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Beyond Meat’s Q2 loss, Shake Shack tops estimates, DraftKings raises guidance

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Myles Udland and Brian Sozzi break down earnings which include: Beyond Meat lowering its Q3 outlook after reporting mixed earnings, Shake Shack topping estimates as restaurants gain more customer traffic, Carvana delivering its first quarterly profit, DraftKings raising guidance, and Virgin Galactic Q2 earnings falling short of estimates.

Video Transcript

BRIAN SOZZI: At this point, it's safe to assume that second quarter earnings season may never ever end. Myles, it just, it has been a heck of a week for earnings. They just keep coming. But let's start with Shake Shack here. One thing that stood out to me in this report, and you're seeing the shares under a little bit of pressure here in the early going, same Shack sales up 52.7%.

MYLES UDLAND: Favorite metric in the game.

BRIAN SOZZI: Favorite metric. So for them, that is always a very key number. Essentially, it's a same store sales metric. Measures sales from stores open longer than a year. That is good to see. Also, Shake Shack highlighting a return of strong levels of indoor dining. That is good. And also, they got a lot of questions on the earnings call last night on how they are retaining workers in this tight labor market here. They're just paying out spot bonuses, they said.

MYLES UDLAND: Yeah, I mean, Shake Shack's been an interesting story, because it was sort of right at the leading edge, the stock price itself, right at the leading edge of bullishness around reopening. Stock peaked at a record high back in February, and it has sort of languished over the last few months. Peaked around $120 per share or so. We see it trading closer to $90 today.

And I'm reminded of what Steve Sosnick just told us, this idea, for the sports inclined would be familiar, the idea of out-kicking your coverage here from the analyst community or from businesses really, out-kicking where the analysts had had them. 52% growth in same Shack sales, you sort of look at what happened, has happened with this stock year to date, and it's clear that was the baseline expectation, Brian, for where the company was going to be going.

BRIAN SOZZI: And now they're pushing more into drive-throughs. But overall, look, we have gotten some very good results from big fast food. Shake Shack, McDonald's, Restaurant Brands, Wendy's, I suspect when they report next week, that will probably be a good quarter as well. Yum Brands, Domino's Pizza, Papa John's, all good quarters. So despite people have been ordering a lot of food during the pandemic via delivery, they're still out there buying fast food.

MYLES UDLAND: And just a final thing on Shake Shack as a way to, and it's always interesting to say, what does company X serve as a proxy for? I would argue that Shake Shack basically is a proxy for what is the health of the average American city, or rather a large American metro. New York City, the home of Shake Shack, and I think what we've seen there is a peak in optimism around where cities would be right now, back in February. And since then, there's been, certainly New York is doing OK, but maybe a little bit lagging where it seemed at one point in maybe February or March that we would be in the fall of 2021, heading into the fall of '21.

BRIAN SOZZI: Well, I know since we're back in the office, our producer, Val Caval just bought some nuggets this week, so I know she was very excited about the Shake Shake nuggets.

MYLES UDLAND: They sous vide the nuggets.

BRIAN SOZZI: They're great, they're a good purchase.


BRIAN SOZZI: But staying on food, Beyond Meat, it has been a top trending ticker on the Yahoo Finance platform all morning long. Stock under pressure here in the pre market. And I think this reflects probably maybe two things. One, US retail sales down 14.3% for Beyond Meat in the most recent quarter. And two, Ethan Brown, the founder and CEO of Beyond Meat, it's not that he didn't sound confident in the company coming out the other side of the pandemic on the earnings call last night, it was really I think his comments on the competitive environment. He said they are holding market share, but it is no secret that Impossible and many other players in this space are now aggressively discounting in the retail sector.

MYLES UDLAND: I mean, they're not hard on the market share though. The last four weeks they've lost 55 basis points of market share. Now over the last quarter, they gained 10 basis points, which I guess would qualify as holding market share. But I mean, this chart from the presentation on page 11, the two charts, you see Beyond Meat velocity growth, which I guess is sell through basically, is that how?


MYLES UDLAND: Velocity growth down 36% over the last four weeks and market share is down 55 basis points. So you have the competitive pressures and then you also have the question, do people want to specifically eat Beyond Meat regardless of what's happening in the category?

BRIAN SOZZI: Yeah. Now on the positive side here for the company, their food service business, again, that is them selling to big restaurants, those sales were up 269.4% year over year. As those restaurants have started to reopen, they have started to gain new business. I believe they are now Panda Express as well. But again, more questions on the conference call when something bigger might be happening with McDonald's. Unclear on when that may happen. But unfortunately for them, they just lost Dunkin' Brands.


BRIAN SOZZI: A couple of years ago they came in the Dunkin' Brands with a new sausage sandwich. That's been pulled from the menu.

MYLES UDLAND: And what? The company's got a market value of $9 billion, something, $7.5 billion right? Being in a Panda Express, is that enough for a $7.5 valuation, being in Panda Express?

BRIAN SOZZI: Panda Express.

MYLES UDLAND: Panda Express is amazing! It's great.

BRIAN SOZZI: Really good.

MYLES UDLAND: But like having one of the slots, the $7 billion slot in the run-through, Panda Express, I'm way oversimplifying this, and they'll be upset with this comment, I'm just saying.

BRIAN SOZZI: I will push back. This, I mean, they are gaining large amounts of distribution overseas. Their distribution overseas I believe increased by 5,000 stores, are up 21% in the most recent quarter. So it's not just, it's no longer just a US play for Beyond Meat, there is an international component here.

