Three Things (5/1)

Barry's Bootcamp sale 

Barry’s Bootcamp, a popular workout studio specializing in high-intensity interval training, is exploring a sale. In 2019, the company came close to a sale at an estimated $700 million, and today the valuation is said to be much greater. Barry’s has fully recovered from 2020 closings, as studio revenue rose 27% last year and class attendance exceeded 7.4 million. All of the company’s studios are profitable, and they even added an indoor cycling class to compete with the widely loved SoulCycle and CycleBar studios. 

Private Equity firms have long sought after privately held fitness studios and gyms with historically wide profit margins. Many of them operate under a subscription model, offering exclusive memberships with perks, and others sell packages of classes. Barry’s offers both, appealing to many and gaining a cult following. We love a good subscription business and expect the potential sale will attract many high bidders.

Amazon earnings

Amazon reported first-quarter earnings and revenue above expectations driven largely by growth in advertising and the cloud unit. Amazon Web Services cloud unit sales were $25 billion and up 17% from the previous year. However, revenue forecasts for the second-quarter were below analysts' expectations. 

After a slump last year, strong cloud sales this past quarter indicate that companies are back to spending more on technology projects. CEO, Andy Jassy, recently conducted a large cost cutting initiative and streamlined warehouse processes while simultaneously diverting funds to AI investments. As companies have increased spending and started investing in their own artificial intelligence efforts, AWS is positioned to benefit through 2024. 

Walmart’s new premium food brand

Walmart is launching a new premium food brand called Bettergoods in hopes of attracting higher income shoppers and competing with Trader Joe’s and Amazon’s Whole Foods. They are aiming to increase foot traffic in stores and get customers to spend more. A majority of the items will cost $5 or less and will fall into three categories: culinary flair, plant-based, or exclusive of certain ingredients like gluten. 

Walmart has attracted a more affluent demographic of shoppers during a period of higher inflation, and Bettergoods is an attempt at retaining them. Bettergoods will join the company’s collection of existing private food brands, like Great Value, and we think the dichotomy of housing the country’s most popular discount food label and a new trendy, healthier food label under one roof could create brand confusion. However, if executed properly, Walmart could steal market share by keeping customers who would otherwise switch back to a Whole Foods once inflationary pressures subside.

Disclosures:

As of the date of publishing, AMZN is a holding in Titan's Flagship strategy.

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