Retail News

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Ahold Delhaize

On August 16, Ahold Delhaize opened new Food Lion stores in Ashland, VA and Washington, NC. In addition to the new pharmacy, the Ashland store offers various prepared food offerings. The Washington store features a walk-in garden cooler in the store’s produce section, expanded prepared food offerings, and organic produce.

Winco Foods

WinCo Foods, which opened its first Oklahoma store in Moore in May, will open a second in the state in Midwest City on August 31. The new WinCo is 84,000 square feet and is at the site of a former Target store. There is only one competing food retail store (Aldi) within five miles of the new WinCo store.

Sprouts Farmers Market

Jana Partners, the hedge fund that had a big stake in Whole Foods before exiting its position following Whole Foods’ proposed acquisition by Amazon and pocketed $300.0 million, recently acquired stakes in Sprouts Farmers Market and Blue Apron. As of June 30, Jana owned 600,000 shares, or 2%, of Blue Apron; and about 593,000 shares, or 0.4%, of Sprouts. Since going public at $10 per share, Blue Apron’s stock has lost nearly half of its value, closing at $5.24 on Monday. Meanwhile, Sprouts stock, which reached a high of around $48 back in 2013, closed at $23.87 on Monday.

Wegmans

Wegmans announced it will be opening a two-story location in Natick, MA next spring. The new 134,000 square-foot store will open in a former J.C. Penney store with direct access to a mall and will include two restaurants. Wegmans is also seeking a complementary tenant for the 45,000 square-foot third floor of the building. This will be the sixth Wegmans location in Massachusetts.

There are four competing food retail stores within three miles of the new store, including two Stop & Shop stores, one Trader Joe’s, and a Whole Foods.

Hudson's Bay Company

Hudson’s Bay Company named Edward Record as its new CFO, effective August 28. He will succeed Paul Beesley, who previously announced his intention to leave the Company. Mr. Record was most recently CFO at J.C. Penney, and prior to that, he was COO at Stage Stores. The Company continues to face operational pressure and a significant debt load, primarily mortgages, which may need to be refinanced. TTM EBITDA margin plummeted to only 2.4% during fiscal 2016, compared to 7.7% at FYE 2015, and the ratio of debt/TTM EBITDA rose to almost 12x from 5.6x just 12 months ago. Earlier this year, Hudson’s Bay terminated negotiations to acquire Neiman Marcus, which would have exacerbated the Company’s problems in the face of eroding department store foot traffic.

In other news Saks Fifth Avenue is launching a new salon concept offering hair care, skin care and beauty services along with a medical spa. The Salon Project, a partnership with Joel Warren (co-founder of the Warren-Tricomi hair salon chain), will debut this fall at Saks’ store in Huntington, NY, with additional locations planned next year in Houston, TX and Boca Raton, FL. Over the next two years, the concept will be rolled out in 10 U.S. Saks stores, including its flagship location in New York City. The salons, described as “20th century retro meets modern classical glamour,” will be 3,000 square feet – 5,000 square feet. 

Kroger

Kroger has launched its own home delivery service in the Greater Cincinnati, OH market as part of a pilot program being tested in two stores in Sharonville and Whitewater Township. Kroger is officially partnering with Grocery Runners who will pick up the order and deliver to a customer’s home. Grocery Runners had already been delivering ClickList orders as an independent service. The Company plans to roll out delivery to other ClickList locations.

Hibbett Sports

Hibbett Sports announced second quarter sales fell 9.2% to $188.0 million due to an 11.7% decrease in comps, partially offset by the opening of 21 stores since last year. Management attributed the comp weakness to fewer transactions as a result of the “challenging retail environment.” The 4.1% decrease in gross margin was due to promotions and markdowns to liquidate excess and aged inventory, while SG&A margin deteriorated 2.6% due to the deleveraging impact of the lower sales base. EBITDA and EBITDA margin contracted 94% and 6.6%, respectively. TTM EBITDA margin was 9.8%, down from 13.5% at the same time last year. Commenting on results, CEO Jeff Rosenthal said, “We experienced a very difficult retail environment in the quarter, with a significant decline in transactions and resulting pressure on gross margin. Expenses were well controlled, while maintaining proper staffing and customer service levels in our stores. Looking forward, we expect the external environment to remain challenging, although we are encouraged with the progress we are making on our internal initiatives, most notably our new e-commerce website.”

