Openings, Closings, & Other Key Industry Highlights

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August 8, 2018

National Stores

On August 6, National Stores, lnc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. Documents in the filing indicate the Company plans to close 74 of its 344 stores, see map below. Please click here to request the entire store closing list. A DIP facility of up to $108.0 million is being provided by Encina Business Credit SPV, as administrative agent. The Company stated that it will provide 120-day terms to critical vendors “in accordance with customary prepetition business practices, as may be modified.” As security, the Debtors will provide a secured, subordinated second lien on their assets. National Stores operates approximately 344 discount department and home stores under the Factory 2-U, Fallas, Fallas Paredes, Fallas Discount banners and Anna’s Linens by Fallas banners. Store sizes generally average between 10,000 square feet and 20,000 square feet. The Company has expanded over the years by acquiring distressed or bankrupt retailers, including Weiner’s Stores, Factory 2-U Stores, Conway Stores and Anna’s Linens.

 
 
 
 
 

Rite Aid

Yesterday, Rite Aid updated its fiscal 2019 outlook, initially provided on April 12. The outlook does not reflect the impact of the proposed merger with Albertsons. According to the press release, “Based upon recent generic drug bid activity and on anticipated generic drug market conditions for the balance of the year, generic drug purchasing efficiencies are expected to be significantly below Rite Aid’s previous experience and will not meet the Company’s expectations for the year. The Company now expects generic drug purchasing efficiencies to be $80.0 million less than when Rite Aid established its fiscal 2019 outlook.” As a result, Rite Aid now expects adjusted EBITDA of $540.0 million – $590.0 million, down from $615.0 million – $675.0 million; a net loss of $125.0 million – $170.0 million, updated from $40.0 million –$95.0 million; and adjusted net loss per diluted share of $(0.04) – $(0.00), from $0.02 – $0.06. The Company’s outlook for sales, comps and capex remains unchanged.

Rite Aid’s reduced full-year earnings projection came just days before the August 9 shareholder vote on the merger with Albertsons. Previously, certain minority shareholders announced they would vote against the merger, indicating it undervalues Rite Aid. Perhaps the latest earnings update could make that deal more attractive. Rite Aid shares plunged as much as 12.5% on Monday, the most since late June, and closed at $1.66.

Kroger

According to published reports, Topvalco, a wholly-owned subsidiary of Kroger has purchased a 73,840 square-foot shopping center in Delray Beach, FL for $15.0 million. The property reportedly will be the future location of a Lucky’s Market, a value-priced natural and organic foods grocery chain backed by Kroger. The new 29,000 square-foot Lucky’s is scheduled to open in 2019. While Kroger has no presence of its own in Florida, Lucky’s expects its store count to total more than 35 stores by the end of 2018. It recently signed four new leases for stores in Florida, all of which are expected to open in the next 18 to 24 months. Kroger’s Harris Teeter subsidiary is reducing hours for full-time pharmacists at about 200 of its stores to 32 hours; they will still be considered full-time employees in order to receive benefits. A Company spokesperson attributed the hourly cuts to its desire to remain viable and competitive in the market, where the majority of its competitors base their new full-time positions on a 32-hour work week.

Publix

Publix reported second quarter sales growth of 4% to $8.83 billion, driven by comp growth of 1.7%, partially offset by a 1.2% negative impact due to the timing shift of Easter. Net income increased 24.5% to $616.2 million, positively impacted by tax cuts as well as a new accounting standard for assessing the value of equity securities. Effective August 1, Publix’s stock price increased from $41.75 per share to $42.55 per share. Publix stock is not publicly traded and is made available for sale only to current Publix associates and members of its board. CEO and President Todd Jones commented, “Since the beginning of the year, our stock price has increased from $36.85 to $42.55, over 15%.” During the first half of the year, the Company opened 22 supermarkets (including five replacement units), remodeled 60 and closed two.

Meanwhile, Publix revealed it will be adding a fourth location in Boca Raton, FL under its relaunched GreenWise Market concept. No opening date has been set. In March 2017, the Company announced plans to “reignite” its GreenWise store concept, which was first introduced in 2007 and was designed to compete in the organic and natural food arena. The relaunched concept will be smaller in size, at about 25,000 square feet compared to the previous 35,000 square-foot format. The first new GreenWise market will open in October in Tallahassee, with additional locations in Mount Pleasant, SC and Lakeland, FL expected to open in 2019. Publix currently has three GreenWise Market stores operating under the old format in Palm Beach Gardens, Boca Raton and Tampa, FL.

