Downside risks to our target price are as follows:
Pricing environment: Consumers have been increasingly focused on value, and other retailers have more mindshare for value (like mass and wholesale). If we were to see increased price competition from other food retailers, this could put pressure on ACI to reduce prices beyond what we currently assume in our model, which would likely pressure margins.
GLP-1s: As the use of GLP-1s as a weight loss alternative increases, we see risk that consumers will consume fewer calories. This could pressure sales in the food category and free up dollars to be spent in other categories. For retailers that have a broad assortment, they are well-positioned to capture the dollars (freed up) in other categories.
Increased food regulation could be disruptive to the food retail industry. We see potential for new regulation to lead to higher prices, stricter ingredient standards, and new labeling requirements. While the national brands ACI sells could face disruption from these initiatives, so too might ACI’s private label business.
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