Openings, Closings, & Other Key Industry Highlights

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December 4, 2018


CVS Health

On November 28, CVS Health announced that it completed its acquisition of Aetna. Each outstanding share of Aetna common stock was exchanged for $145 in cash and 0.8378 shares of CVS Health common stock. The transaction values Aetna at $212 per share or approximately $70.00 billion. Including the assumption of Aetna's debt, the total value of the transaction is approximately $78.00 billion.

However, a federal judge said he is considering halting the integration until he can determine whether the companies’ agreement with the Justice Department clears anti-competitive concerns. As part of that agreement, Aetna agreed to sell Medicare Part D plans, which overlap with CVS’ own Medicare Part D business, to WellCare Health plans. Once regulators approve a transaction, companies typically don't wait for a judge to rule before closing a deal because they are almost universally approved. So it is unusual for a judge to consider keeping the companies from integrating while he completes his review. While it does not appear the federal judge can block the merger, it does appear he can decide whether it does properly address anti-competitive issues. If he decides it does not, the companies can renegotiate with the Justice Department or appeal the ruling. Among other things, the judge cited objections by the American Medical Association, which argued the merger would substantially reduce competition in health care to the detriment of patients. A hearing on the matter is set for December 18. 

Moody's downgraded CVS Health's senior unsecured rating to Baa2 from Baa1 and affirmed its P-2 short term commercial paper rating. According to Moody’s, the downgrade reflects “the significant increase in CVS's debt levels and weakening of credit metrics following the closing of the acquisition. It also reflects the significant execution and integration risks associated with the transaction.”

In other news, according to CEO Larry Merlo, CVS Health plans to roll out a handful of pilot stores early next year that will devote more floor space to healthcare services such as nutrition and exercise counseling. Increasing the type of healthcare services offered at its stores is a key focus for the merged Company. The pilot stores will dedicate 20% or more of the floor space currently occupied by "front of the store" health and beauty items to the healthcare services. Details on their locations were not provided. 

If you're interested in a list of future opening CVS locations, click here.


Sears Holdings Corporation

Published reports state that ESL Investments, Inc. and Cyrus Capital Partners are preparing a potential joint bid for Sears Holdings Corporation, DIP’s 505 “Go Forward” stores. The transaction would be structured as a credit bid, in which the parties would swap their debt for equity. Such an offer would require Court approval, and may be subject to competing bids. We previously reported that Cyrus Capital Partners outbid Great American Capital Partners to become the lender under the $350.0 million Junior DIP Term Loan. Additionally, reports have stated that Cyrus will pay the Company $82.5 million in cash after winning an auction to purchase intercompany notes. Cyrus will use the notes to facilitate the settlement of credit default swaps.


According to recently published reports, Gymboree is considering closing up to half of its roughly 900 stores (Store Concentration Map Below). The Company retained Berkely Research Group LLC to analyze its leases and cost structure and help it formulate strategic options. The reports state that the Company’s options include “filing for bankruptcy again,” implying this could occur if landlords are unwilling to give rent concessions. On July 16, 2018, the Company re-launched the Gymboree brand, with a new, more adult look for children, focusing on high-quality products that could be mixed and matched. Subsequent press releases reported some negative feedback from parents looking for Gymboree’s traditional children’s clothing lines. In addition to the revamped apparel, the Company’s stated strategy is to double its online business from 25% to 50%, which would suggest a smaller footprint for the retailer as a means of achieving its online/brick & mortar revenue mix. The Company exited bankruptcy on September 29, 2017, with an $85.0 million term loan from Goldman Sachs and a $200.0 million revolving credit facility from Bank of America Merrill Lynch and Citizens Bank.

Click here for the complete list of all Gymboree locations.



Webinar Invite: Warning Signs of Troubled Companies


Thursday, December 13 | 2-3:00 pm EST

In the tumultuous retail environment, the risk of bankruptcy remains high, and it is absolutely critical to be able to spot the early warning signs of distress exhibited by your customers. Learn more about key risk assessment tools and how to better understand warning signs in our sister company's Webinar on Warning Signs of Troubled Companies.