Starbucks

Starbucks has signed a lease to add another 3,000 square-foot Starbucks Reserve bar store within blocks of several other Starbucks stores in Sacramento, CA. Starbucks launched the more upscale Reserve bar chain with one location in Seattle in 2015. Recently, it has opened Reserve bar stores in New York, Los Angeles, Chicago and Honolulu.

Ross Stores

Ross Stores reported second quarter sales increased 7.9% to $3.43 billion, and comps were up 4%. Profit rose 12.3% to $316.5 million. CEO Barbara Rentler commented, “We are pleased with the better-than-expected growth we delivered in both sales and earnings in the second quarter, especially given our strong multi-year comparisons and today’s volatile retail climate. Operating margin of 14.9% outperformed our projections, mainly due to a combination of higher merchandise margin and leverage on our above-plan sales gains.” The Company opened 21 new Ross Stores and seven dd’s Discounts locations during the second quarter. It continues to expect to open 70 new Ross Stores and 20 dd’s Discounts during the year (this would include 26 Ross and eight dd’s stores expected to open during the second half of the year).

Dunkin' Donuts

Dunkin’ Brands Group signed a multi-unit store development agreement to establish seven Dunkin’ Donuts restaurants in the Raleigh-Durham, NC market with existing franchisee, Coastal Franchising Inc. The first restaurant under this agreement is planned to open in 2018.

Meijer

Meijer will reportedly trim and restructure its information technology services staff in the coming months, citing that it wants to be as “efficient as possible” while competing in a “highly competitive retail environment.” The Company said that some employees had been or would be laid off. Unconfirmed sources report the changes affect 10% of staff, with 45 laid off and 25 transferred to CapGemini, a French multinational IT consulting firm. Much of the restructuring is intended to help Meijer shift its attention to better meet click-and-collect and home-delivery demand.

In recent months, Meijer has expanded its home-delivery service across its six-state footprint through a partnership with Shipt. The Company just last week announced plans to expand the offering to an additional 15 cities in Michigan in the next few weeks.

Dollar General

Dollar General recently opened its 14,000^th retail location in Dauphin, PA. As of June 1, the Company operated 604 stores in the state and a distribution center in Bethel.

BJ's Restaurants

BJ’s Restaurants launched a pilot program for alcohol delivery on its online ordering platform. The program is being offered in select California markets and allows customers to add BJ’s craft beer and wine either when ordered through the DoorDash app or directly from BJ’s. As of August 21, 98 BJ’s restaurant locations have partnered with DoorDash in California, Denver, Miami and other locations nationwide.

CVS Health

CVS Pharmacy recently announced plans to buy the Fagen Pharmacy chain, which has 20 locations in Northwest Indiana and Chicago’s south suburbs. The purchase price was not disclosed. CVS will convert eight of the stores into CVS-branded pharmacies in September and close 12 locations. Pharmacy files will be transferred to nearby CVS locations. CVS said it expects to hire “many Fagen employees” who work at the locations that will remain open.

Earlier this year, Fagen was forced to close locations in Lansing and Chicago Heights, which were inside Ultra Foods stores, because of the bankruptcy of Ultra parent company Central Grocers. It sold the prescription files at both stores to CVS.

CVS plans to phase out sales of cigarettes, cigars and chewing tobacco at the former Fagen pharmacies; it ended the sale of tobacco products in its stores in 2014.

Stein Mart

Stein Mart’s second quarter sales declined 2.7% to $311.0 million, and comps were down 5%. E-commerce sales were up 41%. The Company recorded a net loss of $13.0 million, compared to a profit of $3.0 million in the prior-year period; management cited the strategic decision to move up its initial clearance markdowns on spring merchandise and to liquidate certain underperforming inventories for the loss. CEO Hunt Hawkins commented, “Our second quarter sales trends improved from the first quarter and were strongest in July as we more aggressively priced our clearance merchandise. We are very pleased with the progress we made on our inventory management initiatives that resulted in 15% lower average store inventories at the end of the quarter. We will continue to operate our business with lean store inventories and tight expense control this fall while putting into place new merchandising and marketing strategies that include the launch of a new advertising campaign in September. We expect our lower inventories will give us better margins from lower markdowns primarily in the fourth quarter.” The Company did not open or close any stores during the quarter but does expect to open a total of 10 new stores and close six underperforming locations during the year. Stein Mart operates 292 stores across 31 states.

