Retail News

CVS Health

Yesterday, CVS Health said it would acquire insurance giant Aetna in a deal worth approximately $77.00 billion, including Aetna’s debt. On a pro forma basis, the companies generated $221.40 billion in revenue and $18.50 billion in adjusted EBITDA. The Company expects to incur approximately $45.00 billion in debt to finance the $49.00 billion cash portion of the acquisition. As a result, pro forma debt to EBITDA would increase to 4.6x. The Company said it expects to reduce debt to EBITDA to the mid 3x range within two years, with the goal of maintaining a low 3x ratio.

Yesterday Moody’s placed the long term ratings of CVS Health on review for downgrade, prompted by the proposed acquisition. Moody's anticipates the review could extend longer than 90 days given the size and complexity of the transaction and the regulatory approval process; it anticipates any downgrade to CVS' senior unsecured rating would likely be limited to one notch at the conclusion of the review. The transaction is expected to close during the second half of calendar 2018. S&P placed its BBB-plus ratings on CVS Health on Creditwatch. S&P commented, “In our view, CVS' financial risk profile will weaken considerably as a result of the significant increase in debt, given the scale of the acquisition as well as execution risks that could affect operating performance." S&P said it expects to resolve the Creditwatch by lowering the rating by one notch, as soon as more information on the deal and financing becomes available.

Some say the deal was sparked by news that Amazon is considering diving into the pharmacy business. Amazon has reportedly held preliminary talks with makers of generic drugs, including Mylan and Sandoz, about a potential entry into the pharmacy space, according to people familiar with the discussions. The conversations may be about Amazon taking a role in drug purchasing, competing against distributors like McKesson, AmerisourceBergen, and Cardinal Health, or as a retailer; however, Amazon’s plan is not clear. There has been a lot of doubt in the industry about Amazon competing against the Big Three, who control about 90% of the market, due to significant regulatory hurdles. Earlier this year it was reported Amazon acquired wholesale pharmacy licenses in 13 states, although that turned out to be related to the sale of existing medical products. It has also been speculated that Amazon could be interested in acquiring a pharmacy benefit manager like Express Scripts or Rite Aid’s EnvisionRx.

Kroger

During the third quarter of fiscal 2017, Kroger met the challenges of a highly competitive environment that has been pressuring the retail grocery sector, as EBITDA grew 5.7% for the quarter, to $1.35 billion, on a 4.5% increase in sales. Operationally, management discussed the need to create a seamless environment where its customers can choose how to engage with the Company, whether in-store or online. Toward that end, the Company noted it is continuing to expand its ClickList click and collect service; Kroger expects to be offering the service at more than 1,000 locations by year end. In addition, Kroger is offering home delivery at over 300 locations by partnering with service providers including Shipt, Roadie, Uber, and others. Management will continue to build up its home delivery offering in 2018 with these partners as well as with Instacart, with whom the Company recently launched a partnership in Southern California. Outside the virtual realm, the Company reported that it had its best ever Black Friday results for general merchandise, led by record sales at the Fred Meyer division. Kroger CEO Rodney McMullen said, “We firmly believe that customers of the future will continue to frequent physical stores with compelling offers.”

In other news, Kroger will close its sole experimental grocery concept, Main & Vine, in Gig Harbor, WA on January 9, two years after it opened. No reason for the closure was given. Apparently the format was not successful enough to expand further or even sustain on its own.Kroger commented, “Our family of companies has already started to incorporate some of these features and unique offerings in other stores across the country, including the new Fred Meyer store opening next month in Gig Harbor.”

Kroger recently opened a new Marketplace store in Midlothian, TX. The 120,000 square-foot supermarket features expanded offerings, along with a Starbucks and a bistro.

Grocery Outlet

Grocery Outlet is targeting approximately 25 to 30 new stores annually, with a major focus on the Southern California region. The Company operates 291 locations in California, Idaho, Nevada, Oregon, Pennsylvania and Washington, with the majority of its “no-frills” stores being independently operated by locally based families who earn commissions on how much they sell. Its next store opening will be in Lake Forest on December 7, at a former Fresh & Easy site. The Company currently operates about 30 stores in Orange and Los Angeles counties, 160 throughout California, and 290 system-wide. Typically, most stores are about 14,000 square feet – 15,000 square feet, but it operates a 9,000 square foot store in San Francisco and its largest store is 23,000 square feet. The Company also has plans to open a new, 21,000 square-foot store in Colville, WA on December 9, which will be its 54th in the state.

