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Reporter Name | Mclain Kevin |
Relationship | SVP, Merchandising |
Type | Sell |
Amount | $1,929,898 |
SEC Filing | Form 4 |
Kevin McLain, SVP of Merchandising at Ollie's Bargain Outlet Holdings, sold 19,471 shares of common stock across six transactions on September 16 and 17, 2024. The sales were executed at weighted average prices ranging from $98.98 to $99.56 per share, totaling $1,929,898. Following these transactions, McLain directly owns 10,610 shares of the company.
SEC Filing: Ollie's Bargain Outlet Holdings, Inc. [ OLLI ] - Form 4 - Sep. 18, 2024
It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.
The research service features daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, all of which will help you become a smarter, more confident investor.
Zacks Premium includes access to the Zacks Style Scores as well.
What are the Zacks Style Scores?
The Zacks Style Scores is a unique set of guidelines that rates stocks based on three popular investing types, and were developed as complementary indicators for the Zacks Rank. This combination helps investors choose securities with the highest chances of beating the market over the next 30 days.
Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.
The Style Scores are broken down into four categories:
Value Score
Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock's true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.
Growth Score
Growth investors, on the other hand, are more concerned with a company's financial strength and health, and its future outlook. The Growth Style Score examines things like projected and historic earnings, sales, and cash flow to find stocks that will experience sustainable growth over time.
Momentum Score
Momentum investors, who live by the saying "the trend is your friend," are most interested in taking advantage of upward or downward trends in a stock's price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.
VGM Score
What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.
How Style Scores Work with the Zacks Rank
The Zacks Rank, which is a proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, to make building a winning portfolio easier.
It's highly successful, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988. That's more than double the S&P 500. But because of the large number of stocks we rate, there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.
With more than 800 top-rated stocks to choose from, it can certainly feel overwhelming to pick the ones that are right for you and your investing journey.
That's where the Style Scores come in.
To maximize your returns, you want to buy stocks with the highest probability of success. This means picking stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you find yourself looking at stocks with a #3 (Hold) rank, make sure they have Scores of A or B as well to ensure as much upside potential as possible.
As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.
For instance, a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one that boasts Scores of A and B, still has a downward-trending earnings forecast, and a much greater likelihood its share price will decline as well.
Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.
Stock to Watch: Ollie's Bargain Outlet (OLLI)
Headquartered in Harrisburg, PA, Ollie's Bargain Outlet Holdings is a value retailer of brand name merchandise at drastically reduced prices. The company offers products principally under Ollie’s, Ollie’s Bargain Outlet, Good Stuff Cheap, Ollie’s Army, Real Brands Real Cheap!, Real Brands! Real Bargains!, Sarasota Breeze, Steelton Tools, American Way and Middleton Home. As of May 4, 2024, the company operated 516 outlets in 30 states. The company offers products under the categories, Consumables (23.8% of FY23 Sales), Home (35.7%), Seasonal (18.7%) and Other (21.8%). Product offerings include; Housewares: cooking utensils, dishes, appliances, plastic containers, cutlery, storage and garbage bags, detergents and cleaning supplies, cookware and glassware, fans and space heaters, candles, frames and giftware.
OLLI is a #3 (Hold) on the Zacks Rank, with a VGM Score of A.
Additionally, the company could be a top pick for growth investors. OLLI has a Growth Style Score of A, forecasting year-over-year earnings growth of 12.7% for the current fiscal year.
Five analysts revised their earnings estimate upwards in the last 60 days for fiscal 2025. The Zacks Consensus Estimate has increased $0.01 to $3.28 per share. OLLI boasts an average earnings surprise of 7.9%.
With a solid Zacks Rank and top-tier Growth and VGM Style Scores, OLLI should be on investors' short list.