Natural Grocers

Natural Grocers reported third quarter sales growth of 9.5% to $213.1 million, primarily driven by comp growth of 5.2% and the net addition of seven stores. Comp growth resulted from a 4% increase in average transaction count and 1.1% growth in average transaction size. Net income was $2.0 million, compared to $598,000 last year, positively impacted by a reduced tax rate.

During the quarter, the Company opened two new stores and relocated one store, bringing the total count as of June 30 to 147 stores in 19 states. Since July 1, the Company has relocated one store in Colorado and has seven signed leases for stores in Colorado, Iowa, Oregon and Texas that are slated to open during fiscal 2018 and beyond. 

The Company raised its fiscal 2018 guidance and now expects comp growth of 4.5% – 5.5%, up from 3.5% – $4.5%, and EPS of $0.48 – $0.50, up from $0.43 – $0.50. It plans to open a total of 8 – 9 new stores and relocate 3 – 4. 

Sprouts Farms Market

Sprouts Farmers Market has filed an application to replace a closed Winn-Dixie in Jupiter, FL with a 30,000 square-foot store. There are five Sprouts locations in Florida, all concentrated in the Tampa Bay area. A store in Winter Park is slated to open in October, and two others are planned in Wellington and Deerfield Beach. 

Aldi

Aldi will open a new, 12,000 square-foot store in Phillipsburg, NJ on August 16. The Company currently has six locations in the Lehigh Valley. Aldi also plans to expand its corporate offices in Naperville, IL, where it will lease about 113,000 square feet of additional space.

Wegmans

Wegmans received approval for a new, 110,000 square-foot store in Reston, VA. The store will anchor the newly approved 4.1 million square-foot Reston Crescent development, consisting of 1.5 million square feet in new office space, 1,721 residential units, a 200-room hotel and 380,000 square feet of retail. 

Arden Group

On August 3, Arden Group reopened a Gelson’s store in Los Angeles, CA. The remodeled Gelson’s offers sit-down wine, craft beer, tapas, and seafood and sushi bars; a grill station; and a Wolfgang Puck station. Gelson’s operates 26 full-service specialty grocery stores in Southern California. Arden was taken private in a 2014 leveraged buyout by private equity firm TPG. At the time it had 17 stores. Gelson’s Markets jumpstarted its growth in 2016 by reopening seven of eight stores acquired from the now defunct Haggen. The new stores increased its base by nearly 50% and added several new markets outside of its core Los Angeles market, including San Diego.

Piggly Wiggly Midwest

On August 18, a Piggly Wiggly store operated by Piggly Wiggly Midwest in Menasha, WI will transfer from corporate to franchise ownership. Following this transfer, Piggly Wiggly Midwest will operate 100 Piggly Wiggly stores, consisting of 11 corporate stores and the remainder franchised.

Focus Brands and Jamba Juice

On August 2, Focus Brands (FBI) and Jamba Juice announced they entered into a definitive merger agreement under which FBI will acquire Jamba for $13.00 per share in cash, in a transaction valued at approximately $200.0 million. Jamba Juice has more than 800 locations worldwide. The transaction is expected to close during 3Q18 and will be funded using cash on hand and available borrowing capacity under FBI’s existing credit facilities. Following the close of the transaction, Jamba will be a privately held subsidiary of FBI and will continue to be operated as an independent brand. FBI is majority owned by affiliates of Roark, an Atlanta-based private equity firm. FBI, through its affiliate brands, is the franchisor and operator of more than 5,000 restaurants, cafes, ice cream shops and bakeries in the U.S. and over 50 foreign countries.

Starbucks

On August 1, Starbucks and Alibaba Group Holding Ltd. announced a strategic “new retail” partnership that will enable a seamless Starbucks Experience and transform the coffee industry in China. Collaborating across key businesses within the Alibaba ecosystem, including Ele.me, Hema, Tmall, Taobao and Alipay, Starbucks announced plans to pilot delivery services beginning September 2018, establish “Starbucks Delivery Kitchens” for delivery order fulfillment, and integrate multiple platforms to co-create a virtual Starbucks store, and personalized online Starbucks Experience for Chinese customers. Working with Ele.me, China’s leading on-demand food delivery platform with three million registered delivery riders, Starbucks will pilot delivery this September in 150 stores located in key trade zones in Beijing and Shanghai, with plans to accelerate and expand its delivery program to more than 2,000 Starbucks stores across 30 cities by the end of calendar 2018.