Buckle

The Buckle’s second quarter sales decreased 7.8% to $195.7 million, and comps were down 7.7%. The Company has been reporting declining comps since late 2013, largely due to customers losing interest in high-end denim products. Online sales decreased 4.5% to $19.5 million. Profit fell 25.8% to $11.5 million. Looking ahead, the Company will launch a “buy online, pick up in store” program in September. Management indicated that it has been offering some merchandise at lower prices in popular styles, and plans to delay stocking its cold weather products to the fall rather than the back-to-school season, to reflect the trend of customers buying clothes to wear immediately rather than in advance. So far this year, the Company closed six underperforming stores and plans to open two new stores later this year.

SpartanNash

SpartanNash’s second quarter sales increased 3.7% to $1.89 billion, driven by contributions from the January 2017 Caito Foods acquisition and a 14.8% sales increase in the food distribution segment. Net sales for the food distribution segment increased $121.3 million, or 14.8%, to $941.6 million, primarily due to contributions from the Caito acquisition and organic sales growth from new and existing customers. Management noted that while it saw inflation in food distribution, it was still seeing deflation in certain categories such as dairy and produce. Looking forward, the Company expects to see only modest overall inflation in the second half of the year. Military segment sales were down 7.3% to $471.1 million. The decrease was primarily due to lower sales at the Defense Commissary Agency (DeCA) operated commissaries. Management noted that second quarter sales continue to be impacted by ongoing commissary sales challenges but added that its private brand initiative with DeCA was progressing well. At quarter end, SpartanNash was shipping about 250 private items and expected that number to increase to approximately 425 by the end of the year. Finally, quarterly net sales for the retail segment fell 4.1% to $482.0 million. The decrease was primarily attributable to $11.6 million in lower sales resulting from the closure and sale of retail stores as well as a 1.8% decrease in comps for the quarter (excluding fuel). SpartanNash sold two stores during the quarter and another store at the beginning of the third quarter to new food distribution customers. As a result, the Company has a store base of 150 corporate-owned retail stores, compared to 160 stores a year earlier.

Concurrently with the earnings release, SpartanNash announced that it appointed Mark Shamber as EVP and CFO, effective September 11. 

Based on the first half results and outlook for the remainder of the year, the Company has lowered its guidance for fiscal 2017. The Company now expects adjusted EPS from continuing operations of approximately $2.18 – $2.28 (down from $2.26 – $2.35), excluding merger/acquisition and integration costs and other adjusted expenses and gains. 

Target

Target reported second quarter sales growth of 1.6% to $16.43 billion, reflecting comp growth combined with the benefit from sales in non-mature stores. Comps rose 1.3% (better than the expected 0.7%), driven by traffic growth of 2.1%. Comp digital channel sales increased 32% and contributed 1.1% to comp growth. The Company has been investing significantly in its online capabilities.

In the second quarter, Target devoted $717.0 million to capital investment, paid dividends of $331.0 million, and returned $296.0 million through share repurchases. Net income was $672.0 million, down 1.2% over last year.

At a subsequent analyst call, CMO Mark Tritton said that Target saw market share gains across all discretionary categories during the period, including apparel and home, though comps in Target’s food business remained flat. Sales of produce and adult beverages were strong for this segment. The Company said that though Target reported a slight decline in the average shopper’s ticket for the quarter, far more shoppers were seen making “quick trips” or “fill-in trips” this period.

Looking ahead at fiscal 2017, Target raised its adjusted EPS guidance to $4.34 – $4.54, compared with prior guidance of $3.80 – $4.20. Comp growth will be in a range around flat, plus or minus 1%. On the news, Target’s stock rose 3.6% to close at $56.31 last Wednesday, and closed at $56.56 yesterday. 

