Consumer & Retail Report #5: 8/7 Recap

Summary of the Week in Consumer and Retail

Welcome to our Consumer and Retail recap where we share noteworthy headlines, updates, and insights. Never spam.

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Table of Contents:

1. Company Announcements

2. Corporate Shakeups

3. M&A Updates

4. Insider Buying/Selling

5. Regulatory Updates

6. Macro News

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Company Announcements

• Xponential Fitness XPOF 0.00%↑ has signed a Master Franchise Agreement in Japan for CycleBar giving the MF to license at least 30 CycleBars studios in Japan over the next 10 years.

• Apple AAPL 0.00%↑ sells $5.5 billion of bonds to fund buybacks and dividends.

• AppHarvest APPH 0.00%↑ announces $50 million in United States Department of Agriculture-guaranteed funding for 30-acre Somerset, Ky., high-tech indoor farm.

• Panasonic will raise prices on some of its products by up to 23%.

• Royal Caribbean RCL 0.00%↑ prices $1 billion senior convertible notes offering to refinance existing convertible notes.

• Coty COTY 0.00%↑ and Ant Group reach strategic partnership to deploy Alipay+ Solution in global travel retail industry.

• Thorne HealthTech THRN 0.00%↑ and AstraZeneca AZN 0.00%↑ announce two-year collaboration. Context: Thorne is a leader in developing innovative solutions for a personalized approach to health and wellness.

• AMC Entertainment Holdings AMC 0.00%↑ announced plans to offer a dividend of preferred shares called “APE,” for AMC preferred equity units.

• Beyond Meat BYND 0.00%↑ is cutting 4% of its global workforce, saying the layoffs are part of its plan to reduce costs as inflation prompts consumers to buy less-expensive protein.

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Corporate Shakeups

• Abercrombie & Fitch ANF 0.00%↑ Felix Carbullido to no longer serve on ANF's Board. Mr. Carbullido is stepping down from A&F Co.'s Board due to an increase in responsibilities given his newly appointed role as President of the Williams Sonoma brand of Williams-Sonoma.

• Ben & Jerry’s ratcheted up its war of words with Unilever UL 0.00%↑ saying it had sued its parent company because it feared that left unchecked, the consumer-goods giant would undermine the ice-cream brand’s reputation and business.

• Floor & Decor FND 0.00%↑ announces that Trevor Lang, Executive Vice President and Chief Financial Officer, will be promoted to the role of President.

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M&A Updates

• Valvoline VVV 0.00%↑ – The automotive products company announced the sale of its global products business to Saudi Aramco for $2.65 billion in cash.

• Colgate-Palmolive CL 0.00%↑ plans to purchase three dry pet food manufacturing plants in the U.S. from Red Collar Pet Foods for $700 million to support the global growth of its Hill's Pet Nutrition business.

• PepsiCo PEP 0.00%↑ to pay $550 million for 8.5% stake in fitness-drink maker Celsius. The soft drink giant will become the preferred distribution partner globally for Celsius CELH 0.00%↑ and will also nominate a director to serve on its board.

• Bolthouse Farms finalizes the acquisition of Evolution Fresh from Starbucks SBUX 0.00%↑, strengthening its leadership position in the juice and refrigerated beverage categories.

• PepsiCo PEP 0.00%↑ announced it has entered into a strategic agreement with premium Romanian spring water AQUA Carpatica.

• Estée Lauder EL 0.00%↑ is in talks to buy luxury fashion brand Tom Ford in what could be a $3 billion or more deal representing the cosmetics giant’s largest-ever acquisition.

• Amazon will acquire iRobot IRBT 0.00%↑ for $61 per share in an all-cash transaction valued at approximately $1.7 billion, including iRobot's net debt.

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Insider Buying/Selling

Sells

• Ian Frederick Borden, President of McDonald’s MCD 0.00%↑ sold 5,320 shares for $1,409,800 on August 1st.

• PepsiCo PEP 0.00%↑ CEO Intl Beverages & CCO sold 3,433 shares at $174.7650 - $175.00 worth ~$600K.

• Garmin GRMN 0.00%↑ President & CEO sold 16,089 shares at $97.50 to $98.26 worth ~$1.57 million.

• American Eagle AEO 0.00%↑ discloses largest shareholder sold off more than 50% of stock holdings.

• Chipotle CMG 0.00%↑ Chief Restaurant Officer sold 1,005 shares at $1,557.00 - $1,568.09 worth ~$1.6 million.

• Brian Maxwell, Chief Operating Officer of Dutch Bros BROS 0.00%↑ sold 48,000 shares on August 3rd for ~$1.9 million.

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Regulatory Updates

• Apple AAPL 0.00%↑ is sued by French app developers over app store fees.

• Sony says it believes Xbox owning Call of Duty ‘could influence users’ console choice’.

  • Why this matters? - Microsoft MSFT 0.00%↑ announced the acquisition of Activision earlier this year and many believe that there could be FTC issues with the deal. Now Sony saying that Microsoft could have leverage in how consumers buy consoles could add fuel to that fire.

• Revlon REV 0.00%↑ received a U.S. bankruptcy judge's permission last Monday to proceed with a $1.4 billion loan, over an objection by junior creditors who argued that its onerous terms could block their chance to recover anything from the cosmetic company's bankruptcy.

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Macro News

Liz Ann Sonders @LizAnnSonders

Housing market losing steam at an incredible rate … existing, new, and pending home sales are all below where they were in February 2020 … COVID plunge for new home sales (orange) pales in comparison to drop from August 2020 peak

• Credit card balances jump 13%, the highest leap in over 20 years, as inflation outpaces wage growth.

  • Why this matters? - With a 40-year high in inflation, more consumers are relying on credit cards to get by, which has helped propel total credit card debt to $890 billion. An additional 233 million new credit accounts were opened in the quarter, the most since 2008.

• China conducted “precision missile strikes” Thursday in waters off Taiwan’s coasts as part of military exercises that have raised tensions in the region to their highest level in decades following a visit by U.S. House Speaker Nancy Pelosi.

  • Why this matters? - With heightened tensions between the two nations, any instability or provocation of war could send shock waves to the economy. The obvious effect is the immediate interruption of chips that feed into everything from your cellphone to the car you drive. While the world already is in a chip shortage, cutting it off from one of its biggest suppliers would have catastrophic effects that wouldn’t be restorable for years to come.

• Surging retail inventories are swamping U.S. warehouses leading to the lowest industrial vacancy rates in over a decade.

  • Why this matters? - Persistent supply-chain bottlenecks have led many retailers to stretch out buying cycles, bringing in goods early to ensure shelves are stocked during the critical fall sales season. Some retailers have also bulked up orders to be prepared in case of supply-chain disruptions, part of the shift from “just-in-time” inventory management to “just-in-case.” The inbound shipments are stacking up at seaport docks, filling up warehouses near gateways and clogging distribution networks across the U.S and don’t expect to be slowing down anytime soon. For a consumer, we can get many things on the cheap but as a company, expect further margin compression on earnings.

  

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Until next time,

Paul Cerro | Cedar Grove Capital

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm

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