December 11, 2018
Amazon To Open Facility In FreshDirect's Backyard
According to a published report, and as we initially communicated in September, FreshDirect continues to lose customers as a result of service problems. About six months ago, the Company moved from Long Island City, NY to a larger, 400,000 square-foot warehouse in the Bronx, with hopes of improving efficiency. However, recurring technical glitches have resulted in poor service, which has strained relationships with suppliers and contributed to CEO and co-founder Jason Ackerman leaving the Company in September. Some of the issues included missing items, longer-than-expected delivery times, and out-of-stock items being removed from orders at the last minute.
Back in September, it was first reported that FreshDirect was issuing apologies to its customers for delivery problems that plagued the Company while it moved its operations. In an email to customers, FreshDirect Co-Founder/CEO David McInerney said the “transition has not been as smooth as we planned,” adding, “I understand that the challenges we’ve faced have potentially eroded the trust and credibility we built with you over years of great service…. We’re focused on earning that trust back and I have aligned the entire Company on making things right.”
FreshDirect received a $128.0 million incentive package to keep the Company in New York and bring the headquarters from Long Island City to the Bronx. In 2016, it sold its former Long Island City DC for $48.0 million to developer Atlas Capital Group LLC. Just months after FreshDirect moved out of Long Island City, Amazon announced it had selected Long Island City as one of two cities for its new headquarters. As part of the deal, Amazon is set to receive more than $1.525 billion in state tax incentives over the next decade. Our Retail Openings & Closings map below shows the locations of FreshDirect’s new DC in the Bronx, its former DC in Long Island City, and Amazon’s planned entrance there.
As previously reported, Gymboree Group was considering closing more than half of its store fleet as part of a strategy to optimize its online/brick & mortar mix. Gymboree announced on December 4 that it had initiated a strategic review of its three banners (Gymboree, Janie and Jack, and Crazy 8), which may include “a sale transaction” or other strategic alternatives in the future, as well as evaluating the Gymboree and Crazy 8 store fleet. However, the Company asserts that all of its stores will remain open and are fully stocked for the 2018 holiday season. As of October, there were 535 Gymboree locations (including 155 outlets), 264 Crazy 8 locations and 139 Janie and Jack stores. As part of the store fleet optimization, the Company plans to close all Crazy 8 store locations and “significantly” reduce the number of Gymboree stores in 2019.
The Company also reported that Shaz Kahng, who has been a board member since 2017, was appointed as group CEO on November 14. Ms. Kahng has had experience in retail turnarounds and worked closely with the management team to modernize the Company’s product offerings. Ms. Kahng stated, “The process we announced is designed to reposition the Company for success by establishing a brand portfolio and store footprint that is optimized for the current retail environment. These strategic initiatives are an important next step as we continue to look for ways to unlock additional value in our brands. We are optimistic about our future as a more streamlined organization that can deliver enhanced, long-term value to its stakeholders.”
According to published reports, Amazon is planning its first physical store in the U.K., likely to be in London’s West End shopping district. The Company is reportedly looking for sites between 3,000 – 5,000 square feet for the Amazon Go store. There are currently seven Amazon Go stores in the U.S., and the Company has suggested it may consider opening up to 3,000 stores by 2021.
In other news, Amazon is reportedly looking at several top U.S. airports, including San Jose, Los Angeles, and Dallas, for potential locations for its cashier-free Go stores. Reports indicate public request records from airport operators suggesting meetings with the head of the retail service. Airports seem to make sense for the kind of quick convenience model Amazon is pushing with the format.
Amazon is reportedly consolidating its selling system and calling it One Vendor, set to roll out in the next six months; it will combine its two marketplaces – one for first-party sellers, which it calls Vendor Central, and Seller Center, for third-party sellers. Internally, retail management teams have been consolidated as well. Specifics on exactly how One Vendor will operate have not been disclosed.