In addition, According to published reports, Target is partnering with Barnes & Noble College Booksellers, which operates bookstores on college campuses around the country. The bookstores will promote an expanded range of items via Target’s website, and in some cases will provide pickup facilities for those items.

The Company’s Target Restock program, a new next-day “essentials” delivery service is now available in Dallas-Fort Worth, TX and Denver, CO. The initial test that began earlier this summer was offered in Minneapolis, MN. Since then, Target has added three updates to Target Restock that include an expanded assortment, Saturday deliveries, and  availability to all shoppers versus only Target REDcard holders. 

Stage Stores

Stage Stores announced second quarter sales increased 11.4% to $377.1 million, largely due to 30 net store additions, slightly offset by a comp decline of 3.6%. Management noted that stores in the four energy states, which account for more than 50% of comps, outperformed the balance of the chain. Direct-to-consumer business grew double digits, and non-apparel categories had a positive quarterly comp increase. Additionally, consolidated comps turned positive in July. Despite the relative sales progress, EBITDA fell 37.4% to $12.7 million as a result of lower merchandise margins and SG&A margin deleveraging. The downward trend in TTM EBITDA as well as the increase in debt led to an increase in the ratio of debt/TTM EBITDA to 8.7x from 2.5x. TTM EBITDA margin was only 1.8%. In the second quarter, the Company announced that it closed the acquisition of 58 Gordmans stores for a purchase price of $36.1 million including inventory and intellectual property. Going forward, management is continuing to transform Gordmans into an off-price model. Stage Stores paid $33.8 million in the first quarter, with the remaining $2.3 million paid in the second quarter. Commenting on results, CEO Michael Glazer said, “We are pleased to have gained momentum in our business during the second quarter, with sequential improvement that culminated with comparable sales turning positive in July. As we continue to integrate our new off-price Gordmans business into the Stage infrastructure, we are excited to see the overwhelming support from the vendor community. Looking ahead to the fall season, we remain disciplined in managing expenses and inventory.”

Walmart

Walmart's second quarter revenue increased 2.1% to $123.36 billion. Walmart U.S. comps (excluding fuel) rose 1.8% with traffic growth of 1.3%, marking its 12th consecutive quarter of positive comps. E-commerce growth at Walmart U.S. remained strong, led by organic growth through Walmart.com. Net sales and Gross Merchandise Volume (GMV) grew 60% and 67%, respectively, as customers continued to respond well to new initiatives and an expanded assortment of more than 67 million SKUs. Sales at Walmart International were down 1% to $28.30 billion. Sales at the Sam’s Club division were up 2.3% to $14.89 billion, driven by comp growth of 1.3%, which included traffic growth of 2.1% that was partially offset by the average ticket being down 0.9%. 

Net income was down 1.2% to $672.0 million and included a loss on extinguishment of debt in connection with the Company's recently completed debt tender offers, partially offset by the gain from the sale of the Suburbia business in Mexico.

Looking ahead, Walmart raised the low end of its fiscal 2018 EPS outlook to $4.30 – $4.40, up from $4.20 – $4.40 a share. Comps are expected to increase 1.5% – 2% at Walmart U.S. in the third quarter.

Despite the news, shares of Walmart were down 1.6% to close at $79.70 on Thursday. As of yesterday’s close its stock closed at $79.71.

In other news, Walmart is reportedly growing its online grocery pilot, rolling out the service in two more urban markets this week. Customers in Dallas, TX and Orlando, FL will have the option of ordering groceries online and having them delivered via Uber. Until now, the pilot service with Uber was available in Phoenix, AZ, and Tampa, FL. Walmart has also been running its own grocery delivery service using its own trucks in Denver, CO, and San Jose, CA; and has been testing delivery by its employees, who drop purchases off at customers’ homes after leaving work. 

Walmart has applied for a U.S. patent for a warehouse in the sky, which could make deliveries to shoppers’ homes by way of drones. The machine, similar to a blimp, could fly as high as 1,000 feet, the application says, and would be operated either autonomously or remotely by a human pilot. Amazon was granted a similar patent last year. In October, Walmart filed for another patent that closely resembles one by Amazon, for a system similar to the Amazon’s Dash buttons, which reorder everyday goods seamlessly in one click. 

