The Fresh Market
The Fresh Market SVP Scott Duggan recently said the Company has backed off any expansion plans in 2018. Mr. Duggan commented, “At present, the Company believes the most efficient growth vehicle is to focus on improving core operations within its existing footprint, so it has decided not to open any previously announced new stores for 2018.” Mr. Duggan stated, “Our focus remains on strengthening and growing our in-store operations, guest service program, merchandising selections, future offerings and, of course, our team members, as well as planning and executing new store openings after 2018.” In May 2016, the Company closed 13 stores and exited four states, and in April 2017 it closed five more locations. Most of these closures have been in regions well outside of the Company’s native Southeastern markets. Growth plans for 2016 were also significantly cut; eight stores from a planned 12 – 18 were opened during the year, followed by just one more in 2017. The Company is said to have 12 stores in development, with four under construction, five planned with signed leases, and three proposed stores in pre-development. The above heat map displays the Company's store activity since February 2016.
Walmart
Walmart is reportedly asking vendors to supply it with more merchandise priced at $10 and up, as part of a major push to turn a profit at its online business, according to people with knowledge of the matter. The new focus is on dry grocery products such as sauces, soaps and general merchandise items such as toys and home furnishings. Walmart’s goal is to see higher profit margins selling these more expensive items given the built-in cost of delivering goods purchased online. Walmart’s directive to suppliers marks a shift in strategy. For years it has squeezed suppliers for pennies to drive the lowest prices for shoppers, both online and at its brick-and-mortar stores. Walmart will continue to press for bargain-priced items to sell at its 4,700 stores.
In other news, reports indicate Walmart is in talks to buy up to a 20% stake in Flipkart, the India based e-commerce Company. This would make Walmart the largest shareholder in Flipkart, in front of Softbank, who has provided several rounds of financing.
Meanwhile, Walmart recently opened a new engineering hub in downtown Austin, TX. The facility will look to develop “emerging technology such as machine learning, artificial intelligence, blockchain and Internet of Things for use across the Company’s global operations.”
Walgreens/AmerisourceBergen
The Wall Street Journal reported today that Walgreens Boots Alliance (WBA) has approached AmerisourceBergen (ABC) for a possible takeover. The companies apparently discussed the possibility of WBA buying the remaining 74% of ABC it doesn’t already own. However, talks are only in the very early stages, and no deal is imminent. Neither company would comment on the report. ABC and WBA had equity market values of close to $20.00 billion and $68.00 billion, respectively. In addition to owning 26% of ABC, WBA has a representative on ABC’s board, and can acquire up to a 30% stake and thereafter add a second member to ABC’s board; there is a standstill agreement that prevents WBA from acquiring more than a 30% interest. ABC is the second largest of the “Big Three” wholesalers with $153.14 billion in trailing twelve month sales. WBA is ABC’s largest customer representing about 30% of its revenue, pursuant to a long-term global supply agreement entered into in 2013 (WBA subsequently acquired the 26% equity interest) that extends until 2026.
Southeastern Grocers
According to recent reports, Southeastern Grocers LLC has hired consultants to assist in the closure of even more stores. The Company reported revenue fell 7% in 3Q17, due in part to store closures; year-over year store count fell by 48 to 702 at the end of September. There has been no mention of how many more of its stores would potentially close. The Company faces significant debt maturities in 2018 including $475.0 million in 8.625% Unsecured Notes due in September 2018 (PIK Notes) and its $900.0 million credit facility, which becomes due in November 2018, if any of the $425.0 million in 9.25% Senior Secured Notes due February 2019 remain outstanding at that time. The Company has reportedly been attempting to recapitalize its debt since at least last spring and has retained legal representation and financial advisors to assist in the process.
Dick's Sporting Goods
Dick’s Sporting Goods is opening four new stores this month, which will bring its nationwide store count to 721. One store opened in Evansville, IN over the weekend, and the other three are opening in Baxter, MN, Santa Maria, CA and Warwick, RI by the end of the month. The Evansville store represents the 20th Dick’s Sporting Goods store in Indiana. There are nine stores in Minnesota, 58 in California and two in Rhode Island.
Meanwhile, the Pittsburgh, PA-based Company is expected to benefit from the Philadelphia Eagles winning the Super Bowl, as traffic was up 22% at Dick’s stores in Philadelphia the Monday following the game, according to data provided by inMarket, a geo-location marketing firm. About 5% of the Company’s stores are located in the eastern part of Pennsylvania, Delaware and South Jersey, where the bulk of Eagles fans are located. In addition, new bat regulations impacting Little League players may give a boost to the Company’s first quarter results, similar to a previous boost following a regulation change that affected high school and college baseball in 2012.
