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Initial observations of the Amazon-Whole Foods marraige

Initial observations of the Amazon-Whole Foods marraige

With the official closing of the Amazon (AMZN) acquisition of Whole Foods Market (WFM) yesterday, I made a point of visiting two locations near me outside of Washington, D.C. The traffic in the store was greater than usual for a Monday, as were the length of the lines at the checkout counters. There were a number of prices that were better as has been reported, and there was a pop-up stand for Amazon Echo devices.

What was missing, however, were the appropriate Amazon’s private label brands that are slated to hit shelves at Whole Foods locations, as well as the lockers that will allow for both delivery of items as well as returns.

I say appropriate items because Amazon has quietly expanded the scope of its private label products from food (Happy Belly, Mama Bear and Wickedly Prime) and supplements (Amazon Elements) to fashion, electronics, household items, cosmetics, lingerie, and furniture to name a several. Conversations with the store managers confirmed Amazon private label products will be turning over in the store “over time” where appropriate. That hasn’t slowed Amazon from including Whole Foods’ private label brand, 365 Everyday Value, on its website although based on some basic searching 365 Everyday Value has yet to be offered under Amazon Fresh.

Like many large acquisitions, integration and the targeted synergies come over time, and I are still in the very early days of these two companies being under one roof. I expect the rollout of Amazon private label products to be had at the 470 Whole Foods locations in the U.S. and the U.K. over the coming quarters with added benefits coming (Amazon Fresh, Amazon meal kits and the instillation of Amazon Prime as the new membership rewards program).

As the combined entity flexes its product and logistical offering, I suspect before too long the conversation will shift from “death of the mall” to “death of the grocery store.” One of the “secret weapons” that Amazon has over its grocery and other competitors that range from Kroger (KR) to Wal-Mart (WMT) is the high margin Amazon Web Services, which continues to be embraced by corporate America as it increasingly migrates to the cloud.

One thing I am pondering is based on the number of Whole Foods locations, will Amazon look to make other grocery acquisitions in a bid to reach key markets that have a high concentration of Amazon Prime customers? If so, this could quickly turn the conversation from “the death of the mall” to the “death of the grocery store.”

 

  • We continue to rate Amazon (AMZN) shares a Buy with a $1,150 price target.

Source: Whole Foods prices cheaper with Amazon – Business Insider

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

This morning we received the Challenger Job Cuts Report as well as ADP’s view on May job creation for the private sector. While ADP’s take that 253,000 jobs were created during the month, a nice boost from April and more in line with 1Q 2017 levels, we were reminded that all is not peachy keen with Challenger’s May findings. That report showed just under 52,000 jobs were cut during the month, a large step up from 36,600 in April, with the bulk of the increase due unsurprisingly to retail and auto companies.

As Challenger noted in the report, nearly 40% of the May layoffs were due to Ford (F), but the balance was wide across the retail landscape with big cuts at Macy’s (M), The Limited, Sears (SHLD), JC Penney (JCP) and Lowe’s (LOW) as well as others like Hhgregg and Wet Seal that have announced bankruptcy. In total, retailers continued to announce the most job cuts this year with just under 56,000 for the first five months of 2017. With yesterday’s news that Michael Kors (KORS) will shut 100 full-price retail locations over the next two years, we continue to see more pain ahead at the mall and fewer retail jobs to be had.

Sticking with the Challenger report, one of the items that jumped out to us was the call out that,

“Grocery stores are no longer immune from online shopping. Meal delivery services and Amazon are competing with traditional grocers, and Amazon announced it is opening its first ever brick-and mortar store in Seattle. Amazon Go, which mixes online technology and the in-store experience, is something to keep an eye on since it may potentially change the grocery store shopping experience considerably, “

 

In our view, this means the creative destruction that has plagued print media and retail brought on by Amazon (AMZN) is set to disrupt yet another industry, and it’s one of the reasons we’ve opted out of both grocery and retail stocks. The likely question on subscriber minds is what does this mean for our Amplify Snack Brands (BETR) position? In our view, we see little threat to Amplify’s business; if anything we see it’s mix of shipments skewing more toward online over time. Not a bad thing from a cost perspective. We’d also note that United Natural Foods (UNFI) is a partner with Amazon as well.

  • Our price target on Amazon (AMZN) remains $1,100 and offers more than 10% upside from current levels.
  • Amplify Snack Brands (BETR) has an $11 price target and is a Buy at current levels.
  • Our target on United Natual Foods (UNFI) is $65, and the recent pullback over the last six weeks enhances the long-term upside to be had.

We’d also note comments from Chipotle Mexican Grill (CMG) that its recent cybersecurity attack hit most Chipotle restaurants allowing hackers to steal credit card information from customers. In a recent blog post, Chipotle copped to the fact the malware that it was hit with infected cash registers, capturing information stored on the magnetic strip on credit cards. Chipotle said that “track data” sometimes includes the cardholder’s name, card number, expiration date and internal verification code. We see this as another reminder of the down side of what we call both our increasingly connected society and the shift toward cashless consumption. It also serves as a reminder of the long-tail demand associated with cyber security, and a nice confirmation point for the position PureFunds ISE Cyber Security ETF (HACK) shares on the Tematica Select List.