Ahold Delhaize's Giant Food
Ahold Delhaize’s Giant Food (Landover, MD) is planning a $175.0 million capital investment for store expansion and improvement over the next two years. The investment will include one new store in Fairfax Circle, VA and 24 store remodels. These efforts are in addition to the recently announced $21.0 million investment the Company is making in a new Giant in Olney, MD, set to open in spring 2019. Earlier this year, Giant opened two new stores in Herndon and Alexandria, VA. The 24 remodeled locations will feature new amenities such as expanded produce and organic departments, a florist, and more prepared food offerings, among other things. Giant Food operates 164 supermarkets and 154 full-service pharmacies in Virginia, Maryland, Delaware and D.C.
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Empire Company Limited (Sobey's Parent)
Empire Company Limited (Sobey’s parent) completed its previously announced acquisition of Farm Boy 2012, which operates 26 retail locations in Ontario, for $800.0 million. Empire, through a subsidiary, acquired Farm Boy from Berkshire Partners and Farm Boy’s management shareholders. Farm Boy has been set up as a separate company within Empire’s structure, and Farm Boy’s co-CEOs have reinvested in return for a 12% interest in the continuing Farm Boy business. Sobeys will finance the transaction through a combination of cash on hand and a new $400.0 million, senior, unsecured non-revolving credit facility.
C&S Wholesale Grocers
On December 5, C&S Wholesale Grocers signed an agreement to acquire Olean Wholesale Grocery Cooperative, Inc. based in Olean, NY. The sale is expected to close in early 2019. Olean was founded in 1922 and is a full-service grocery wholesaler that distributes all major product lines to over 270 independent food retail and convenience stores throughout New York, Pennsylvania and Northeast Ohio. Current CEO and President Robert Ketchner will continue to manage day-to-day operations.
On December 3, Thorntons announced it will be acquired by a joint venture between affiliates of ArcLight Capital Partners and BP. Financial terms of the deal were not disclosed. All existing c-stores will continue to operate under the Thorntons name, and the joint venture will retain Thorntons employees working out of the Company’s Store Support Center in Louisville, KY. Thorntons operates 191 convenience stores in Florida, Illinois, Indiana, Kentucky, Ohio and Tennessee.
Walmart is acquiring Art.com, one of the largest global online purveyors of art and wall decor, with $300.0 million in annual sales. Terms of the deal were not disclosed. The purchase is in line with its widening digital brand portfolio. In recent years the Company has picked up Jet, Moosejaw, Bonobos, ModCloth, Eloquii, and Bare Necessities.
Walmart’s CEO Doug McMillon recently commented that the Company may have to raise prices if President Trump carries out threats to hike tariffs on Chinese goods next year. Mr. McMillon said the Company has managed to hold prices for now, but that can’t last forever. He said Walmart is starting to explore other options for its supply chain, since China is the #2 source of its goods.
Specialty Retail Shops (Shopko)
Specialty Retail Shops (Shopko) is closing 39 of its approximately 360 stores. The closed store inventory liquidation began on December 7, and all stores will close by the end of February 2019. Click here to request a list of closing locations.
Meanwhile, according to reports, Kroger said it is buying the pharmacy files of 42 Shopko locations.
Publix opened its first store on a college campus located at the University of South Florida in Tampa. The 28,000 square-foot unit offers full-service seafood and floral departments.
On February 1, 2019, H-Mart will open a new store in Los Angeles, CA located at Koreatown Plaza, a tri-level indoor shopping mall. The store is currently a Plaza Market grocery store that will close on January 31, 2019 and be rebranded as H-Mart. It will be the Company’s second market in the Koreatown area of Los Angeles and will expand H-Mart’s store count in California to 13. The Company operates more than 70 locations in the U.S. and Canada.
Hy-Vee is planning to redevelop a vacant two-floor office building in Apple Valley, MN (south metro Minneapolis) into a convenience store with groceries and gas pumps. It will operate as a Fast & Fresh convenience store, a c-store concept that usually ranges from 6,000 – 12,000 feet, a fraction of a typical 85,000 – 90,000 square-foot Hy-Vee supermarket but at least double the size of a typical gas station convenience store. This is the fourth Fast & Fresh Hy-Vee store planned for Minnesota. The Company currently has nine stores in the Twin Cities. If you're interested in a list of future Hy-Vee locations, click here.
