Friday Oct.01, 2021

⚔️ Disney’s Star Wars

_Room service has arrived [EyeEm via GettyImages]_
_Room service has arrived [EyeEm via GettyImages]_

Hey Snackers,

While you’re visiting grandma in Jupiter, Florida, NASA’s new spacecraft will visit eight asteroids around Jupiter’s atmosphere — 4X more than any in history.

Stocks dropped again to close out September, notching their worst monthly performance since March 2020. Investors have been stressing over inflation, global supply-chain crunches, and rising Delta cases. On the plus side: Congress narrowly avoided a government shutdown (for now).

Washington

Dollar Tree ditches the dollar standard — and paves the way for higher profits

Three Dollar Store… just doesn’t have the same ring to it. Discount legend Dollar Tree announced plans to start selling more items for $1.25, and even $3.50 (gasp). Driving the price jumps: a triple whammy of inflation, a global supply crunch, and the ongoing labor shortage. Despite the sudden shift from its signature price point, Dollar Tree shares jumped 16% yesterday after its announcement.

The namesake barrier... has been broken before. Since 2019, Dollar Tree has experimented with $3 and even $5 items in a section labeled “Dollar Tree Plus” (not a streaming service). Last year rival Dollar General launched Popshelf, a store aimed at higher-end shoppers like suburban moms who still love a good deal (prices up to $5). For Dollar Tree, price bumps have been hugely successful so far. And investors smell profit...

  • Profits are 6% higher at “premium” Dollar Tree Plus stores than at regular Dollar Trees. DT expects to have 500 Plus stores by fiscal year’s end — and 5K by 2024.
  • $5 products such as “Grandma’s Heirloom Pillow” and “decorative topiary” appeal to higher-income customers, who are more willing to splurge.
  • Ditching the dollar standard allows Dollar Tree to expand into pricier — and potentially more profitable — new categories. Think frozen meats and seasonal decorative goods (#HallowLantern).

The price is right — if the time is right… Some companies can justify price hikes thanks to coveted brands or cutting-edge tech. Since DT doesn’t have either of those, timing is key. Right now, consumers appear to be less sensitive to price hikes: Consumer prices jumped 5.3% year over year in August and have risen at record rates for five straight months. And despite a 5X increase in freight costs, Dollar Tree’s profits have grown since 2019. Once costs and inflation levels stabilize, Dollar Tree may be in a position to get even more bang for its buck.

Yoda

Disney is opening a ‘Star Wars’ hotel as IRL experiences make a profit comeback

The Tourist Strikes Back… So does Mickey. After a desolate pandemic stretch, Disney is opening an immersive “Star Wars”-themed hotel to win back customers’ hearts. It'll open in March at the Disney World Resort in Orlando. Fans of the intergalactic franchise can opt into a two-night choose-your-own-adventure stay aboard the Halcyon Starcruiser (featuring lightsaber training and model ship building). The package includes tickets to the Hollywood Studios park and three meals a day (#lightsavor).

Experiences are back-ish... Disney’s "Parks, Experiences, and Products" division, which includes resorts and cruises, lost a record $2B during the pandemic. Meanwhile, Disney+ saw impressive growth. Last quarter, Disney’s Experiences biz turned a profit for the first time in over a year. But not all experiences are created equal...

  • Sad carnival: Disney’s cruise fleet has been stalled as Covid resurges, and Carnival's Princess Cruise line canceled a number of its voyages. The cruise industry is now worth just $24B, down from $154B prepandemic.
  • Parks intensify: Disney’s park-pass reservation system has allowed it to maximize attendance under Covid restrictions. Last quarter, Disney's Parks and Experiences division pulled in $4.3B in sales, up 4X from the previous quarter.

Safe thrills > cheap thrills… To attract customers after the height of the pandemic, companies need to offer supercharged experiences — with safety precautions. Airbnb has expanded to unique stays like yurts, houseboats, and caves to lure adventure-hungry remote workers. Disney’s new Wish cruise line will feature Broadway-style musicals and an infinity pool, and Celebrity Cruises debuted a 3D laser show for dinner guests. But all have implemented Covid safety measures, like contactless check-in, proof of vaccination, or facial-recognition tech to make their thrills safe.

What else we’re Snackin’

  • Stress: Congress passed a short-term funding bill just hours before a deadline that would’ve started the first government shutdown since 2019.
  • Nuggets: Chicken giant Tyson said 91% of its employees are vaxxed, after implementing a vax mandate that covers all 120K of its US workers
  • Accelerate: Pharma giant Merck signed a $11.5B deal to buy drug developer Acceleron and its portfolio of rare-disease treatments.
  • Oregano: Shares of spice classic McCormick dropped 3% after it warned that inflation and pricey packaging costs will lower profits for the rest of the year.
  • Blimey: UK-based food-delivery company Deliveroo partnered with British grocery chain Morrison’s to transport treats in as little as 10 minutes.
  • Play: IKEA partnered with Asus sub-brand Republic of Gamers to roll out a line of furniture for gamers, including desks, chairs, and COD-friendly neck pillows.

Friday

  • August consumer spending

Authors of this Snacks own shares of: Disney

ID: 1858302

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French luxury fashion conglomerate Kering has seen its shares fall ~10% in the last 24 hours after reporting that sales at its flagship brand Gucci had dropped 21% in its latest quarter.

Kering’s other brands, which include Yves Saint Laurent, Bottega Veneta, and Balenciaga, fared slightly better — but the only real bright spot was the company’s eyewear division, where sales rose 24% (9% on a comparable basis).

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

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Kering Warns Profit to Tumble Following Gucci Woes in China

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Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

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FTC Moves to Block Tapestry’s Acquisition of Capri

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Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

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