United Natural Foods (UNFI)

United Natural Foods (UNFI) announced that its subsidiary, Supervalu, has entered into a definitive agreement whereby Coborn's Inc. will acquire seven of Hornbacher's eight locations, as well as Hornbacher's newest store currently under development in West Fargo, ND. The transaction is expected to close before December 25, 2018. As part of the sale, Coborn's plans to retain the Hornbacher's name and will enter into a long-term agreement for Supervalu to serve as the primary supplier of the Hornbacher's locations. Additionally, Coborn’s will expand its existing supply relationship with Supervalu for Coborn’s existing store base. The Hornbacher's store in Grand Forks, ND is not included in the sale to Coborn's and will close. The Hornbacher’s stores average 51,500 square feet, approximately 40% of the square footage is owned, and the chain’s market share in Fargo has been on the rise and is most recently at nearly 41%. Coborn’s currently operates three stores in Fargo with a 17% share (#3 in the market); Walmart is #2 with 28%. Matt Leiseth, who has led Hornbacher’s for eight years and is currently its president, will continue to be in charge of those stores.


Giant Eagle

Yesterday, Giant Eagle announced it completed its acquisition of Indiana-based Ricker Oil Company, which was first announced in September. Ricker Oil, Co. operates 56 convenience stores and fuel stations in Indiana. The deal would expand the convenience retail footprint for Giant Eagle in Indiana, where it has six GetGo convenience store/fuel locations in the central part of the state with a seventh slated to open in Zionsville, IN, in October. Overall, Giant Eagle operates about 200 GetGo locations and about 200 Giant Eagle supermarkets in Pennsylvania, Ohio, West Virginia, Maryland, and Indiana. Financial terms of the agreement were not disclosed.


Jack in the Box

Jack in the Box is reportedly exploring options that could include a sale of the Company. The Company, which divested its Qdoba Mexican Eats brand earlier this year, started talks with potential buyers including private equity firms this month, according people familiar with the matter. At the same time, Jack in the Box has plans to downsize its San Diego headquarters with the sale of its main corporate building, as per recent SEC filings. On the news of a possible sale, shares rose more than 5.9% to close at $88.54 on Thursday. Jack in the Box, which operates more than 2,000 restaurants, has struggled with weak sales in recent years amid tough competition. Earlier this month, Jack in the Box said it plans to lay off 66 corporate employees, effective January 4. A sale of Jack in the Box would be part of a wave of buyouts in the fast food sector this year. Most recently, Arby's owner Inspire Brands bought Sonic for about $2.30 billion.


Staples and Essendant

For a second time, Staples extended the expiration date of its tender offer for all outstanding shares of Essendant’s common stock. The new expiration date is today (December 4), unless the tender offer is further extended. The offer was scheduled to expire on November 29, after the extension of the previously scheduled expiration, on November 19. As of November 29, 20.2 million shares of Essendant common stock were validly tendered, which together with the 4.2 million shares already owned by Staples represent 65% of the outstanding shares. More than a majority of the required number of shares have already been tendered, therefore the sticking point appears to be regulators’ unresolved antitrust issues. If regulatory approval is not forthcoming, Staples would not be able to consummate the transaction.

On September 14, the two companies entered into a definitive agreement under which Staples will acquire all of the outstanding shares of Essendant common stock for $12.80 per share in cash, for a transaction value of $996.0 million, including net debt. The transaction is expected to close during the 2018 fourth quarter. The planned merger appears to be born of necessity rather than opportunity, as both companies continue to experience operational problems due to weakening industry-wide demand for office products, as well as competition from Amazon. The transaction was intended to enhance Staples’ presence in the B2B market, where Amazon is becoming more of a force. Amazon has the growth trajectory of a startup; its annual B2B sales have grown to about $10.00 billion from only $1.00 billion about four years ago. Additionally, both Staples and Essendant are already highly leveraged, and the planned transaction would increase Staples’ already significant LBO debt load. Staples previously received an executed commitment letter from Wells Fargo Bank, National Association for a $1.10 billion asset based credit facility and a $75.0 million FILO loan facility.



Store Activity


Publix Super Markets announced that “after careful consideration,” it will close its underperforming first generation GreenWise store in Palm Beach Gardens, FL on December 29. The news comes just as it opens new stores under the redesigned organic and natural foods concept. Last month it announced that its sixth redesigned store concept would be located in Fort Lauderdale, FL. In October 2018, the first newly redesigned GreenWise store opened in Tallahassee, FL, with other stores expected to open in Mount Pleasant, SC (early 2019); Lakeland and Boca Raton, FL; and Marietta, GA. Following the closing, the Company will have two first generation GreenWise Market stores, in Boca Raton and Tampa, FL.