Zacks Investment Research
Grocery Outlet Holding Corp. GO has experienced a pullback in its share performance losing nearly half of its value and falling far below its 52-week high of $30.33, touched in last September. Currently trading at $16.27, the stock has seen a 46.4% drop from its peak. Over the past three months, Grocery Outlet shares have plunged 21.2%, underperforming the broader industry, which has risen 9.4% and the S&P 500, which posted a 2.7% return during the same period.
The recent decline in share performance is attributed to the challenges stemming from its systems transition, which began last September. Also, the company is grappling with rising expenses, which are putting additional pressure on its already thin margins, further contributing to its underperformance.
Moreover, Grocery Outlet’s stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook.
Reflecting the negative sentiment around Grocery Outlet, the Zacks Consensus Estimate for 2024 has seen a downward revision. Over the past 60 days, the consensus estimate for earnings for the current fiscal year has fallen by a penny to 92 cents per share. This implies a year-over-year earnings decline of 14%. For the next fiscal, the Zacks Consensus Estimate for earnings has declined from 3.4% to $1.13.
What Derailed Grocery Outlet’s Stock?
The recent systems transition has posed significant challenges for Grocery Outlet and negatively impacting both its operational efficiency and financial performance. This disruption has resulted in lower-than-expected margins with the implementation of new technology platforms, which is reducing the gross margin by 100 basis points in the second quarter of 2024.
Although improvements have been made, the ongoing challenges could hinder margin expansion and operational scalability in the near term. Grocery Outlet guided a full-year gross margin of 30.5%, down from 31.3% guided earlier. The current projection showed an 80-basis point contraction in the gross margin from the year-ago period.
The company is grappling with rising SG&A (Selling, General, and Administrative) expenses, driven by higher costs for independent operator commissions, store occupancy and incentive compensation. This upward trend in SG&A expenses has been evident over the past few quarters and could strain profits.
Does GO Have Enough Potential to Turn Things Around?
Despite challenges, Grocery Outlet's strategic focus on opportunistic purchasing, targeted marketing, store expansion and e-commerce initiatives is demonstrating potential. With its distinctive business model featuring opportunistic sourcing and an Independent Operator structure, GO differentiates itself from conventional retailers.
Another key factor that could turn things around for Grocery outlet is the 'WOW!' deals. The store’s compelling value proposition is expected to continue to attract bargain hunters, encourage customers to revisit stores and increase basket sizes. Notably, a typical 'Grocery Outlet basket' is priced roughly 40% below that of conventional grocers and approximately 20% below leading discounters.
With a customer-centric approach, Grocery Outlet recently announced the launch of its new private label program, GO Brands. Set to introduce 100 new products by the end of the year, the program will feature three distinct lines: SimplyGO, GO Home & Haven, and GO Paw & Pamper. This initiative, starting this month, underscores the company’s commitment to offering both affordability and quality, with the GO Brands program aimed at delivering exceptional value.
Does GO’s Stock Looks Attractive?
Investors might find Grocery Outlet appealing due to its relatively low valuation. GO is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 15.21, which is below the median level of 28.1 scaled in the past year. This compares to the forward 12-month P/E ratio of 18.55 for the industry.
Final Words on Grocery Outlet
Quite apparent, Grocery Outlet’s system transition has weighed on its performance lately, but that does not mean the company is devoid of potential. Investors with a long-term horizon may stay invested in the stock. The recent decline in the stock price has made it look attractive and provides a better entry point for potential investors. However, with the margin yet to recover in full, Grocery Outlet comes with an element of caution.
GO currently carries a Zacks Rank #3 (Hold).
Three Stocks to Consider
Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Ollie's Bargain Outlet OLLI.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average. The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43%, , from the prior-year reported level.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average. The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.71%, respectively, from the year-earlier levels.
Zacks Investment Research
TreeHouse Foods, Inc. THS has established a strong market position by capitalizing on two major long-term consumer trends, which include the increasing demand for private-label groceries in North America and the expanding popularity of snack products. With its diverse portfolio, THS is well-positioned to capture a growing share in this evolving market.