Raley’s announced it plans to sell its 13 Aisle 1 fuel stations to Anabi Oil, a Southern California convenience store/gas station operator. Financial terms of the transaction were not disclosed. Anabi plans to retain the Aisle 1 name and to become Raley’s exclusive fuel partner. Raley’s will continue to provide fuel pump rewards to its grocery customers, who will be able to redeem them at the Aisle 1 sites. The Company said 70 Raley’s stores currently offer pump rewards to area Aisle 1 locations. The transaction is expected to be completed early next year. Management did not disclose the financial details, but the sale of the fuel stations will free up some capital for the Company to reinvest in its grocery stores. The Company has been making a number of changes in its store concept over the past couple of years, attempting to offer a more upscale, health-oriented format, including the new Market 5-ONE-5 store.
Alimentation Couche Tard
Alimentation Couche Tard’s Circle K division acquired substantially all the assets of Carls Oil Co. Carls owned and operated four convenience stores and gas stations and supplied fuel to an additional location. All the sites are located outside of the Chicago metro area.
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The Cheesecake Factory
The Cheesecake Factory recently opened restaurants in Chattanooga, TN and Lubbock, TX. Currently, it operates 217 full-service Company-owned restaurants, including 201 under The Cheesecake Factory brand, 14 under the Grand Lux café brand, and two under the RockSugar Southeast Asian Kitchen brand. The Company continues to focus on expanding in domestic and international markets; in 2019, it plans to open five Company-owned restaurants, including one Grand Lux Café. Internationally, the Company plans to open restaurants in Mexico in the first quarter of 2019. Overall, management believes there is potential for 300 Cheesecake Factory locations in 2019, expecting to drive at least 3% unit growth.
RB American Group LLC
RB American Group LLC, a wholly-owned subsidiary of Flynn Restaurant Group LP (FRG), acquired 368 Arby’s restaurants throughout the U.S. from United States Beef Corporation (US Beef). Financial details were not disclosed. FRG’s portfolio already includes Applebee’s, Panera Bread and Taco Bell. After acquiring Arby’s, FRG will own and operate a combined 1,245 casual dining restaurants across 33 states, generating $2.30 billion in sales.
Butera Finer Foods
Butera Finer Foods has reacquired its former supermarket in Frankfort, IL. Butera took over the former Walt’s Food Center on November 11. Walt’s had taken over the store from Butera several years ago during a downsizing which shrunk the Company to only four stores before it began growing again. It now has 14 locations. The Frankfort store is the only one in the south suburbs. Butera is owned by Paul Butera, who also owns and operates Piggly Wiggly Midwest, based in Sheboygan, WI, which services 105 stores.
Rouses Markets has purchased three of Frank’s Supermarkets’ four locations. The acquired stores in Larose and Golden Meadow, LA will transition to Rouses by late January, while the Frank’s location in Lockport will close on December 15. Meanwhile, Rouses will not purchase the store in Des Allemands, which will continue to operate as a Frank’s Supermarket. Rouses has 56 stores in Louisiana, Alabama and Mississippi. In the past decade, the Company has doubled its size through several acquisitions, including some A&P locations, as well as Belle Foods and LeBlanc’s Food Stores.
United Natural Foods
United Natural Foods reported first quarter sales growth of 16.7%, primarily reflecting the October 2018 acquisition of Supervalu and increased sales to Whole Foods. Legacy UNFI sales increased 7.6%, as sales to Whole Foods jumped 20.4%; otherwise, legacy sales were flat. Gross margin slipped to 14.4% from 14.9%, driven by a shift in customer mix and increased inbound freight expenses, partially offset by higher levels of vendor programs. The quarter also included $68.3 million of restructuring charges related to the acquisition of SVU and severance. On the news, shares of UNFI dropped almost 25%, closing at $14.88 on Friday and falling to a new 52-week low of $13.69 yesterday.
