It's starting to happen. We are beginning to see the triumph of the better balance sheets versus the worst ones, or, in the case of all kinds of businesses, the big ones versus the small ones.
Today we got multiple target boosts and an upgrade for Chipotle (CMG) and as I read through them I am struck by how much the estimates are flying upward. Raymond James, which took its recommendation from hold to buy believes first quarter earnings could come through at $5.52 versus a consensus of $4.82, which is remarkable itself, a major boost that I think may prove to be too low.
More important, though, I think this is the beginning, the realization that the estimated 80,000 restaurants that have closed are not coming back and the permanence of this supremacy might be upon us.
Remember, Chipotle's the most digitized of restaurants. I have been pounding the table like mad on this one ever since it became clear that Chipotle had enough take-out and delivery numbers to equal what it did in the stores. With the opening of stores throughout the country for all restaurants it is entirely possible that Chipotle has taken share, maybe a great deal of share, during the pandemic.
It could be a real strong run here because the consumer saved so much during the pandemic. The consumer may have as much as 2 trillion in disposable income so it is a total windfall for the winners.
As Gene Lee, CEO of Darden (DRI) , recently pointed out, once vaccinated "the first thing they do is to go out to a restaurant. Darden plunged headfirst into the digital age in the last 12 months and it, too, will be taking share from the dead restaurant cohorts. The company has flexed its muscles and used its considerable cash flow to pull away from the pack. Lee told analysts, Darden's "significant scale enables us to quickly react to the turbulent operational environment."
Does this mean that Chipotle took from Mexican restaurants that closed and Darden's Olive Garden managed to take share because of a host of Italian restaurant closings? It's certainly a possibility. But, as an owner of restaurants I think it is safe to say that it is taking share from empty storefronts and permanently closed restaurants because they couldn't' afford the technology or labor needed to stay in business. Sure, some of them are mothballed but that misses the point: while the federal government provided money to pay workers and rent and a host of others expenses, there is so much more that goes into running a restaurant even when it is closed that very few mom and pops could make it through to the promised land. The requirements for getting funds on the second PPP were so complicated that some were too baffled to even think they qualified and many others didn't even bother.
In fact, I would argue that the pandemic has lasted just long enough to wipe out the little guy and let the bigger guys -- and I would include Cheesecake Factory (CAKE) , Yum Brands (YUM) , and Texas Roadhouse (TXRH) -- have the run of the joint.
I also expect Starbucks (SBUX) to report much better numbers, for the same reason. The corner coffee shop also needed more than federal payroll protection program to stay alive. I believe that the estimates for Starbucks will prove to be way too low. Plus, the turn in Starbucks many have more staying power because it, too, has been thoroughly digitized, especially with take-out. It doesn't hurt to have Kevin Johnson, a technologist who formerly headed Juniper at the helm. Talk about foresight, you almost wonder if Howard Schultz had a vision when he named Kevin to the job.
Now, the real question is, will the move have staying power once we lap the beginning of the pandemic?
What happens to the essential stores, for example, after we annualize the aggressive, some would say, crazed pantry stocking of the month of March of last year. Won't we see a big drop off from the winners of last year?
Surprisingly we need to look no further that Costco (COST) after last week's release of March numbers. The company posted a 17% number -- 11% if you take out gasoline, and almost all departments were stellar.
If you go back to its quarterly conference call you saw some incredible gains-- Food and sundries up high single digits, liquor, frozen foods, coolers and hardlines up 20%, softlines up 20%, and fresh foods up low 20s. Institutions took one look at these blowout numbers and pronounced them as the last you would see because beginning in March Costco was annualizing one of its greatest months as Costco is the pantry stocking king of the world.
I think that the April conference call giving you March numbers should have ignited the stock much more than it did because it was proof positive that not only did people sample Costco but they stayed with Costco, something demonstrated by some very strong executive member sign-ups. As the terrific CFO Rich Galanti said on the March conference call, "So in some ways some of the stickiness, unfortunately, relates to certain aspects of retail that have been closed for good." When they are closed for good they do not rise from the dead. This isn't science fiction.
To me, that means we could see a major surprise when Amazon (AMZN) reports. Costco, which is bulking up on e-commerce, still is nowhere near the colossus that is Amazon, but I think that both, which are subscription businesses, picked up enough customers that have decided to stay with them that you can buy Amazon pretty safely, especially after its big non-union election victory in Alabama. Again, I think there has not been enough extrapolation from Costco to Amazon, which shows you how much opportunity there might be here.
One other that I think will begin to gain steam: Planet Fitness (PLNT) as the number of gym club closings is staggering. Here you have a case where I believe the low end stayed away -- the numbers have not been so hot so far, but will come back quickly with vaccinations and the high-end, lacking places to go will support the high price of Peloton (PTON) equipment. The stock of Peloton has come down a great deal from its high, but the valuation -- $34 billion -- is what bothers me.
As a small business operator I have experienced first hand the ravages of all sorts of small businesses, taverns, restaurants, inns and the like, and all I can say is that while it is stunning how fast the vaccines were developed, something that Jay Powell pointed out last night in his eloquent 60 Minutes interview, the devastation was awful, with the most horrendous, of course being the loss of 550,000.
The Federal Reserve did the right thing in slashing interest rates. The Treasury and Congress did the right thing compromising on aid to small business and then doing a second round earlier this year.
Who knows what would have happened if we didn't get a vaccine this fast? Would Darden have collapsed as its stock indicated it would? Do you think that outfits like YUM could make a comeback, again, something that the collapse of the stock showed might not be possible?
What we did find out, though, was that small businesses did not have the wherewithal, the scale, and the technology. We often hear that digitizing is the difference between just thriving and surviving. It is. And tens of thousands of small businesses have failed. The market sheds no tears. It just says buy the winners. I say you can't mourn, you just buy.