At Home Group

At Home Group’s third quarter sales grew 24.8% to $213.0 million, driven by the net addition of 22 stores (compared to the prior-year period) and a comparable store sales increase of 7.1%. Excluding the net impact of Hurricanes Harvey and Irma, comps would have increased 8.3%. Operating income more than doubled to $9.3 million. The Company opened eight new stores in the quarter, ending the period with 144 stores in 33 states. Chairman and CEO Lee Bird commented, “Our new store growth of 18%, combined with our merchandising and marketing initiatives, drove net sales growth of 25% and our 14th consecutive quarter of over 20% percent net sales growth…. Driven by our top line outperformance and industry-leading profitability, we more than doubled year-over-year pro forma adjusted EPS to $0.07, enabling us to raise our full year outlook while continuing to reinvest in the expansion of our business.”

In other news, At Home Group announced the launch of a proposed underwritten secondary public offering of six million shares by certain existing stockholders, including certain affiliates of AEA Investors LP and Starr Investment Holdings, LLC. In connection with the proposed offering, the selling stockholders intend to grant the underwriters a 30-day option to purchase up to 900,000 additional shares. The Company is not selling any shares in the proposed offering and will not receive any proceeds from the sale.

Festival Foods

Last week, Festival Foods opened a new store in Eau Claire, WI. The store is part of the grocer’s recent acquisition of three former Gordy’s Market locations including two in Eau Claire and one in Tomah. The Tomah store opened November 10, and the other Eau Claire location will open December 8. Festival Foods currently operates 30 locations throughout Wisconsin.

Michaels Companies

The Michaels Companies’ third quarter sales rose 1.1% to $1.24 billion, and comparable store sales rose 1%. Operating income improved more than 5% to $153.9 million. Quarterly results include an estimated $10.0 million in lost sales related to Hurricanes Harvey and Irma. The Company opened eight new Michaels stores and one new Pat Catan’s store, and closed one Michaels store and three Aaron Brothers stores during the quarter, for a total of 1,371 locations at quarter end. Year to date, sales increased 0.7% to $3.47 billion, comps rose 0.1%, and operating loss was up 0.6% to $381.1 million. Chairman and CEO Chuck Robin commented, “We are seeing nice momentum in our business, excluding the disruption from the hurricanes, and we are encouraged by the customer’s response to the improvements we have made, both in-stores and online, to make it easier for customers to MAKE. As we turn to the fourth quarter, we believe our holiday assortment is bigger and better than ever, and our teams are ready to serve customers, both in stores and online…. we are confident the investments we’ve made to create an easier, more integrated omnichannel experience will drive continued momentum and deliver stronger financial results.”

Looking ahead, the Company expects fiscal 2017 sales growth of 2.9% – 3.2%, a comp increase of 0.6% – 0.9%, operating income of $735.0 million – $745.0 million, and plans to open 18 new stores, including 17 new Michaels stores and one new Pat Catan’s store; relocate 12 Michaels stores; and close 17 stores, including 15 Aaron Brothers stores and two Michaels stores.

AggData's Future Store Closing Database Currently Contains 100+ Locations Scheduled To Close In 1Q 2018.

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Zumiez

Zumiez reported that third quarter sales jumped 11% to $245.8 million, and comparable store sales increased 7.9%. Operating income rose 11.2% to $18.8 million. CEO Rick Brooks commented, “Our top-line performance continues to improve even in the face of more challenging comparisons…. We are confident that our merchandise strategies, integrated sales channels and best in class sales team have Zumiez well positioned to deliver strong holiday results and achieve meaningful earnings growth in the fourth quarter.”

Looking ahead, Zumiez expects fourth quarter net sales of $291.0 million – $297.0 million resulting in net income per diluted share of approximately $0.78 – $0.84. This guidance is based upon anticipated comp growth of 3% – 5%. The Company remains on track to open approximately 19 new stores in fiscal 2017, including up to three stores in Canada, five stores in Europe and two stores in Australia.

Ulta Beauty

Ulta Beauty’s third quarter sales increased 18.6% to $1.34 billion, and operating income jumped 16.5% to $162.7 million. Comparable store sales increased 10.3%, driven by 6% transaction growth and 4.3% average ticket growth. The Company estimates that Hurricanes Harvey and Irma resulted in approximately 100 basis points of negative impact to comps in 3Q17. Retail comps rose 6.6%, and e-commerce sales grew 62.9% to $119.8 million. During the quarter, the Company opened 48 new stores, ending the period with 1,058 stores. CEO Mary Dillon commented, “We delivered double digit comparable sales growth, in spite of a moderation in the growth rate of our largest category — makeup — and meaningful disruption from hurricanes. We flexed our merchandising and marketing plans, leveraged our consumer insights and CRM platform, and worked with our brand partners to create compelling offers for our guests. We also benefitted from the unmatched breadth of beauty categories and products we offer. These levers allowed us to drive significant share gains, continue to rapidly grow our base of loyalty members, and thrive amidst shifting category trends within the beauty industry.”