As private brands have steadily gained market share over the past 20 years, TreeHouse Foods has demonstrated its capacity to address consumer needs while maintaining attractive pricing. The elevated price gaps between national and private brands further support continued growth in the private label sector.
TreeHouse Foods has reinforced competitive position in the market by successfully executing its strategies in several key product categories, including cookies, refrigerated dough, pretzels and pickles. These aspects indicate growth in the second half of the year. Additionally, THS' strategic investments and an expanding net sales pipeline contribute to its strong market position. The abovementioned factors solidify the company's reputation as a leading supplier of private brands.
Shares of THS have gained 15.7%, outpacing the industry’s growth of 7.8% in the past three months.
Growth Factors for TreeHouse Foods' Stock
TreeHouse Foods’ transformation journey is poised for success as it focuses on strengthening and expanding its presence in the snacking and beverage sectors. This effort includes improving supply chain operations and delivering exceptional service to drive organic growth and create long-term value for stakeholders.
Key initiatives to enhance the supply chain includes the implementation of the TreeHouse Management Operating System (TMOS) and improvements in procurement and distribution. These efforts are intended to enhance operational execution, increase profit margins and build stronger customer relationships.
In the first half of 2024, the TMOS initiatives have led to notable improvements in overall equipment effectiveness and service quality. TreeHouse Foods expects to achieve $50 million in gross cost savings in the second half of 2024, driving margin expansion. Additionally, the company expects increased volume during this period, fueled by seasonal demand in categories such as coffee, creamer, hot cereal, refrigerated dough and broth. It also foresees meeting its objectives by restarting broth facility during this time frame.
Strategic acquisitions have played a crucial role in expanding THS’ product offerings. Notable acquisitions in 2024, including Bick's pickles, Habitant pickled beets, Woodman's horseradish and McLarens pickled onions brands from The J.M. Smucker have significantly diversified the company's revenue streams and enhanced its portfolio. These additions have bolstered TreeHouse Foods' position in the market by catering to a wider range of consumers.
Roadblocks on THS’ Way
While TreeHouse Foods has made significant strides, ongoing supply chain hurdles remain a challenge. Issues related to increased labor costs and the restoration of the broth facility resulted in a $3 million headwind. The supply-chain disruptions also impacted the company’s gross margin, which fell to 16.3%, a 0.3% point decrease from the previous year, due to the costs associated with bringing the broth facility back.
The company has been battling with high operating expenses in the second quarter, which has put pressure on its profits. This uprise was driven by lower TSA income and increased personnel and capability investments. However, these impacts were partially mitigated by reduced freight expenses and TSA-related cost reductions.
How to Play THS Stock?
TreeHouse Foods has reinforced its market standing by focusing on private-label and snack products, aligning with key consumer trends. Although supply chain issues and rising operating costs pose challenges, the company's strategic initiatives and acquisitions suggest potential for sustained growth. Investors should consider a balanced approach, weighing the company's growth prospects against current operational hurdles. TreeHouse Foods currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Here, we have highlighted some better-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Ollie's Bargain Outlet OLLI. While The Chef's Warehouse and Pilgrim’s Pride sport a Zacks Rank #1 (Strong Buy) each, Ollie's Bargain Outlet carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average. The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.4%, respectively, from the prior-year reported level.
OLLI has a trailing four-quarter earnings surprise of 7.9%, on average. The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.6% and 12.7%, respectively, from the year-earlier level.
Zacks Investment Research
United Natural Foods Inc. UNFI is undergoing a major transformation aimed at improving its margins and cash flow. The company's strategic initiatives include optimizing its network, reducing capital expenditures, cutting costs and lowering net working capital. By focusing on these areas, UNFI aims to build on the $150 million in expense efficiencies already achieved. This transformation is designed to enhance operational efficiency and long-term value for stakeholders.