Southeastern Grocers

On December 5, Southeastern Grocers will open a new Fresco y Más store in Lauderhill, FL, growing the Hispanic grocery chain to 26 locations. The store has a Dollar Zone with over 1,000 everyday essentials for just $1 and will emphasize products targeted to Caribbean customers, in addition to the traditional Hispanic offerings.



As previously reported, Asian supermarket chain iFresh, Inc. will open a new store in Glen Cove, NY by the end of the calendar year. It will be the Company’s 10th location along the eastern seaboard. The Company also has plans to open stores in North Miami, FL and Milford, CT in 2019. 

Captain D's

On November 29, Captain D’s announced the signing of two franchise development agreements that will expand its footprint in target markets throughout the Southeast, as well as mark the brand's entry into the South Florida market. As part of one agreement, three new locations will be opened throughout the region with the first slated to open in 2019. The other agreement will bring a new location to Fayetteville, NC in late 2019.

99 Cents Only Stores

On December 13, 99 Cents Only Stores LLC's will open a new store in Arlington, TX. The store will feature a perishable food department, including produce, dairy and frozen foods.

Earning Releases


Alimentation Couche-Tard

Alimentation Couche-Tard reported second quarter revenue growth of 21.1% to $14.70 billion, primarily on higher average fuel prices and contributions from acquisitions. Total merchandise and service revenues increased 11.1% to $3.50 billion. Same-store merchandise revenues rose by 4.4% in the U.S., 4.6% in Europe, and 5.1% in Canada. Revenue from the Company's fuel retail business increased 24.5% to $10.90 billion. Same-store road transportation fuel volumes increased 1.2% in the U.S., 0.1% in Europe, and decreased 2.2% in Canada.

Net income was up 9.4% to $473.1 million, driven by acquisitions, improved fuel gallon sales, and lower taxes.

The Company has been expanding its gasoline and convenience store business with new acquisitions including CST Brands and Holiday Station stores, a 522-store chain of gas stations and convenience outlets in the U.S. Current annual synergies run rate related to the CST Brands integration reached approximately $200.0 million. Finally, the rollout of the Company’s Circle K brand in North America is progressing steadily. As of October 14, 2018, more than 4,050 stores in North America, including more than 300 stores acquired from CST, are displaying the new brand.


Dollar Tree

Dollar Tree reported third quarter sales growth of 4.2%, to $5.54 billion. Enterprise same-store sales increased 1%. Same-store sales for the Dollar Tree banner increased 2.3% and fell 0.4% at the Family Dollar banner. Operating income was $387.8 million compared with $425.2 million last year. Family Dollar gross margin fell 2.2% to 25.3%, while Dollar Tree gross margin fell 0.3% to 34.8%. Management cited several factors behind the margin compression, including rising freight costs, inventory shrinkage, and markdowns. Lower merchandise costs partly offset these impacts. Net income growth of 17.5% to $281.8 million was largely due to U.S. tax reform.

The Company continues its efforts to improve the Family Dollar brand's financial performance, which has consistently lagged the Dollar Tree banner since its acquisition in 2015. Management began a Family Dollar store renovation program last year, and executives said the Company would reach 500 remodels by year's end. It aims to double the number of completed renovations to 1,000 by the end of fiscal 2019. This will cover roughly one-eighth of the brand's current 8,264 stores. The Company said they were pleased with results at Family Dollar stores that have been renovated so far and stated, “While there is more to be done, the Company believes that Family Dollar will demonstrate its potential as the store optimization program and integration initiatives are implemented and gain traction throughout 2019.”

Management also announced that it believes it has reduced the potential fiscal 2019 impact of import tariffs by 80% in its Dollar Tree stores and by 50% in Family Dollar stores, primarily through vendor negotiation and supply-chain and shipping-logistics initiatives.

During the quarter, the Company opened 127 stores, expanded or relocated 14 stores, and closed 18 stores. Additionally, the Company opened 30 Dollar Tree stores that were re-bannered from Family Dollar. Retail selling square footage at quarter end was approximately 119.5 million square feet.