Looking ahead, the Company expects fourth quarter sales of $1.93 billion – $1.96 billion, and comps, including e-commerce, are expected to increase 8% – 10%. In fiscal 2017, Ulta Beauty plans to open approximately 100 new stores, remodel 11 stores, relocate 7 stores, and achieve comps of about 10% – 11%, including e-commerce.

Sears

Sears Holdings’ third quarter sales fell 27.2% due to store closings and a 15.3% decline in Company-wide comparable store sales. At Kmart, comps decreased 13%, reflecting reductions in both the number of pharmacies in open Kmart stores as well as in the consumer electronics assortments. Sears Domestic comps plunged 17% during the quarter, on top of a 7.4% decrease in the third quarter of last year.

Sears Hometown & Outlet’s third quarter sales fell 20.9% to $386.0 million due to the closing of 194 stores and a 9.1% decrease in comparable store sales. Management attributed part of the comp weakness to business interruptions related to the three hurricanes as well as lower sales of home appliances and tools. Comps were down 9.9% and 7.4% in Hometown and Outlet, respectively.

Sprouts Farmers Market

On February 21, 2018, Sprouts Farmers Market will open its fifth location in Florida located in Valrico. It will be 30,000 square feet. Sprouts has disclosed plans to open 30 locations per year to meet the rising demand for organic goods, with 60%-70% of the growth coming in existing markets.

Toys "R" Us, Inc., DIP

Earlier today, Toys “R” Us, Inc., DIP filed a motion to extend the exclusive periods within which it may file a Chapter 11 Plan and solicit acceptances thereof by approximately 180 days, through and including July 15, 2018, and September, 13, 2018, respectively. The current exclusive periods for filing a Plan and solicitation of acceptances will expire on January 16, 2018, and March 17, 2018, respectively. The Debtors stated that the timing of the requested extension contemplates “a potential emergence from Chapter 11 ahead of the next holiday season.”

Published sources claimed Toys “R” Us planned to close about a quarter of its U.K. stores (25 of 105 units) and planned to apply for a “Company Voluntary Arrangement” in the U.K. Yesterday, the Company announced that Toys “R” Us UK has entered into a UK Company Voluntary Arrangement (CVA) process under which it has submitted a restructuring plan to its creditors. Toys UK will solicit the creditors’ approval of the plan over the next 14 days. If approved by 75% of the creditors and then declared effective, the CVA plan would allow the UK entity to “move forward with a more cost efficient store base and footprint that will enable it to reposition its real estate portfolio for future growth and profitability.” The Company said that its 1,600 Toys “R” Us and Babies “R” Us stores around the world, including all stores in the U.K., are currently open for business and continuing to operate as usual.

The Debtor also submitted its monthly operating report for the period from September 18 to October 28. During the period, the Company incurred a net loss of $329.0 million. As of October 28, the Debtor reported total assets of $5.60 billion, current liabilities of $764.0 million, long term debt of $1.79 billion, and liabilities subject to compromise of $4.80 billion.

Aldi

Aldi plans to at least double its presence in Northeast Florida. It currently operates five stores in Duval and Clay counties. The next planned sites include a 22,700 square-foot store in Yulee, along with stores in Regency, Oakleaf and another in Clay County. Additionally, several Aldi stores will open in the Jacksonville market over the next several years, although no specifics have been provided.

Meanwhile, Aldi will close an underperforming store in West Dayton, OH, in one of the largest food deserts in Ohio. No closure date has been announced.

Five Below

Five Below’s third quarter sales rose nearly 29% to $257.2 million, and comparable store sales increased 8.5%. Operating income jumped 71.6% to $14.8 million. The Company opened 41 new stores, ending the quarter with 625 stores in 32 states, an increase of more than 20% compared to the prior-year period. CEO Joel Anderson commented, “This quarterly performance reflects a strong customer response to our WOW product, incredible price points, differentiated in-store experience and increasingly targeted marketing efforts. With the strength of our year-to-date performance, as well as our quarter-to-date momentum, we are raising our guidance for the year.”