During Kroger’s third quarter, identical store (ID) sales remained positive, as the Company posted a 1.6% ID sales increase, excluding fuel. However, as has been the trend over the past several quarters, competitive forces exerted pressure on gross margin, which fell 80 basis points. Management attributed the decline to price investments, rising transportation costs, and growth of the specialty pharmacy business; shrink rate continued to improve during the third quarter. During its third quarter conference call, management noted that digital sales grew by more than 60%, and its coverage area now reaches more than 90% of Kroger households, including Kroger pickup and delivery; Kroger Ship is now available in all supermarket divisions. The Company said its digital goal is to be able to cover not only 100% of its customers but also the entire U.S. population.
In conjunction with the release of its third quarter earnings, Kroger reiterated its ID sales growth guidance, excluding fuel, of 2% – 2.5% in fiscal 2018. However, the Company lowered its fiscal 2018 GAAP EPS range to $3.80 – $3.95; the previous range was $3.88 – $4.03. The change in guidance is due to the third quarter market value adjustment of $0.09 per diluted share for Kroger’s investment in Ocado shares.
According to reports, Kroger announced it is buying the pharmacy files for 42 Shopko locations. Financial terms of the agreement were not disclosed.
Village Super Market
Village Super Market reported first quarter sales increased 3.7% to $401.6 million, due to a new store opening in the Bronx, NY on June 28, and comp growth of 1.3%. Comp growth was driven by recently remodeled and expanded stores, partially offset by the impact of one competitor store opening. Net income more than doubled to $6.3 million, reflecting a $290,000 gain from Superstorm Sandy insurance proceeds. Earnings also benefited from comp growth, higher gross profit margins, and U.S. tax reform. For fiscal 2019, the Company expects comp growth of 0.5% – 2.5%. Village Super Market is a member of the Wakefern cooperative and operates 30 supermarkets under the ShopRite name in New Jersey, New York, Maryland and northeastern Pennsylvania.
Casey’s reported second quarter sales growth of 17.8% to $2.54 billion. Total grocery and other merchandise revenue increased 8.1% to $618.3 million,andcomps were up 2.7%, driven by strong sales in packaged beverages and other tobacco subcategories. Total prepared food and fountain revenue increased 8% to $283.1 million, with same-store sales up 2.2%, driven by price increases. Total fuel gallons sold were up 5.7% to 593.8 million gallons; same-store fuel gallons sold was down 1.1%, which management attributed to softer consumer demand.
During the first half of the year, Casey’s opened 25 new stores, acquired three and closed six, bringing its total store count to 2,097. The Company had 23 stores under agreement to purchase and a land bank of 95 sites (in addition to 36 that were under construction) as of October 31.
For fiscal 2019, the Company reduced its fuel same-store sales guidance to (1%) – 0.5%, down from 1.5% – 3%. It continues to expect same-store sales growth of 1.5% – 3% for both grocery and other merchandise, and prepared food and fountain. In addition, Casey’s said it expects to build 60 stores and acquire at least 20.
Ingles’ fourth quarter sales fell 2.7% to $1.06 billion. Comps increased 2.3%, excluding gasoline and adjusted to reflect the same number of weeks in each fourth quarter. Customer count and average transaction size increased over last year. Net income was down 4.8% to $18.4 million. For fiscal 2018, sales increased 2.3%, comps rose 2%, and net income improved to $97.4 million. Fiscal 2018 capital expenditures increased 17.9% to $150.5 million over last year. The Company opened five new stores and closed four, some of which are targeted to be rebuilt.
Costco reported November sales growth of 9.8% to $11.63 billion. Comps, excluding fuel and foreign exchange, were 8.5%, consisting of growth of 10.1% in the U.S., 5% in Canada and 3.7% in Other International. E-commerce comps increased 34%.
PriceSmart’s November net merchandise sales decreased 1% to $258.9 million, and comps fell 2.8%. For the three months ended November 30, net sales increased 0.3% to $747.4 million, and comps declined 2.1%. The Company has opened one new warehouse club over the past year, bringing its current store count to 41.