Looking ahead at fiscal 2018, the Company now expects sales of $22.72 billion – $22.83 billion, compared to its previously expected $22.75 billion – $22.97 billion, based on a low single-digit increase in same-store sales and 3.2% square footage growth. The Company now anticipates EPS of $4.86 – $4.95, compared to its previously expected range of $4.85 – $5.05. 

If you're interested in a list of future Dollar Tree locations, click here.

Dollar General

Dollar General reported third quarter sales growth of 8.7% to $6.40 billion, positively affected by new stores and comp growth of 2.8%, which was modestly offset by the impact of store closures. Comp growth was driven by an increase in average transaction size and positive results in the consumables, seasonal and home categories, partially offset by sales declines in the apparel category. Customer traffic was essentially flat. Operating income increased 5.9% to $442.1 million. Net income rose 32.3% to $334.1 million, driven by U.S. tax reform.

During the year-to-date period, Dollar General opened 750 new stores, remodeled 925 stores and relocated 92 stores.

For fiscal 2018, the Company expects sales growth of 9.0%, and comp growth to be in the middle of the previous range of mid-to-high 2%. The Company also reiterated its plans to execute approximately 2,000 real estate projects, including 900 new store openings, 1,000 mature store remodels, and 100 store relocations. Looking ahead at fiscal 2019, Dollar General expects to execute approximately 2,075 real estate projects, including 975 new store openings, 1,000 mature store remodels, and 100 store relocations.


Stein Mart

Stein Mart’s total sales for the third quarter of 2018 were $279.1 million, a decrease of 2.2% compared to $285.4 million in sales reported in the third quarter of last year, due to five less stores in operations since 3Q17. Comparable store sales increased 1.4%, the second consecutive quarterly increase. E-commerce sales increased 76% and now account for 5.5% of total sales. Gross profit for the quarter was 25% compared to 23.9% in the third quarter of 2017.

Gross profit rate expansion was primarily due to reduced markdowns and better inventory management. Management said that average inventory per store is down 3% year-over-year and 23% from two years ago, which should reduce the need for markdown activity in the fourth quarter of fiscal 2018. Operating expenses were down $8.7 million due to cost savings initiatives and the impact of closed stores. As a result, Stein Mart’s third quarter EBITDA loss narrowed by more than 80% to $2.8 million. In the year-to-date period EBITDA turned positive. Based on the improved year-to-date results, management stated that fiscal 2018 EBITDA will “improve dramatically.” During the year-to-date period, the Company opened two new stores and closed seven underperforming locations, ending with 288 locations in operation.

Sportsman's Warehouse

Sportsman’s Warehouse’s third quarter sales increased 2.3% to $223.1 million due to the opening of six new stores since last year, slightly offset by comps falling 0.5% (which also includes e-commerce sales) on top of a 7% decrease in the same period last year. The Company opened one new store in the third quarter of fiscal 2018 and ended the quarter with 92 stores in 22 states. EBITDA margin eroded 120 basis points reflecting an unfavorable shift in product mix, higher payroll and additional costs associated with IT investments. TTM EBITDA margin and interest coverage were 8.2% and 4.9x, respectively.

Dick's Sporting Goods

Dick’s Sporting Goods reported third quarter sales fell 4.5% to $1.86 billion. Consolidated same store sales decreased 4.5% on top of a 0.9% decline in the 2017 third quarter. The hunting and electronic categories combined to push sales down 255 basis points. E-commerce revenue for the second quarter of 2018 increased 16% and represented 12% of total net sales, up from 10% during the third quarter of 2017. Gross margin improved 70 basis points due to a stronger product mix as the Company moves away from the hunting and electronic businesses (lower margin segments), partially offset by higher freight and shipping costs as the Company expands its e-commerce business. Weak sales growth deleveraged increased payroll, which caused SG&A margin to erode 20 basis points. From the above, Dick’s third quarter EBITDA margin improved 50 basis points to 6.5%. TTM EBITDA margin is now 8.9%, which is above our Sporting Goods’ industry average of 8%. During the quarter, the Company opened six DICK'S Sporting Goods stores. As of November 3, 2018, the Company operated 732 DICK'S Sporting Goods stores in 47 states, with 38.8 million square feet, 94 Golf Galaxy stores in 32 states, with 2.0 million square feet and 35 Field & Stream stores in 16 states, with 1.7 million square feet. The Company does not expect to open any new Field & Stream or Golf Galaxy stores in 2018. 