Looking ahead, the Company expects fourth quarter sales of $491.0 million – $503.0 million and net income of $60.8 million – $64.6 million. For fiscal 2017, Five Below expects sales of $1.26 billion – $1.28 billion, based on opening 103 net new stores and assuming a 5.7% – 6.5% increase in comps. Net income is expected to be $95.9 million – $99.7 million.

Vallarta Supermarkets

Hispanic supermarket chain Vallarta Supermarkets opened its 50th store last week, located in Pasadena, CA in the space of a former Vons location. The Company invested $8.0 million to remodel the 50,000 square-foot store. With the opening of its new store in Pasadena, Vallarta says it has launched into a new multicultural market, offering a new store design and new food and beverage offerings.

Hibbett Sports

Hibbett Sports’ third quarter sales increased 0.4% to $237.8 million, while comparable store sales decreased 1.3%, with strong performance in footwear offset by negative comps in other merchandise categories. E-commerce sales accounted for 4.9% of total sales. Operating income was cut in half to $11.8 million. During the quarter, the Company opened 13 new stores and closed 11 underperforming stores, bringing the total base to 1,082 in 35 states as of October 28. Hibbett ended the quarter with $58.3 million of available cash and cash equivalents and full availability under its credit facilities. The Company also acquired 1.2 million shares of common stock during the quarter, for a total expenditure of $15.9 million. The Company’s stock had lost roughly 85% of its value from January 2014 through August 2017; however, it has regained about 13% since the summer.

Hibbett Sports launched its first e-commerce website in July, which helped boost its relaunched loyalty program; rewards jumped from 46% last year to 57% of total sales this year, and revenue from rewards members, which total a little over $9.0 million, were up 24%, with Hibbett seeing 19% more transitions from those customers. CEO Jeff Rosenthal commented, “In the last 90 days, we have had a 25% increase year-over-year in the number of people joining the program, versus a negative 10% before we relaunched the program. We have also improved our conversion rates with our ‘Save the Sale’ program by helping our customers find a size from any store at any time.”

Casey's General Stores

Casey's General Stores announced the opening of its 2,000th store in Russellville, KY on November 30. The 4,600 square-foot store will have expanded prepared food offerings and on-the-go ordering through its website or app.

Starbucks

An Indiana judge has ruled in favor of the Simon Property Group, saying that Starbucks cannot close 77 of its Teavana stores in malls operated the Company. Simon Property claims that Starbucks has leases on those stores and that closing them would be a violation of its contractual obligations, and would represent material harm to its malls because it would reduce traffic and potentially cause other retailers to close.

Starbucks announced last summer that it planned to close all of its 379 Teavana stores because the chain is underperforming. According to published reports, the decision to close the stores has so far cost it $130.0 million.

New York & Company

New York & Company reported third quarter net sales rose 0.1% to $214.2 million, reflecting 2.2% growth in comparable store sales driven by double-digit percentage growth in e-commerce, offset by the impact of a lower store count. Operating income was $618,000, compared to a loss of $2.1 million in the prior-year period. During the quarter, the Company continued to aggressively reduce expenses, which led to a $4.3 million decrease in buying and occupancy costs compared to the prior-year period. The Company opened two New York & Company stores, refreshed four under the format, and closed three under the format, ending the third quarter with 459 stores, down from 483 a year ago. CEO Gregory Scott commented, “We are pleased to report better-than-expected third quarter results, highlighted by positive comparable store sales, expansion in gross margin and continued expense discipline, which drove a $2.7 million increase in operating income as compared to the third quarter last year…. During the quarter, our new collaboration with Gabrielle Union met with a strong response, our e-commerce sales grew at a double-digit pace and our in-store traffic significantly outpaced the mall average, all of which led to a 2.2% increase in comparable store sales.”

Looking ahead to the fourth quarter, New York & Company expects net sales to be up by a low single-digit percentage, reflecting comps up in the low single-digit percentage range and the inclusion of the 53rd week in the fiscal calendar, partially offset by a decrease in store count. The Company expects GAAP operating income of $2.0 million – $4.0 million, compared to a GAAP operating loss of $9.2 million in the prior year’s fourth quarter.

Target

Target is reportedly targeting men in an effort to attract an “unrealized opportunity” into stores. The Company has unveiled Goodfellow & Co., a line of shirts, pants and shoes. Target is reaching out to men with ads in GQ magazine and during televised football and baseball games. According to the Company, sales of Goodfellow are up more than 10% compared with Target’s previous men’s offering; of course that does not give much as far as the starting point.