Big Lots reported third quarter sales growth of 3.6% to $1.15 billion, driven by 3.4% comp growth and a favorable calendar shift, partially offset by a lower store count. The Company reported a loss of $6.6 million, compared to net income of $4.4 million last year, a result of higher expenses. Anticipating higher tariffs on some of its merchandise imported from China, Big Lots increased inventory in advance of its normal schedule. In addition, after seeing extremely positive results from its “Store of the Future” remodels, Big Lots has increased the number of stores it is revamping; it is seeking new locations and has acquired more than two dozen former Toys “R” Us locations.
CFO Tim Johnson commented that based on “a flattish start to the quarter,” Big Lots has lowered its expectations for the fourth quarter. EPS is expected to be $2.20 – $2.40, down from previous guidance of $2.90 – $3.00. Comps are expected to be flat to an increase of 2%, revised from low single digits. For fiscal 2018, Big Lots said it still expects comps to rise by about 1%. The Company now expects adjusted EPS of $3.55 – $3.75, down from previous guidance of $4.40 – $4.55 a share.
On the news of lower EPS and comp guidance, the Company’s stock fell 23% to close at $31.00 on Friday.
On December 6, Neiman Marcus reported total fiscal 2019 first quarter revenues of $1.09 billion, representing a decrease of 0.3% compared to the prior-year period. Quarterly comparable revenues rose 2.8%, the fifth consecutive gain, driven by an 8.9% increase in online sales (online sales now account for over 35% of revenue). Gross margin eroded 40 basis points due to lower margins at MyTheresa; excluding MyTheresa, gross margin was flat. Due to the shift of MyTheresa into the top parent, its results will not be included in Neiman Marcus’s operating results going forward. SG&A margin improved 160 basis points and lower expenses was the key driver of the 10.6% improvement in quarterly EBITDA. EBITDA margin increased 120 basis points to a healthy 12.4. Credit metrics improved slightly but remain below our warning levels with TTM interest coverage at just 1.57x and total debt to TTM EBITDA of 9.9x. Debt increased 0.9% year-over-year due to higher seasonal revolver borrowings, and it remains daunting at $4.86 billion, with over $2.80 billion maturing in October 2020. During its quarterly conference call management said that discussions with lenders are ongoing, but it believes it has ample runway before the debt maturity. Management stated that it continues to believe the Company and its lenders will ultimately reach an agreement. The Company did not open or close any stores during the quarter after closing three Last Call stores during the fourth quarter. Management continues to expect the Hudson Yard store in NYC to open as scheduled in March 2019.
Sears Hometown and Outlet Stores
Sears Hometown and Outlet Stores reported third quarter sales decreased 12.1% to $339.1 million, driven by 160 net store closures since last year, and a 0.2% decrease in comparable sales, which followed a 9.1% decrease in the same period last year. Gross margin expanded 160 basis points to 24.7% due to lower markdowns, while SG&A margin deteriorated 40 basis points from the deleveraging impact of the lower sales base. Quarterly EBITDA improved to $7.4 million, from $3.8 million last year, and EBITDA margin improved 120 basis points. TTM EBITDA margin was only 0.1% and interest coverage was only 0.11x.
Commenting on results, CEO Will Powell said, “Our comparable store sales were positive for the quarter through September but turned negative in October as product availability in our Hometown segment was significantly below normal levels leading up to and following the Sears Holdings bankruptcy filing. In addition, bankruptcy-related issues with some of Sears Holdings’ transportation providers delayed getting product to customers. Since the initial impact from the Sears Holdings bankruptcy filing, transportation of product has returned to normal and inventory availability has improved but remains below normal levels.” The Company plans to close 80 – 100 Hometown stores during the fourth quarter.
The Children's Place
The Children’s Place reported third quarter sales increased 6.6% to $522.5 million, primarily driven by a 9.5% comp increase and $5.0 million due to the new revenue recognition rules. This was partially offset by a $14.0 million impact from the calendar shift due to the 53rd week last year. Digital sales increased 38%, representing 29% of total sales for the quarter. Operating income inched up 0.7% to $64.6 million. The Company closed four underperforming stores, ending with 988 stores, a 4% decrease from last year. Since the Company announced its fleet optimization initiative in 2013, it has closed 195 stores.