Gander Outdoors
Gander Outdoors is opening a store on February 17 in a former Gander Mountain in Hermantown, MN. The Company most recently opened a 55,000 square-foot store on February 6 in Indianapolis, IN, also in a former Gander Mountain. This is one of three Gander Outdoors planned for Indiana this year, with the other two openings planned for March in Greenfield and Fort Wayne. Gander Outdoors is owned by Camping World; CEO Marcus Lemonis purchased Gander Mountain’s assets in May 2017.
Aldi
Aldi will add two new stores in the Green Bay, WI market in 2018, in De Pere and, potentially, Ashwaubenon. The Company, which currently operates two stores in the region, proposed plans for a 25,000 square-foot Ashwaubenon store in a former hhgregg that closed in 2016. Aldi also proposed a new store for Wooster, OH. The 22,150 square-foot site would be slightly larger than the existing Aldi there.
Coborn's
Coborn’s is opening a second Cash Wise store in Bismarck, ND. It will have a gas station and car wash as well as a Caribou Coffee with drive-thru. The store is expected to open in late 2018.
Meanwhile, Coborn’s has entered the growing meal kit market with a new line available at its 120 stores, which operate under the Coborn’s, Cash Wise, Marketplace and Save-A-Lot banners.
Toys "R" Us, DIP
On February 7, the Court approved the commencement of store closing sales at 150 of Toys “R” Us, DIP’s stores. The sales began on February 7 and continue through April 15, 2018. The Debtor’s motion originally identified 182 units. The reduction in the number of stores on the list approved by the Court reflects locations where the Debtor was able to negotiate more favorable terms with landlords. The closing sales will be operated by a consortium consisting of Gordon Brothers, Hilco Merchant Resources, Tiger Capital Group and Great American Group. Please click here for a list of the store closings approved by the Court. Additional stores could be targeted for closing in the future.
True Value
True Value plans to open a 14,000 square-foot store in Iowa City, IA this summer, which will replace a smaller location nearby. Construction is expected to begin in March. Once complete, the new store will be about twice the size of the current location in Iowa City, and it will add lumber products in addition to the hardware, paint and appliances sold in the old location. True Value currently operates 71 locations in Iowa, and more than 2,800 nationwide.
Albertsons
Last week, Albertsons announced that its new culinary-driven Market Street format, which “invites customers to Eat Life Up,” will open in Boise, ID, this summer, with a second store in West Boise slated to open later this year. The Company said that the two stores “will encourage customers to hone their inner chef through in-store culinary events and classes as well as time savers like catering services, an in-store restaurant style food court and other gourmet creations fit for the most discerning customers.”
GNC Holdings
GNC Holdings reported fourth quarter sales decreased 2.1% to $557.7 million, primarily due to the loss of sales from Lucky Vitamin, which was sold in September 2017 (Lucky Vitamin contributed $20.7 million in sales during 4Q16). Excluding Lucky Vitamin, sales would have increased 1.6% over the prior year. Comps at domestic Company-owned stores increased 5.7%, while domestic franchised comps decreased 2%. Operating loss narrowed 12% to $394.2 million. CEO Ken Martindale said, “Our results in the fourth quarter reflect our work to reinvigorate the GNC model and are indicative of the momentum we gained throughout the year.” Looking to 2018, the Company plans to expand its business internationally; international revenues increased 14.1% to $45.3 million during the quarter, primarily due to higher e-commerce sales. As of December 31, 2017, the Company had 3,423 corporate stores in the U.S. and Canada, 1,099 domestic franchise locations, 2,418 Rite Aid franchise store-within-a-store locations, and 2,015 international locations. During 2018, the Company intends to close about 200 stores, and it expects a “limited number” of new store openings.
Supervalu
Supervalu will close its Shop ‘n Save store in Stephens City, VA on March 3, following the expiration of its lease. The store was part of the 22 Food Lions Supervalu purchased from Delhaize in September 2016 and re-bannered as Shop n’ Save. The Company said it has no “immediate plans to close additional locations.”
Dunkin' Brands
On February 8, Dunkin’ Brands announced its three-year strategic plan to grow revenue by low to mid-single-digit percentages and operating income by mid to high-single-digit percentages. The Company said it intends to achieve these targets by positioning its core Dunkin’ Donuts U.S. brand to compete even more effectively in the coffee and beverage segment, driving profitable sales growth, and further expanding westward across the country. It plans to add 1,000 net new Dunkin’ Donuts locations in the U.S. by the end of 2020 and expects that more than 90% will be built outside of the Northeast. The Company also reaffirmed its intention to eventually have more than 18,000 Dunkin’ Donuts restaurants in the U.S. Dunkin’ Brands indicated that it will focus on menu innovation and will remove artificial dyes from all donuts.