Meanwhile, Target will open its first small-format store, at 57,400 square feet, in North Texas in Dallas. Target did not say if it is planning additional small-format stores for the area, but does plan to expand the concept to 130 locations nationally by the end of 2019; it currently operates 55 that have reportedly produced comps in the double digits. In addition to introducing its smaller concept to the region, Target invested $220.0 million to remodel 28 of its 47 Dallas-Fort Worth area stores in 2017. Additional remodels are planned for 2018.

Tillys

Tilly's third quarter sales rose 0.5% to $152.8 million, and comparable store sales, including e-commerce sales, increased 1.5%. Operating income jumped 32.3% to $14.1 million. President and CEO Ed Thomas commented, “Having turned the operating margin trend of our business around over the past year and a half, we now believe it is the appropriate time to plan for moderate growth by targeting to open approximately 10 to 15 new stores during fiscal 2018.”

Looking ahead, the Company expects its fourth quarter comps to increase by a low single-digit percentage and operating income to be approximately $10.5 million – $13.0 million.

Big Lots

Big Lots reported third quarter sales growth of 0.5% to $1.11 billion. Comps growth of 1% partially offset a lower store count. The Company currently operates 1,430 stores across the U.S., compared to 1,442 stores last year. Net income was $4.4 million, compared to $1.4 million last year, including $1.9 million associated with a gain from insurance recoveries on merchandise-related legal matters.

On the news, the Company increased its fiscal 2017 EPS guidance to $4.23 – $4.28, representing a 16% – 18% increase compared to fiscal 2016. Previous guidance had been EPS of $4.15 – $4.25. For 4Q17, it expects EPS of $2.35 – $2.40, compared to $2.26 last year, and comp growth to be flat to up 2%. On the news, the stock initially dropped as much 8.6% during midday trading, but for the most part recovered, losing only 1.5% to close at $58.21 Friday.

Subsequent to the release of 3Q results, president and CEO David Campisi took medical leave after he was hospitalized on December 1. In connection with Mr. Campisi's temporary leave of absence, the Big Lots board assigned Mr. Campisi's executive responsibilities to Lisa M. Bachmann, EVP, CMO, and Timothy Johnson, EVP, chief administrative & CFO, effective immediately.

In other news, Big Lots opened its new “Store of the Future” concept in Snellville, GA on November 17. The concept is a larger 37,000 square foot facility that showcases furniture, seasonal items and soft home accessories. Traditional Big Lots store average 31,000 square feet. The Company plans to remodel thirty stores in this format this year in the Columbus, OH and Phoenix, AZ markets with the goal to convert 620 units by 2020. Earlier this month it opened a concept store in Grandview, OH.

L Brands/Cato Corporation/The Buckle

L Brands’ sales for the month of November rose 2% to $1.27 billion, while comparable store sales dropped 1%. The exit of the swim and apparel categories had a negative impact of about one percentage point for both total Company and Victoria’s Secret comps. For the 43 weeks ended November 25, L Brands’ net sales declined 3% to $9.08 billion, and comps dropped 6%; year to date, exiting of the swim and apparel categories had a negative impact of about four percentage points and six percentage points to total Company and Victoria’s Secret comparable sales, respectively.

The Cato Corporation’s sales the month of November dropped 9% to $62.2 million, and comps decreased 8%. For the ten months ended November 25, sales dropped 13% to $693.2 million, and comps also dropped 13%. Chairman, President, and CEO John Cato commented, “The November same store sales decline is consistent with our current trend. Consequently, we continue to expect our full year earnings to be significantly below last year.” As of November 25, the Company operated 1,370 stores in 33 states, four fewer stores than in the prior year.

The Buckle’s November sales decreased 4% to $78.3 million, and comps decreased 3.6%. For the 43-week period ended November 25, sales decreased 8.5% to $710.5 million, and comps dropped 8.3%.

Village Super Market

Village reported a first quarter sales decline of 0.8% to $386.5 million. Comps also fell 0.8%, primarily due to four store openings by competitors. The Company estimates product prices experienced slight inflation as increases in most departments were offset partially by deflation in the pharmacy and meat departments. Net income decreased 26.6% to $3.0 million due to the comp decline and higher operating and administrative expenses that reflect higher payroll costs. Looking ahead at fiscal 2017, Village expects comps of -2.0% to flat. Village Super Market operates a chain of 29 supermarkets under the ShopRite name in New Jersey, Maryland and northeastern Pennsylvania.