Starbucks is working with Microsoft and a leading global exchange on a new digital platform that will allow consumers to use bitcoin and other cryptocurrencies in its stores. The partners are said to be working together to launch a new company called Bakkt that will enable consumers and institutions to buy, sell, store and spend cryptocurrencies on the global network by November. 

Dine Brands

Dine Brands reported second quarter sales fell 2.2% to $184.47 million. Applebee’s domestic comps increased 5.7% (its highest quarterly comp growth in over a decade), and IHOP’s comps rose 0.7%. The Company attributed growth to advances in technology and to-go operations, which rose more than 30% at both chains. Net income fell 42.5% to $12.71 million, due to lower segment profit as the result of $16.5 million in franchisor contributions to the Applebee’s national advertising fund, partially offset by a decline in bad debt expense, IHOP restaurant development over the past 12 months, and improvement in Applebee’s and IHOP’s domestic comps. The Company recently announced that IHOP will be introduced in South America for the first time through an agreement with a new franchisee to open 25 restaurants in Peru over the next ten years. Expectations for closures of Applebee’s restaurants was revised to 80 – 90 domestic Applebee’s restaurants and 10 international locations, compared to previous expectations of 60 – 80 domestic and international Applebee’s restaurants combined. 

 

Basic Market

A new Company backed by the founder of Pacific Foods will open a new small-format concept called Basic Market; the concept integrates a market, nutrition classroom and discovery kitchen to increase access to foods at peak nutrition. The 7,500 square-foot store will open late this summer in Portland, OR. A second location is expected to open by the end of the year in Tualatin, with a third in Beaverton in 2019.

Walgreens

Walgreens has established a partnership with Humana to open senior-focused primary care clinics inside drugstores in the Kansas City area. The clinics will complement Walgreens pharmacy services and Humana’s Partners in Primary Care centers that opened last year in the city.

At the same time, Humana is working with Walmart to establish a “primary care partnership” that could expand its relationship that began 13 years ago when in 2005 Humana began putting sales agents for Medicare Part D drug plans in all of Walmart’s stores.

Shopko

Shopko will open its first standalone optical store in Mequon, WI on August 20. The 1,500 square-foot store was previously a Dairy Queen. All glasses will be assembled, inspected and distributed from Shopko’s lab in Green Bay. The Company opened its first optical center in Wisconsin 40 years ago. Shopko currently has about 380 stores in 26 states.

Amazon

Amazon will open a Pop-Up store in Charlotte, NC that will carry Kindle e-Readers, Fire tablets, Amazon Fire TV and Echo, as well as accessories and gift cards. Consultants will be available to detail product features, talk about services and set up devices. The store is expected to open by August 18. It is Amazon’s second Pop-up store in the state.

PriceSmart

PriceSmart’s July sales increased 2.6% to $248.9 million, and comps rose 0.2%. For the year-to-date period, sales were up 5%, and comps increased 2.6%. The Company opened two new warehouse clubs over the past year, bringing its store count to 41. 

 

Hudson's Bay

Hudson’s Bay announced plans to open pop-up stores beginning September 4 that will feature 12 emerging designers. The pop-ups will be at five locations across Canada, including two stores in downtown Toronto and one each in Montreal, Vancouver and Calgary. The pop-ups coincide with Toronto Fashion Week and will stay open for three months. Collections, a Toronto-based fashion production agency, partnered with Hudson’s Bay to determine the assortments. In addition to selling the emerging brands at the pop-ups, the Company plans to sell the collections online and in its Vancouver, Yorkdale, Chinook, Montreal and Queen Street stores.

 

Mattress Firm Holding Corp

According to published reports, Mattress Firm Holding Corp. is considering a possible formal restructuring, as it looks to shutter underperforming locations and exit some of its costly stores. Mattress Firm was acquired by Steinhoff International Holdings in 2016 for $3.80 billion as part of a debt-financed transaction. The Company operates as a subsidiary of Steinhoff, which has become a considerable credit risk. Since the acquisition, Steinhoff has faced significant problems as a result of a $6.90 billion accounting irregularity tied to its subsidiaries, including Mattress Firm, in December 2017. Following the accounting scandal, Steinhoff’s CEO and CFO resigned, the stock price declined 95%, Steinhoff booked a $12.00 billion write-down in early 2018, and it has negotiated with its lenders to restructure its $12.25 billion of total debt, of which $10.55 billion is classified as maturing within a year.