UNFI’s Strategic Investments and Operational Efficiency
United Natural Foods is planning to invest around $300 million in capital expenditures for the fiscal 2025. This investment will be directed toward maintenance, network enhancements and technology upgrades. The goal is to optimize resource allocation, strengthen the business and enhance its balance sheet. This includes investing in labor for distribution centers and transportation, which has already shown improvements in staff turnover and operational throughput.
United Natural is also making strides in improving its supply chain processes and management disciplines to fuel growth. In this regard, UNFI is achieving a major reduction in shrink. Recent improvements have brought the wholesale margin closer to pre-COVID levels, showing that the company is effectively addressing operational challenges. This focus on enhancing supply chain management and reducing shrink is expected to boost profitability further.
How Inflation and E-commerce Are Shaping UNFI’s Future
A notable development is a decline in inflation rates, which eased some economic pressures on United Natural. Product inflation dropped to around 2%. The company anticipates this trend to continue. However, food prices remain elevated, which could still impact consumer spending.
In addition to managing inflation, UNFI is leveraging its e-commerce strengths. The company introduced several digital platforms, including the Community Marketplace, designed to help emerging brands reach grocery wholesalers. This initiative allows customers to access a broader range of products and supports the company's goal of expanding its e-commerce presence.
Ongoing Struggles for United Natural
Despite these positive developments, United Natural Foods faces significant challenges. The retail segment has been fragile, with a 4.5% year-over-year decline in sales in third-quarter fiscal 2024. This downturn stemmed from reduced consumer spending and heightened price sensitivity. The retail sector is also experiencing increased competition and shifting consumer preferences, which are affecting overall sales performance.
Margin pressure is another concern. The company's gross margin contracted slightly in the quarter, reflecting reduced procurement gains and a lower retail gross margin. Persistent margin pressures are likely to continue impacting profitability, making it a critical area to watch.
United Natural has struggled with reduced volumes as consumers turn to discount stores and online shopping for better value. The company’s quarterly net sales registered a minimal decline, but ongoing volume declines could further strain performance.
What Should UNFI Investors Do Next?
In summary, United Natural Foods is actively working to improve its financial health through strategic investments and operational enhancements. While there are promising signs, such as reduced shrinkage and e-commerce growth, the company must address significant challenges, including margin pressures and weak retail performance. We suggest that investors maintain a cautious approach in approaching UNFI stock, balancing potential rewards with the risks inherent in the current situation.
The Zacks Rank #3 (Hold) company’s shares have increased 6.5% in the past three months compared with the industry’s 8.6% growth.
Top 3 Staple Stocks
Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse CHEF, Ollie's Bargain Outlet OLLI and Flowers Foods FLO.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings each indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings each indicates a rise of around 8.7% and 12.7%, respectively, from the year-earlier figures.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings each implies growth of around 1% and 4.2%, respectively, from the year-ago reported numbers.
Zacks Investment Research
Medifast, Inc. MED has seen its shares dive 48.9% in the past six months against the industry’s growth of 0.6%. This weight management and healthy living product company has also trailed the broader Zacks Consumer Staples sector and the S&P 500’s respective growth of 6.4% and 6.5%. Closing the trading session at $18.26 on Wednesday, the stock hovers close to its 52-week low of $17.73.
This significant decline in Medifast's stock price can be attributed to several factors that have weighed on the company’s performance and outlook. Let’s delve deeper.
Medifast Battles Customer Acquisition Challenges
Medifast has been encountering difficulties in attracting customers due to macroeconomic challenges, including intense competition in the health and wellness space, the disruptive effects of GLP-1 regimen adoption and a general slowdown in consumer spending. The weight loss market has experienced significant changes, with the adoption of medically supported weight loss accelerating more rapidly than anticipated.
In the second quarter of 2024, revenues of $168.9 million declined 43.1% year over year due to lesser active earning OPTAVIA Coaches and reduced productivity per Coach. The average revenue per active earning OPTAVIA Coach stood at $4,972, down 10.9% from $5,578 million due to lower customer acquisition.