Urban Outfitters
Urban Outfitters reported fourth quarter sales increased 5.7% to $1.09 billion. Retail comps increased 4%, driven by strong, double-digit growth in the direct-to-consumer channel, partially offset by negative retail store sales. By brand, retail comps increased 8% at Free People, 5% at Anthropologie, and 2% at Urban Outfitters. For the fiscal year ended January 31, 2018, sales increased 2% to $3.60 billion, and retail comps were flat. During the year, the Company opened 18 new stores, including eight Free People, five Urban Outfitters, four Anthropologie and one food and beverage restaurant. It also closed 11 locations, including three Free People locations, two Urban Outfitters stores, three Anthropologie stores and three food and beverage restaurants. The Company operates 245 Urban Outfitters stores, 226 Anthropologie stores, 132 Free People stores and 10 restaurants. It will release full earnings on March 6, 2018.
Yum! Brands
Yum! Brands’ fourth quarter revenues fell 16.4% to $1.58 billion, largely reflecting franchising efforts. Overall comps increased 2%, consisting of growth of 3% at KFC, 1% at Pizza Hut, and 2% at Taco Bell. Net income was $436.0 million, up from $303.0 million last year, boosted by sales at the KFC chain. The Company reported a special one-time charge of $434.0 million during the quarter related to the repatriation of foreign earnings due to U.S. tax reform. Yum! said that at the end of 2017 it was able to become 97% franchised and expects to be 98% franchised by the end of 2018. During fiscal 2017, it opened 730 new units for 3% net unit growth, and refranchised 896 restaurants, including 685 KFC, 144 Pizza Hut and 67 Taco Bell units.
Separately, Yum Brands struck a deal with Grubhub to be its exclusive online delivery partner for Taco Bell and KFC. Yum will buy $200.0 million of stock (a 3% stake) in the online business, which will provide Grubhub with funds to accelerate the expansion of its delivery network. As part of this partnership, a Yum executive will join Grubhub’s board. On the news, Grubhub’s stock soared 27.4% to $89.04, hitting a record $94.89 midday. Yum’s stock was down about 1%.
Indochino
Indochino, a made-to-measure menswear brand, received a “strategic investment” from Mitsui & Co. (USA) to help accelerate its North American expansion plans, and invest in its global operations and supply chain. Terms of the deal were not disclosed. Indochino, which began as an e-commerce retailer but has been expanding in brick-and-mortar, plans to open up to 18 locations this year. Last year the Company said it added 10 locations, bringing its total to 20 stores; it grew its revenue by more than 50% and achieved full year EBITDA profitability. In addition to Mitsui, other investors in recent years include suit manufacturer Dayang Group and Canadian media company Postmedia.
Chipotle
Chipotle reported fourth quarter revenue increased 7.3% to $1.10 billion, driven by new restaurant openings and 0.9% comp growth. Comp growth reflects an increase in the average check, including a 2.4% impact from menu price increases in select restaurants during 2Q17 and 4Q17, partially offset by a decrease in transactions. Food costs were 34.2% of revenue, a decrease of 110 basis points compared to last year, driven by the benefit of menu price increases, cost-savings initiatives related to paper and packaging products, and relief in avocado prices. Operating income was $60.0 million, compared to $30.6 million last year, reflecting decreased promotional activity and lower food, beverage and packaging costs as a percent of revenue. Net income was $43.8 million, up from 16.0 million, and benefited by $16.0 million related to U.S. tax reform. During the quarter the Company opened 38 new restaurants, and relocated or closed four, bringing its total count to 2,408. For the full year, revenues increased 14.7% to $4.48 billion, net income rose to $176.3 million, and comps were up 6.4%.
Looking ahead at fiscal 2018, Chipotle expects comp growth in the low single digits, and 130 – 150 new restaurant openings.
In a subsequent earnings conference call, CFO John Hartung said the Company would make a one-time discrete investment of $50.0 million, about $20,000 per restaurant, to upgrade and refresh its locations. The investment is in addition to the typical $10,000 per restaurant, or about $24.0 million, that the Company spends for normal upkeep.
The Company’s stock is currently hovering around $250 per share, down from its 52-week high of $499.
PriceSmart
PriceSmart’s January sales increased 6.2% to $243.6 million, and comps rose 0.5%. For the YTD period, sales rose 4.7% to $1.33 billion, and comps increased 2.9%. PriceSmart opened one new warehouse club over the past year, bringing its store count to 40.