Mattress Firm has witnessed significant growth since 2011 from the acquisitions of Mattress Giant (236 stores), Back to Bed (131 stores), Sleep Train (314 stores) and Sleepy’s (1,065 stores), ending at 3,594 total locations before it was acquired by Steinhoff. Unfortunately, this hyper growth has led to significant store cannibalization. As shown in the map below, 1,359 of Mattress Firm’s stores (40% of the entire store base) are located within one-mile of each other, and the Company is already down about 300 stores from its peak when acquired by Steinhoff. Should the Company begin shuttering locations, the relatively small size (4,800 square feet) makes the units easier to backfill than larger boxes.

 
 
 

 

Big 5 Sporting Goods

Big 5 Sporting Goods reported second quarter sales fell 1.5% to $240.0 million, reflecting a 2.1% decrease in comparable store sales, partially offset by the opening of two net new stores year over year. Additionally, during its analyst call discussing second quarter results, management said it continued to experience soft firearms sales. Gross margin eroded 110 basis points as a result of higher occupancy and distribution expenses, partially offset by a slight increase in merchandise margins. SG&A margin deteriorated 60 basis points, reflecting higher payroll costs and, ultimately, quarterly EBITDA and EBITDA margin plunged 45% and 170 basis points, respectively. TTM EBITDA margin fell to just 2.2% from 5.7% during the same period last year and was well below the industry average of 8%. TTM interest coverage of 8.8x remained ample but fell from 45x at the same time last year. During the second quarter of fiscal 2018, the Company opened two stores and closed two stores, including one closure related to a relocation. For 3Q18, the Company anticipates opening one store. For FY18, the Company currently expects to open five new stores and close three underperforming units.

 

Brookstone

On August 2, Brookstone, Inc., DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The Honorable Brendan Linehan Shannon has been assigned to the proceedings, which have been designated as case number 18-11781. Management stated that the Chapter 11 filing is to facilitate a sale of the Company. It has begun the process of closing its remaining 101 mall store locations. Brookstone will continue to operate its 35 stores in airports across the United States and its e-commerce and wholesale businesses. Through an agreement with Wells Fargo Bank and Gordon Brothers Finance Company, the Company said it has “secured access to approximately $30.0 million in post-petition financing to support operations during the sale and restructuring process.”

The Company stated that it will “pay vendors on a priority basis for goods and services ordered and received from this point forward.” The Company previously filed Chapter 11 in 2014 when it was sold to a Chinese consortium that pledged at the time to keep most of its 240 stores open. Commenting on the development, CEO Piau Phang Foo said, “The decision to close our mall stores was difficult, but ultimately provides an opportunity to maintain our well-respected brand and award-winning products while operating with a smaller physical footprint. Our airport, e-commerce and wholesale business divisions are operating successfully and should prove attractive to a buyer with the financial resources and vision to carry our company into the future.”

 

J. Crew

On August 1, J. Crew opened a men’s store in Brooklyn, NY. The location has a Fellow Barber barbershop and offers an assortment of grooming products as well as J. Crew’s Ludlow suit shop and men’s collection. It also includes a variety of local brands across fashion, home and grooming. This opening marks another move by a major retailer to open a standalone men’s store. Among others, Nordstrom earlier this year opened a 47,000 square-foot men’s store in Manhattan, NY. In addition, lululemon’s men-only stores are part of its growth strategy to expand through men’s sales.

 

Wayfair

Wayfair’s second quarter sales increased 47.4% to $1.67 billion. However, as a result of rising costs, adjusted EBITDA loss widened more than 1,000% to $34.8 million, from $2.2 million in the prior-year period. The Company is directing resources towards international expansion, logistics and enhancing brand awareness.

It is also deploying high-end technology to enhance customer shopping experiences and holding promotional events. CEO Niraj Shah commented, “We are pleased to report a record second quarter and our largest yet year-over-year dollar growth in direct retail net revenue. This recent quarter included our biggest revenue day in the history of the Company as we introduced Way Day, the first-ever retail holiday for home.” The number of active customers reached 12.8 million, an increase of 34% over the prior year. Repeat customers placed 66% of total orders during the quarter. The average order value was $254, down from $258. During the quarter, 49.2% of total orders were placed via a mobile device, compared to 44.1% last year. 

In other news, Wayfair plans to open a retail outlet in the Cincinnati suburb of Florence, KY. The 20,000 square-foot location is slated to open early next year and will sell returns and closeouts. 

Brinker International

On August 2, Brinker International announced two separate sale-leaseback agreements that are expected to close during the next week. The Company plans to sell and lease back 50 restaurant locations with SunTrust Equity Funding, LLC, for $158.6 million, as well as 48 other properties with Four Corners Property Trust, Inc. for $155.7 million.