The total number of active earning OPTAVIA Coaches fell 36.2% to 33,900 compared with 53,100 in the year-ago quarter. The abovementioned macroeconomic hurdles are likely to persist in the near term. The company expects third-quarter 2024 revenues to range between $125 million and $145 million, reflecting a continued decline in the number of active earning OPTAVIA Coaches. This decrease is attributed to near-term challenges in customer acquisition due to the growing acceptance of GLP-1 medications in the marketplace.
Operational Costs: A Concern for MED
Medifast has been battling rising SG&A costs for a while, which is denting its profits. As the operating landscape remains difficult, Medifast intends to make significant spending to boost customer acquisition. These initiatives involve strategic investments in marketing and product development, which are crucial for driving long-term growth. However, these investments may negatively affect EPS in the short term.
The company expects to incur a loss in the band of 5-70 cents per share for the third quarter. This forecast accounts for an anticipated expenditure of $9 million on company-led marketing initiatives and an additional $4 million for the coach convention.
Can Growth Strategies Turn the Tide for Medifast?
Medifast is strategically positioning itself to thrive in the rapidly evolving weight loss market, as the adoption of GLP-1 medications reshapes industry dynamics. Although short-term pressures are anticipated, Medifast's proactive initiatives are expected to positively impact its top-line performance by late this year and into 2025. With projections indicating that up to 20 million people in the United States could be using GLP-1 medications by 2030, Medifast is seizing this transformative opportunity by aligning its efforts with the market's evolving needs.
The company's holistic approach, integrating customers, coaches and clinicians through LifeMD, positions it to support GLP-1 users in achieving their long-term health goals. With its financial strength, strategic flexibility and expertise, Medifast is well-equipped to adapt and thrive in this evolving market, positioning itself effectively against competitors and capitalizing on substantial growth opportunities.
Medifast diligently pursues a strategic vision aimed at driving long-term growth. This vision encompasses several key initiatives, including the cultivation of product and program innovation, expansion into diverse market segments and geographies, refinement of coach and client experiences, harnessing in-depth data and insights and streamlining operational efficiency. In executing these strategies, Medifast places immense focus on the introduction of innovative and compelling products and programs.
The company adopts a systematic approach to penetrate global markets and explore adjacent product opportunities. A core element of Medifast's growth strategy involves scaling up through organizational enhancements, system optimizations, process improvements and strategic alliances. Medifast is focused on developing a culture that drives attraction, engagement and loyalty. Also, the company has been working toward data-driven decision-making.
How Should Investors Play MED Stock?
Medifast is currently navigating a challenging phase marked by significant stock declines, heightened competition and macroeconomic pressures affecting its customer acquisition and revenue growth. However, the company is taking proactive steps to realign its strategy and capitalize on emerging market opportunities. Potential investors should closely monitor Medifast’s progress and look for a more opportune moment to invest. For current shareholders, retaining the stock appears prudent, given the company’s long-term growth potential. Medifast presently carries a Zacks Rank #3 (Hold).
Top 3 Staple Stocks
Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse CHEF, Ollie's Bargain Outlet OLLI and Flowers Foods FLO.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.7%, respectively, from the year-earlier figures.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 4.2%, respectively, from the year-ago reported numbers.
Zacks Investment Research
Church & Dwight Co., Inc. CHD continues to solidify its market position through a strong brand portfolio and adept pricing strategies. Its focus on expanding online sales has aligned with shifting consumer behaviors. However, the company faces challenges, including rising marketing expenses and a slowdown in consumer spending, which affected second-quarter 2024 results. Currency fluctuations pose a risk to the company’s performance.
Shares of the company have risen 7.9% in the past year compared with the industry’s growth of 22.1%.