Bon-Ton Stores

The Bon-Ton Stores reported second quarter sales decreased 7% to $504.4 million, and comps were down 6.1% (its ninth consecutive quarterly decline). The Company did experience double-digit growth in omnichannel sales and mid double-digit growth in mobile, but that remains a relatively small portion of its revenue stream. Primarily as a result of higher markdowns, gross margin declined 100 basis points. Selling, general and administrative expense decreased $20.7 million compared to the second quarter of fiscal 2016, and SG&A margin improved 120 basis points. As a result, the Company generated $9.1 million in EBITDA compared to $2.5 million in the second quarter last year. However due to the weak first quarter, year-to-date EBITDA remains in negative territory, with a TTM EBITDA margin of just 4.2%. Additionally, Bon-Ton burned $43.3 million in cash in the TTM period. For fiscal 2017, Bon-Ton lowered its comp guidance from a 3% to 4% comp decline to a 3.5% to 4.5% decline and gross margin rate from flat to up 10 basis points to down 40 to 60 basis points. However, due to even steeper cost cuts, EBITDA guidance was maintained in the range of $115.0 million – $125.0 million, and the Company still expects to reduce debt by approximately $15.0 million – $20.0 million. The Company also expects to close six to eight locations during fiscal 2017.

Amazon

Amazon recently launched ‘Instant Pickup’ points around five college campuses. The concept offers Prime and Prime Student members the option of retrieving items immediately after ordering them; it is the Company’s latest move into brick-and-mortar retail. Amazon’s mobile app offers hundreds of fast-selling items at each location, from snacks and drinks to phone chargers. Company staff will place these items in lockers at instant pickup points within two minutes.

Meanwhile, Amazon announced plans to open a new fulfillment center in Bristol, south west England, next year. With the new facility, it is hoping to further speed up deliveries and expand its presence in the U.K. In 2016, the Company tripled its U.K. investments to more than 400.0 million pounds ($513.96 million). At the end of 2016, the Company had 13 fulfillment centers in the U.K.  and plans to open another three warehouses in Doncaster, Warrington and Tilbury this fall.

In other news, Amazon says a new revenue-recognition accounting rule that goes into effect for public companies in 2018 will impact the timing of when it will recognize sales of its own electronic devices as well as the gross amount of sales it claims. The new accounting rule will shift when companies can claim revenue from gift cards, loyalty programs and other aspects of the business. A positive impact will be how revenue for unredeemed gift cards, or gift card breakage, is recognized. Amazon’s liability for unredeemed gift cards at the end of 2016 was $2.40 billion. It says it plans to adopt the rule at the beginning of the first quarter of 2018 with a cumulative adjustment to retained earnings rather than a full restatement of prior periods. The new rules will impact a wide range of customer services across retailers and restaurant chains. 

Modell's

In a conversation with Modell’s Sporting Goods, management indicated sales and comps for the six-month year-to-date period ended July 28 fell 1% and 2%, respectively. EBITDA margin was down, reflecting: (i) lower gross margin, due to markdowns taken earlier in the year to make way for more private label categories; and (ii) flat SG&A margin. One store opening is expected for the remainder of the year; it is likely to occur in the next few weeks. EBITDA margin and interest coverage for fiscal 2016 were only 0.3% and 1.7x, respectively. EBITDA margin was the lowest among the sporting goods retailers which we monitor. Any anticipated turnaround will need to occur amid a backdrop of significant competitive pressure, as almost 30% of the Company’s stores overlap a Dick’s Sporting Goods within a three-mile radius. An even bigger threat is growing online competition from both Amazon and Dick’s. Liquidity could become an issue if operational trends continue to deteriorate in 2017.

McDonald's

McDonald’s has terminated an agreement with Connaught Plaza Restaurants Pvt., a joint venture that operates the brand’s 169 outlets in northern and eastern parts of India, after it breached terms relating to some restaurants. Connaught Plaza said it is considering “appropriate legal remedies” in response. McDonald’s will need to rebuild its brand across half the country, as it searches for another partner. McDonald’s has a second venture in India with Hardcastle Restaurants Pvt., which operates 261 McDonald’s outlets in the western and southern parts of the country.