MYLES UDLAND: Another question I have for them, and again, these are data that Beyond Meat pulled out the highlight. 7.8% of their most recent fiscal year revenue spent on R&D. And they compare it to Nestle, Kellogg, Conagra, these others who are spending. Nestle's spending almost 2%, which is by far the most of their peers. Hormel spends just 3/10 of 1% of their revenue on R&D.

BRIAN SOZZI: They have Spam.

MYLES UDLAND: But is it good that you're spending like multiples more than the industry on your R&D? That's basically saying, our margins are structurally worse than the companies that we think we can compete with.

BRIAN SOZZI: I know where you might go with this one, but they view themselves as a tech--

MYLES UDLAND: Well, they say it.

BRIAN SOZZI: --Company.

MYLES UDLAND: Right. They say innovation is the core of our company.

BRIAN SOZZI: They are constantly innovating these burgers. They're not out there slaughtering cattle and just pumping it through some machines.


BRIAN SOZZI: I mean, they have to constantly innovate these products.

MYLES UDLAND: I get it, it's innovation.

BRIAN SOZZI: It is innovation.

MYLES UDLAND: It's money losing, as well.


MYLES UDLAND: Admitting, they're saying it.


MYLES UDLAND: Saying they will lose money, they cannot make money with this kind of R&D level spend.


MYLES UDLAND: Relative to the industry.

BRIAN SOZZI: One company that is not--

MYLES UDLAND: Let's move on, let's move on.

BRIAN SOZZI: One company that is not losing money for a change, is Carvana. The Carvana quarter last night was very, very impressive, and I put out a tweet this morning here just showing how far the company has come. They sold 107,000 units in the most recent quarter. Five years ago, they sold 18,000 units the entire year. So online car buying is certainly picking up, in large part because of the pandemic. But nonetheless, that is large amount of cars through the door, and they earned a 3.4% adjusted EBITDA margin. That is good. But again, I think you do want to see a little more margin here for Carvana, especially when you sell 107,000 plus cars.

MYLES UDLAND: Yeah, I mean, I think, look, when you look at Carvana, what they're trying to do is essentially normalize the category. So at least from their vantage point, especially when you're turning a profit on the bottom line, you just continue to keep it as a, we just talked about velocity with Beyond Meat, it's a velocity story. How many people are going to Carvana to buy cars versus how many people had been going to Carvana to buy cars? And they continue to see retail units sold up 96% last year. I think that's going to be, now granted, stock's gone up like a million percent, so there's a lot of priced into this, but I think overall, that's essentially the very simplified version of the story here for Carvana.

BRIAN SOZZI: It has been a, this stock has been absolutely explosive this year. And what they're looking at for the full year, break even, Myles.

MYLES UDLAND: Break even? Well, they just turned a profit the most recent quarter. Stock's up 8%.

BRIAN SOZZI: One company not making any money--

MYLES UDLAND: Last five years, stock went from $20 to $340.


MYLES UDLAND: There you go.

BRIAN SOZZI: One company that's not making any money, it's Virgin Galactic. They came out with the price for their trips, but they won't be making any money any time soon. And they didn't.

MYLES UDLAND: We had a great discussion in our meeting this morning about Virgin Galactic, comparing it to which airline it was going to be in the space race. Budget option, $450,000.

BRIAN SOZZI: Yeah, affordable.

MYLES UDLAND: Was it $430,000 or $450,000, I don't remember.

BRIAN SOZZI: $450,000.

MYLES UDLAND: $450,000 for a seat. I know you have that kind of money.

BRIAN SOZZI: I don't. And if I did, I'm not sure I would be using it to fly to space. Maybe--

MYLES UDLAND: You're trading, use it to trade Robinhood options.

BRIAN SOZZI: Trade Robinhood or donate it to help Mother Earth, but I don't know about $450,000 here for a trip there to space.

MYLES UDLAND: There you go. $32 a share. So stock has stabilized I think is the main part of that story.

BRIAN SOZZI: Hit us with some DraftKings.

MYLES UDLAND: Yeah, DraftKings, they had an interesting conversation on their call, or in their presentation about the NFT market and the role that that has played, the marketplace part of their business. They had revenue within the NFT marketplace of $382 million.


MYLES UDLAND: Or not revenue, but it generated $382 million in transaction volume, of which they then get a cut. It was $3 million in the second quarter of 2020. And $3 million in the second quarter 2020 seems high to me. I didn't know there were NFTs in the second quarter of 2020. The stock here, again we can see being on the top line. Company with a narrower than expected loss. And DraftKings breaking that down on the adjusted loss side. Most of that, stock-based comp as is likely to see with a growth company like this. Stock is up 5% as we really ramp into the football season here, which I keep bringing up, because I'm excited about it

BRIAN SOZZI: Yeah. And one company, and I didn't I didn't realize this, and we'll talk to Gannett later, they are now in sports betting.

MYLES UDLAND: Everyone's in sports betting.


MYLES UDLAND: Yahoo's in sports betting.

BRIAN SOZZI: Yeah. It is definitely an interesting time to be in that space.

MYLES UDLAND: Who isn't in sports betting?


MYLES UDLAND: JP Morgan's not in sports betting.

BRIAN SOZZI: JP Morgan's not.

MYLES UDLAND: Maybe next year.

BRIAN SOZZI: Maybe. We'll break that news.

MYLES UDLAND: Financials, XLF is now a sports betting book. Berkshire Hathaway.