Factors Driving Church & Dwight’s Success
Church & Dwight’s strong brand equity provides the company with pricing power, allowing it to pass on cost increases to consumers with minimal impact on demand, supporting profitability. Favorable pricing remained an upside to the company’s organic sales in the second quarter of 2024. Organic sales increased 4.7% due to gains from volume to the tune of 3.5% and the favorable product mix and pricing of 1.2%. We expect pricing to be up 1% in 2024.
Online sales are a growing segment for Church & Dwight, now representing 21.2% of global sales (per the second quarter). The company's focus on expanding its direct-to-consumer platforms and optimizing its omnichannel presence ensures it can capture the ongoing shift in consumer purchasing behavior toward online channels.
Church & Dwight benefits from a robust portfolio of trusted consumer brands, such as Arm & Hammer, OxiClean and Trojan, which continue to deliver solid revenue performance across various segments. These brands are household staples, often regarded as essential goods, ensuring stable demand even during periods of economic uncertainty.
Church & Dwight has consistently demonstrated its ability to innovate in premium and niche product categories, such as the Flawless Beauty and Waterpik brands. These higher-margin, faster-growing categories have helped diversify the company's product offering and enhance earnings. Continued innovation and targeted acquisitions in these spaces position the company for growth beyond its traditional categories, providing upside potential for the stock.
Operational Efficiency Boosts CHD’s Gross Margin
Church & Dwight saw significant improvement in profitability, with the adjusted gross margin expanding by 150 basis points to 45.4% in the second quarter of 2024, driven by productivity gains, improved volume and a favorable product mix. Such operational efficiencies are crucial for mitigating inflationary pressures and higher manufacturing costs, demonstrating Church & Dwight’s focus on cost management and strategic pricing. This margin expansion offers strong support for future earnings growth.
The company increased its full-year forecast for adjusted gross margin expansion to approximately 100-110 bps, up from the previously expected 75 bps increase. Management expects higher product pricing, improved mix, increased volume and enhanced productivity to offset the rise in manufacturing costs.
Hurdles on CHD’s Way
Church & Dwight has been witnessing increasing marketing expenses for the past few quarters. The company anticipates marketing, as a percentage of sales, to be nearly 11% in 2024. Adjusted SG&A, as a percentage of sales, is projected to be higher year over year, up from the previous expectation of being flat. This upside reflects additional costs associated with the Graphico acquisition and higher incentive compensation than initially anticipated.
Church & Dwight is facing challenges related to consumer spending in the current environment. Recent trends indicate a slowdown in consumer consumption in June and July, where dollar consumption growth decelerated from 4.5% to approximately 2%. This deceleration is attributed to consumers adjusting their spending habits in response to extended economic pressures and rising prices. The company notes that while its portfolio of value and premium products is well-suited to navigate these shifting consumer patterns, the overall slowdown suggests that future growth may be more modest compared to the first half of the year.
Although the company anticipates its brands to outperform the categories in the second half of the year, it adjusted the organic revenue forecast to about 4% growth, down from the previous range of 4-5% during 2024. Reported sales growth is projected to be slightly lower, around 3.5%, due to the effects of divestitures and adverse currency fluctuations. Adjusted EPS growth is now expected to be at the lower end of the 8-9% range.
How Should Investors Play CHD Stock?
Church & Dwight's strong brand portfolio, pricing power and operational efficiencies have driven solid performance in online sales and higher-margin product categories. However, rising marketing costs, a slowdown in consumer spending and currency headwinds pose challenges that may limit near-term growth. Investors should weigh the company’s solid fundamentals against the potential hurdles in the current macroeconomic environment. For now, maintaining positions in the stock appears prudent. CHD currently carries a Zacks Rank #3 (Hold).
Top 3 Staple Stocks
Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse CHEF, Ollie's Bargain Outlet OLLI and Flowers Foods FLO.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.7%, respectively, from the year-earlier figures.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings each implies growth of around 1% and 4.2%, respectively, from the year-ago reported numbers.
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