Ascena Retail Group
Ascena Retail Group reported first quarter sales inched up 0.1% to $1.59 billion. Comps were up 3%, the second consecutive quarterly increase. Comps jumped 8% at Premium Fashion (Ann Taylor and LOFT) and 12% at Justice, but fell 3% at Value Fashion (maurices and dressbarn) and 2% at Plus Fashion (Lane Bryant and Catherines). In its quarterly conference call, management commented that operations are improving sequentially at both dressbarn and maurices. Gross margin eroded 130 basis points primarily due to higher shipping costs and greater markdowns at Plus Fashion and Value Fashion.
As a result, EBITDA slumped 16.5% to $128.8 million. During the quarter the Company opened five new stores and closed 31 locations, ending the quarter with 4,596 locations. Management stated it expects to close between 197 and 247 locations in fiscal 2019, approximately 5% of its store fleet.
Cato, Buckle, L Brands, and Zumiez
Cato, Buckle, L Brands, and Zumiez reported their comps and net sales for November. Reported sales had the benefit of a high volume week shifting into November, but comp growth, which is unaffected by the calendar change, was mixed. Comps for Cato and Buckle fell for the third consecutive month. Bath & Body Works continues to drive L Brands’ sales and comp growth. Zumiez also generated positive comps and sales. The following summarizes the Companies’ results:
The Buckle’s November sales increased 3.9% to $81.3 million, but comps decreased 0.6%. For the year-to-date period, sales decreased 1.1% to $702.4 million, and comps fell 1%.
Cato’s November sales decreased 4.5% to $59.4 million, and comps declined 6%. For the year-to-date period, sales slipped 0.4% to $690.2 million, and comps were flat. CEO John Cato commented, “November same-store sales were disappointing and below our expectations.” During the month, the Company closed one underperforming store in Houston, TX. As of December 1, Cato operated 1,349 stores in 33 states, down from 1,370 stores a year ago.
L Brands’ November sales rose 26% to $1.60 billion, and comps jumped 9%. For the year-to-date period, sales increased 9.9% to $9.98 billion, and comps increased 4%.
Zumiez reported November sales increased 9.5% to $84.4 million, and comps were up 2.3%.
Ulta Beauty’s third quarter sales increased 16.2% to $1.56 billion, and comps were up 7.8%. The comp increase was driven by 5.3% transaction growth and 2.5% growth in average ticket. Retail comps increased 4.4%, including salon comp growth of 3.5%. E-commerce sales increased 42.5% to $170.7 million, representing 340 basis points of the Company’s comp increase; e-commerce sales make up 11% of total sales. Gross margin remained flat at 36.7% due to category and channel mix shifts and investments in salon services and supply chain operations, offset by leverage in fixed store costs and the impact of new revenue recognition accounting. SG&A margin increased 140 basis points to 25.3% due to deleverage from investments in store labor to support growth initiatives, and deleverage in marketing expenses, partially offset by leverage in corporate overhead. Operating income rose 4% to $169.2 million. During the quarter, the Company opened 42 stores and closed three underperforming locations, ending with 1,163 stores, a 9.7% increase in square footage from the prior year.
The Michaels Companies
The Michaels Companies reported third quarter sales increased 2.7% to $1.27 billion, primarily due to a 3.8% comp increase and the operation of a net 19 additional stores compared to last year. The sales increase was partially offset by the closure of all 94 full-size Aaron Brothers stores during the first quarter of fiscal 2018. Gross margin decreased due to higher distribution-related costs and higher inventory reserves. As a result, adjusted EBITDA fell 7.1% to $179.3 million. CEO Chuck Rubin commented, “We reported better-than-expected third quarter results, driven by stronger comp growth, good expense management and the impact of our ongoing share repurchase program. We have invested significantly this year to create an easier shopping experience for customers, and we believe these improvements will strengthen our leadership position in the arts & crafts industry and help us deliver our revenue and earnings expectations for the year.”