  • Our price target on PureFunds ISE Cyber Security ETF (HACK) shares remains $35.

 

Adding this Missing Link Connected Society Stock to the Tematica Select List

Adding this Missing Link Connected Society Stock to the Tematica Select List

This morning we are adding shares of delivery and logistics company United Parcel Service (UPS) to the Tematica Select List with a price target of $122. We’ve often referenced UPS and its business as the missing link in the digital shopping aspect of our Connected Society investing theme. Year to date, UPS shares have fallen 6 percent, which we attribute in part to the seasonal slowdown in consumer spending. As we pointed out in our analysis of the January Retail Sales report last week, the shift toward digital commerce continues to accelerate and we see that a positive tailwind for UPS’s business and comments from UPS’s annual investor day held yesterday confirm our view.

As of last night’s market close UPS shares stood near $108, which when compared to our $122 price target offers 14 percent upside before we factor in the 3.1 percent dividend yield. Including the quarterly dividend of $0.83 per share into our thinking, we see 17 percent upside from current levels to our price target. As such we are adding UPS shares to the Tematica Select List with a Buy rating. Should the shares drift toward the $100 level, we are inclined to get more bullish on the shares given the business fundamentals as historical dividend yield valuation metrics.

 

A Look Ahead to 2018-19 for UPS

Yesterday, at its annual investor day United Parcel Service shared its 2018-2019 financial targets, expanded delivery and pick-up schedule, and continued buybacks. In reviewing those details, we continue to see the accelerating shift toward digital commerce at the expense of brick & mortar retail powering the company’s business. While most tend to focus on Amazon (AMZN) when we think of digital shopping, the reality is we see a far more widespread push toward it from the likes of Wal-Mart (WMT) as well as traditional retailers and consumer product companies. Wal-Mart, in particular, is shared on its earnings call yesterday that it would expand its online efforts to include grocery and called out both mobile and online as part of is efforts to “provide customers with a better offer.”

What all of this tells us is we have reached the tipping point for digital commerce, and like a tanker that is turning, once it hits the tipping point it tends to pick up speed. We see that in the coming quarters as retailers that lagged behind are now forced to invest to stay relevant with consumers.

In response to that accelerating shift, UPS is planning to expand its delivery and pickup schedule to six days for ground shipments, including Saturdays. In tandem, UPS will continue to invest in its logistics network, which signals it is preparing for the continued transformation in how consumers shop. That transformation is leading UPS to forecast revenue growth in the range of 4-6 percent over the 2018-2019 period, which means no slowdown in revenue growth from 2017 is expected. UPS also shared it intends to repurchase between $1-$1.8 billion in share repurchase during 2018-2019, which should allow it o grow EPS faster than revenue. UPS expects EPS during 2018-2019 to grow 5-10 percent, which is at the upper end of current expectations. As such, we expect to see Wall Street boosting price targets today and tomorrow up from the current consensus of $115 to something more inline with our $122 price target.

 

Embracing Technology of the Future

 

A drone demonstrates delivery capabilities from the top of a UPS truck during testing in Lithia, Florida, U.S. February 20, 2017. REUTERS/Scott Audette

UPS also shared it continues to test drone deliveries, including launching the drone from the top of a UPS van that is outfitted with a recharging station for the battery-powered drone. Granted this in testing, but in our view, the hub and spoke method of deploying drones from UPS trucks makes sense given that drones, especially those carrying packages, are like to operate for limited time frames due in part to battery power demands. In UPS’s tests, the battery-powered drone recharges while it’s docked. It has a 30-minute flight time and can carry a package weighing up to 10 pounds.

Again, we find this interesting, but odds are we will not see any pronounced impact on UPS’s delivery business for at least several quarters. Longer-term, initiatives such as these could spur further productivity and margin improvements.

 

The Bottomline on United Parcel Service (UPS)
  • We are adding shares of United Parcel Service (UPS) to the Tematica Select List with a price target of $122.
  • Should the shares drift toward the $100 level, we are inclined to get more bullish on the shares given the business fundamentals as historical dividend yield valuation metrics.

 

Food Network teaming with Instacart shows increasing reach of e-commerce 

Food Network teaming with Instacart shows increasing reach of e-commerce 

Following Amazon’s Prime Fresh and Walmart’s teaming with Uber and Lyft for grocery delivery, the intersection of Content is King and the Connected Society is driving a shift in where and how people buy groceries and ingredients. Much like other industry shaking events associated with the Connected Society, this will have a profound impact on both a direct and indirect basis.

xpansion of online fulfillment availability is giving retailers new avenues for selling goods via the Internet.Food Network is teaming up with Instacart to integrate the online grocery delivery service with the Recipe Box and Grocery List features available on FoodNetwork.com and Food.com. The offerings allow consumers to search for online recipes and then create and share shopping lists of the necessary ingredients.

Source: Commentary: Food Network offering shows increasing reach of e-commerce | Chain Store Age