Douglas Cliff
In recent weeks, weight-loss drugs have made headlines as some companies said they may already be having an impact on results. While at first glance the impact of these drugs (known as GLP-1 agonists) could Although they only affect food and beverages, the reality is that they could influence many other consumer industries.
Clothing retailers, casino/gaming names and even airlines are just a few of the industries that could see the impact of the growing popularity of weight loss medications. Some of the most popular are Wegovy (semaglutide) and Ozempic (semaglutide) from Novo Nordisk (NVO) and Mounjaro (tirzepatide) from Eli Lilly.
In a recent note, BofA Securities noted that while it is still early in the use of these new drugs, it is prudent to pay attention now to their potential influence. “The impact of these downstream effects is much less clear to the market, but could change consumer behavior in the long term, benefiting some industries while others are at greater risk.”
As for clothing retail, BofA’s Lorraine Hutchinson said the drugs could be a boon to the industry as they could spur a wardrobe replacement cycle.
“Weight loss could help demand for traditional retailers’ offerings…and lower demand for plus-size retailers like Torrid (CURV),” he wrote. “We also expect activewear brands such as Lululemon (LULU) and Deckers (DECK) to benefit given the healthier lifestyles that GLP-1 medications have been shown to support.
“If people using GLP-1 save money through lifestyle changes, they could use this money to finance spending on clothing,” he added.
Based on current research, there may be a link between obesity and problem gambling, according to BofA, which estimates that this type of gambling accounts for between 10% and 30% of all gambling revenue. If even more people are prescribed weight loss drugs, this could lead to a decrease in problem gambling, which would negatively affect the industry.
“This implies that the use of GLP-1 could create a 0-4% revenue headwind for US commercial gaming with a higher risk for slot machines or regional games,” the BofA analyst noted. Shaun Kelley. He added that as a result, he is keeping an eye on Boyd Gaming (BYD), Caesars Entertainment (CZR), MGM Resorts (MGM), PENN Entertainment (PENN), and Red Rock Resorts (RRR).
While cigarette ads claimed that tobacco could be a way to curb appetite, BofA believes the impact of GLP-1 drugs on the sector will be minimal. Nicotine is known to suppress appetite, insulin levels, and increase metabolism.
BofA’s Lisa Lewandowski argues that nicotine is primarily used by teenagers and young adult women for weight control. “This small subsegment of the smoking population may have limited access to these weight loss medications, due to their income, location, and insurance coverage. Additionally, younger patients may find that doctors are hesitant to prescribe these medications given the potential of long-term use of GLP-1 medications and concerns about eating disorders in young adults.
However, since there are ongoing studies on the use of GLP-1 to reduce cravings for addictive substances such as nicotine and alcohol, the drugs could have an impact on tobacco use. This could affect companies like Philip Morris International (New York Stock Exchange: PM), Altria Group (New York Stock Exchange: MO) and British American Tobacco (BTI).
One industry that could benefit from weight loss drugs is airlines. Thinner passengers mean less total weight on board, and that could impact the bottom line in terms of less fuel burned. Fuel represents approximately 25% of an airline’s total expenses.
In late September, Jefferies published a note claiming that United Airlines (UAL) could save $80 million a year assuming the average passenger lost 10 pounds. This is based on the assumption that each United (UAL) flight would cost approximately 1.8 thousand pounds less and save 27.6 million gallons of fuel per year, according to analyst Sheila Kahyaoglu.
“This benefit should be recognized similarly across all airlines,” Kahyaoglu wrote. Pay attention to future comments from management at other major airlines, such as Delta Air Lines (New York Stock Exchange:DAL), American Airlines (NASDAQ:AAL), Southwest Airlines (LUV), JetBlue Airways (JBLU) and Spirit Airlines (SAVA), on this topic.
For more analysis on the impact of weight loss medications, check out the Oct. 14 Wall Street Breakfast Catalyst Watch podcast.