Romano's Macaroni Grill
About fourth months after Mac Acquisition LLC, DIP, operator of Romano’s Macaroni Grill, filed for Chapter 11 protection, it won approval to move forward with its reorganization plan. Last Wednesday, the judge approved reorganization plans that will allow many of its restaurants to remain open, as well as save roughly 4,600 jobs. As part of the reorganization, Raven Capital Management, which provided the chain with a $5.0 million bankruptcy loan, agreed to roll over the debt into an exit facility and provide up to another $8.5 million in debt. In 2017, Macaroni Grill closed 37 unprofitable locations; it currently has 93 restaurants in 23 states.
GameStop
On February 6, GameStop announced it appointed Michael K. Mauler as its new CEO, succeeding Daniel DeMatteo, who assumed the position of interim CEO on November 13, 2017. Mr. Mauler served as EVP and president of GameStop International since 2010. Looking ahead, Mr. Matteo, a co-founder of GameStop, will continue to serve as executive chairman. The arrival of Mr. Mauler as CEO comes at an important time as the Company continues to diversify away from its 5,854 video game stores (78% of total store base). Management has addressed this by initializing a multi-year strategy to close 2% to 3% of its stores every year and is even going beyond unprofitable stores to ones that generate cash flow. It’s important to note that GameStop has significant flexibility on its leases as 20%+ of its store leases expire every year. For 2018, 1,730 leases expire (23% of all stores), 2019, 1,741 leases expire (23%) and for 2020, 1,658 leases expire (22%). Additionally, although GameStop had a strong holiday season, with domestic comps growing 13.7%, it was mostly driven by lapping the previous year’s 18.7% comp decline. The Company also noted that it expects to incur a non-cash impairment charge to its Technology Brands segment (AT&T wireless + Apple resellers) of $350.0 million to $400.0 million. The public equity market has expressed concerns for the Company as the stock is down 40% over the past two years.
Rite Aid/Walgreens
Last week, Rite Aid provided an update on the progress of its sale of stores to Walgreens Boots Alliance (WBA). As of February 8, Rite Aid transferred 1,114 stores and related assets to WBA and received cash proceeds of $2.42 billion, which the Company continues to use to reduce debt. Under the asset purchase agreement, WBA will purchase a total of 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.375 billion. Rite Aid Chairman and CEO John Standley commented, “We have now completed more than half of the planned store transfers and remain on track to finish the process in the spring of this year. As we work to complete this process, we remain focused on opportunities to build our business while delivering a great experience to our customers and patients and driving value for our shareholders.” The majority of the closing conditions have been satisfied, and the remaining transfers remain subject to customary closing conditions.
Costco
Costco’s January sales increased 8.4% to $12.24 billion. January comps, excluding gasoline sales and the effect of foreign currency exchange, rose 2.9%, consisting of growth of 3.6% in the U.S., 1.3% in Canada, and 0.6% in Other International. E-Commerce comps increased 32.9%. January 2018 had one fewer shopping day versus last year, which negatively impacted total and comp sales by 3% for the month. Additionally, Lunar New Year occurred in February this year (as compared to January last year), negatively impacting January sales by 3.5% for Other International and 0.5% for total Company. For the year-to-date period (22 weeks ended February 4), sales increased 11.6% to $58.30 billion, and comps increased 6.1% with e-commerce comps up 29.8%.
The Container Store
The Container Store Group’s third quarter sales increased 3.1% to $223.0 million. Retail sales rose 2.4% to $203.9 million, driven primarily by new store sales, partially offset by a 0.2% decrease in comps. Holiday department sales contributed a 1% decline in comps. Elfa International third-party sales increased 10.5% to $19.1 million, primarily due to the positive impact of foreign currency translation and higher sales in Russia. Adjusted EBITDA was up 1.2% to $25.6 million. The Company opened three stores during the quarter, including one relocation, and had 90 stores operating at the end of the quarter, up from 86 in the prior year period. CEO Melissa Reiff stated, “In the fiscal third quarter we made further progress with our core custom closets offering and delivered continued improvement in all of our non-closet categories, with the exception of our holiday departments, which typically represent a small percentage of our annual sales, but historically have had a notable impact on our fiscal third quarter sales. While the softness in our holiday categories is disappointing, we were prudent in our buying for holiday and disciplined in selling through the related inventory, as evidenced by our strong gross margin performance and healthy ending inventory position. With the holiday season behind us, and with a strong start to our annual Elfa sale that has continued into the fiscal fourth quarter, we expect comparable store sales in the fiscal fourth quarter to improve from the fiscal third quarter, as reflected in our implied fiscal fourth quarter comparable store sales outlook of flat to up low single digits.”
Target
Target continues to expand its same day delivery with Shipt, by adding service to its hometown, Minneapolis – St. Paul, MN. Service will begin March 1, 2018. This follows the Company’s recent expansion to Florida and select cities in the Southwest, including major markets in Texas, Oklahoma and Arizona.