Conn’s reported third quarter sales were essentially flat at $373.8 million. Retail revenue decreased 2.7% to $284.1 million, primarily driven by a decrease in same store sales of 4.4%, partially offset by new store growth. The Company opened three new stores during the quarter, as part of plans to open seven new stores during fiscal 2019. The comp decline reflects markets impacted by Hurricane Harvey (11.8% decline). Furniture volume decreased 8.9%, mattress unit volume declined 16.6%, home appliances unit volume was down 14%, and consumer electronic unit volume fell 7.4%; home office sales increased 24.5%. The retail segment declines were offset by the credit segment, which generated a revenue increase of 10.5% to $89.8 million. As a result, operating income jumped 70.1% to $35.5 million.


Ace Hardware

Ace Hardware’s third quarter sales increased 6.3% to $1.43 billion. Retail revenues increased 31.1% to $85.9 million, and retail comps were up 1.8%. The Company added 50 new stores in the third quarter and cancelled 24 stores, ending the quarter with 4,449 domestic stores, an increase of 83 units from the prior year. Retail gross margin was 43.9%, a slight decrease from 44% last year as a result of lower margin revenues realized by The Grommet, acquired in September 2017. The Grommet acquisition also caused higher operating expenses. As a result, operating income fell 34.6% to $35.7 million.

CEO John Venhuizen commented, “Strong new store growth, increased same-store sales, and a 35% increase in revenues helped us realize a healthy 6.3% increase in revenues during the third quarter. However, we are not immune to the pain of the tight labor market. Expanded product assortment, higher inventory and increased warehouse employee turnover drove expenses up and profits down for the quarter.”


J. Crew

J. Crew reported third quarter sales increased 10.2% to $622.2 million. Comps rose 8%, with J. Crew brand comps up 4% (the second quarterly increase after four consecutive years of declines) and Madewell comps surging 22%. Management noted on its quarterly conference call that the comp improvement was driven from both increased traffic and conversion at J. Crew, and “outsized e-commerce” sales at Madewell. Gross margin eroded by 210 basis points to 38.3%, primarily due to higher shipping and handling costs, and increased markdowns. The gross margin contraction and higher marketing and headcount expenses pushed quarterly EBITDA down 16.6% to $56.6 million, with margins down 290 basis points. Madewell continues to be the Company’s growth vehicle. For fiscal 2018, management expects to open 10 stores (nine Madewell and one J. Crew) and close 30 underperforming J. Crew locations. As previously reported, J. Crew’s CEO James Brett stepped down in mid-November. The Office of the CEO is now comprised of four senior executives: Michael Nicholson (president and COO), Adam Brotman (president and chief experience officer), Lynda Markoe (chief administrative officer), and Libby Wadle (president of Madewell).

RTW Retailwinds

RTW Retailwinds (fka New York & Company) reported third quarter sales decreased 1.6% to $210.8 million, reflecting a reduction of 31 stores over the last year, partially offset by growth in e-commerce sales and increased sales from Fashion to Figure. Comps inched up 0.2%, representing the fifth consecutive quarter of positive comps; the increase was led by growth in the Company’s e-commerce business and strength in outlet stores, particularly outlet clearance stores. Gross margin increased 80 basis points to 32.4%, the highest gross margin rate since 2006. The improvement reflects an increased leverage of buying and occupancy costs, partially offset by decreased merchandise margin due to greater promotional activity and shipping costs. As a result, operating income jumped 154.5% to $1.6 million. CEO Gregory Scott stated, “We are pleased to see continued favorable momentum in our business with the third quarter highlighted by an increase in comparable store sales, expansion in gross margin and expense discipline, which drove operating income that met our guidance.”


AutoZone’s first quarter sales increased 2% to $2.64 billion, and comps were up 2.7%. Gross margin was 53.7%, an increase of 900 basis points primarily attributable to the impact of the sale of two businesses completed in the prior year, and higher merchandise margins. Operating profit rose 4.1% to $487.8 million. During the quarter the Company opened 13 new stores and relocated one store in the U.S., and opened three new stores in Mexico. As of November 17, the Company had 5,631 stores nationwide, 567 stores in Mexico, and 20 stores in Brazil. See below for Future Store Openings Map.

If you're interested in a list of future AutoZone locations, click here.