting short play if you could get an allocation. I deem this sustainable brand similar to how Honest Co HNST 0.00 played out when they went public, and we shorted that too.

Twitter avatar for @paulcerro
Paul Cerro @paulcerro
$GROV nearly doubling its market cap today because they got into 3 store chains is insane. The near ~$600M in value-added is as if they sold out of the proposed inventory 12x over...immediately... Mind you they had a negative operating income of over $125M LTM
Image
4:34 PM ∙ Jul 7, 2022
  • Apple AAPL 0.00 announced it will launch an extreme sports watch that will further its plans to break into the fitness industry.

  • Tesco and Kraft Heinz KHC 0.00 have struck a deal to bring back the U.S. food giant's products to the supermarket chain's shelves and make them available for online purchases in the coming days.

    • Why this matters? - Kraft Heinz had stopped supplying some products, such as tomato ketchup and baked beans, to Tesco as the supermarket chain resisted charging customers higher prices for them at a time of surging inflation. This deal will bring back long-awaited KHC products to the European market.

  • Gamestop GME 0.00 announces a 4-for-1 stock split in an effort to once again, appeal to retail investors.

  • Lululemon LULU 0.00 expands in Spain with stores in Madrid and Barcelona.

    • Why this matters? - Lululemon has some pretty aggressive growth plans as part of its “Power of Three 2x growth plan which includes a quadrupling of its international revenue from 2021 levels by year-end 2026. Spain is the first new market in Europe for them since 2019 and the company currently operates 40 stores internationally.

  • Trupanion TRUP 0.00 has signed a strategic partnership with ezyVet, cloud-based practice management software used by veterinary hospitals globally.

    • Why this matters? – Pet insurance is becoming wildly popular amongst pet parents as they increasingly treat them more like their children than pets. This partnership makes direct payment from Trupanion immediately available to veterinary hospitals across North America using ezyVet’s practice management software. Trupanion insurance is the only provider that can pay the veterinary invoice at the time of check-out, often in seconds, eliminating the cumbersome reimbursement model.


Shareholder Activism

Build-A-Bear Workshop BBW 0.00 received a call for transformative action from Kanen Wealth Management. Kanen owns a 6.5% stake in the company and has suggested that management enact a sale-leaseback in order to unlock a higher level of shareholder value while prices are depressed.

We have obtained a professional valuation of the company’s owned distribution center which suggests a valuation in a sale lease back of at least $31M and an associated lease expense of ~$1.8M. BBW has the opportunity to sell (and lease back) this asset at ~17.2x earnings and repurchase stock at ~3.2x EBITDA, this would be accretive to earnings per share by ~11%.


Update on M&A

  • Microsoft’s MSFT 0.00 $69 billion acquisition of Activision ATVI 0.00 is facing a competition probe from the UK.

    • Why this matters? - Over recent years, governments have been increasingly scrutinous towards big tech and their acquisitions that appear to reinforce monopolistic behavior. While Lina Khan is head of the FTC here in America, the UK has made the first move when it comes to challenging the deal so far.

    • If you’re interested in a possible trade idea for this deal, take a look at our write-up using options (call/put) to achieve a decent return here.


Insider Buying

  • Bed Bath & Beyond BBBY 0.00 — Shares of the home goods retailer jumped 27% following the disclosure of several insider purchases, including interim CEO Sue Gove’s purchase of 50,000 shares. Board members Harriet Edelman and Jeff Kirwan each bought 10,000 shares

    • Why this matters? – Bed Bath & Beyond, a 2021 meme stock, has had a rocky past year with sales declines, inventory buildups, and Ryan Cohen (founder of Chewy) taking an active role in the company to change things around. Insider buys of an arguably dead company have brought hope to bagholders who think that the company’s management feels good about a turnaround.


Regulatory Updates

  • Altria MO 0.00 Juul ban put on hold as FDA starts additional review. Juul had won a temporary reprieve a couple of weeks ago after a U.S. federal appeals court stayed the FDA's ban following an appeal from the company for an emergency review of the regulator's order.

    • Why this matters? - Altria has been under pressure from the FDA since its investment into Juul years ago due to its addiction amongst teens. Altria owns a 35% stake in the name (though it’s mostly written down since then) and any movement with Juul directly affects the perceived value of Altria. A more in-depth research post on Altria can be found here.


Macro News

Commodity prices have come down since reaching their peaks earlier in the year. If trends continue, companies that have direct exposure, think restaurants, consumer packaged goods, etc. will directly benefit. Inflationary pressures will subside (somewhat) and stock prices could stage a comeback – look at Domino’s DPZ 0.00 as an example of companies hit hard by inflation but have since rebounded.

Slump in commodities from recent highs has eased inflation worries

Don’t Want A Weekly Recap?

As an avid reader and subscriber of other research myself, the last thing I want is to be bombarded with emails that I don’t actually want, i.e. spam. I never want this for you with any of the content that I make.

If you would like to continue getting all my other research (ex, equity research, charts, trade ideas, etc) but not the Weekly Recap, please follow the three-step instructions below.

  1. Click “unsubscribe” at the bottom of this email

  2. Then it will open your email settings and ask which section you’d like to “turn off emails” for

  3. Select “turn off emails” for Weekly Recap - BOOM you’re done


Until next time,

Paul Cerro | Cedar Grove Capital

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm

Subscribe to get premium C&R research in your inbox right when they come out.


Disclosure: All information provided herein by Cedar Grove Capital Management, LLC (“Cedar Grove Capital”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.
Cedar Grove Capital may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. Cedar Grove Capital may buy, sell, or otherwise change the form or substance of any of its investments. Cedar Grove Capital disclaims any obligation to notify the market of any such changes.
The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Cedar Grove Capital. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Cedar Grove Capital which are subject to change and which Cedar Grove Capital does not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment.
Share this post

Consumer & Retail Report #1: 7/10 Recap

www.cedargrovecm.com
Next
Comments
TopNewCommunity

No posts

Ready for more?

© 2023 Paul Cerro
Market data by Intrinio
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing