February 27, 2019
Industry Spotlight:
Specialty Retailers
Specialty retailers are increasingly popular among shoppers. Consumer preferences indicate a growing appreciation for specialized product offerings and passionate, knowledgeable retail associates. As destination stores, some specialty retailers can increase traffic in malls and centers. However, competition is fierce as specialty retailers with similar product mixes target the same customers, often compete in the same trade areas, and race into new markets.
Southeastern Grocers
On February 22, Southeastern Grocers confirmed plans to close 22 locations across its footprint in South Carolina, North Carolina, Georgia, and Florida. The Company will close stores with the Bi-Lo, Harvey’s, and Winn Dixie banners. The map below highlights the 22 closures. Click here to request the list of closing locations.
Supervalu
The Federal Trade Commission has approved an application by Supervalu to resell Shop 'n Save supermarkets in Berryville, VA and Martinsburg, WV back to Ahold Delhaize. Supervalu acquired the stores, which the FTC required to be divested as part of the $28.00 billion merger between Ahold and Delhaize Group, in October 2016. The FTC also approved the acquisition by Ahold Delhaize’s Giant Food for three more stores located in Smithsburg, MD, Greencastle, PA and Hedgesville, WV. All five of the stores will close on March 27 to undergo remodeling and are slated to reopen on April 5 as Martin’s Food Markets.
Sprouts Farmers Markets
Sprouts Farmers Market reported fourth quarter sales growth of 11% to $1.27 billion, driven by comp growth of 2.3% and strong performance in new stores opened. Operating income was $28.8 million, down from $37.1 million last year. For fiscal 2018, sales increased 12% to $5.21 billion, comps rose 2.1%, and net income was about the same as last year at $158.5 million.
The Company opened two new stores during the quarter, one each in Florida and Nevada; it opened 30 new stores and closed two during fiscal 2018, bringing its total store count to 313 in 19 states.
Looking ahead at fiscal 2019, Sprouts expects sales growth of 9% – 10.5%, comp growth of 1.5% – 3% and EPS of $1.16 – $1.24. It plans to spend $170.0 million – $175.0 million in capex, and will open about 28 new stores.
In other news, Sprouts opened its first Southwest Florida location last week in North Naples. The store stands at 30,000 square feet. Naples is Sprouts’ eighth location to open in the state, which it entered two years ago. The Company will also open stores in Clearwater and Wellington, FL in the first quarter of 2019.
Albertsons
In January 2019, we reported that Albertsons was partnering with Microsoft’s Azure, as its preferred public cloud. Last week, Albertsons announced it is partnering with Microsoft to implement a “frictionless” shopping experience that will bring Microsoft Azure and Microsoft 365 to its stores. Albertsons’ EVP and CIO Anuj Dhanda stat that this will “transform the customer experience in stores and digitally,” using “cognitive technologies, artificial intelligence and data science applied at scale.” The goal, according to Microsoft, is to “eliminate the friction customers experience at the grocery store,” by making it easier to find items and reduce wait times, while also helping stores track inventory and anticipate when they might need additional stock. Microsoft has made several inroads into the retail marketplace in the last year. Last July, it teamed up with Walmart for a five-year deal to bring on Microsoft Azure and Microsoft 365, while in January, it formed a partnership with Kroger to build a couple of high-tech grocery stores in Ohio and Washington that use digital signs and apps to help customers find items quickly.
In other news, Albertsons’ Safeway division announced the opening of five new Akos Med Clinics in stores in the Phoenix, AZ, market, which doubles the number of in-store Akos Clinics operating in the area.The Company says Akos offers “a completely automated health encounter using Artificial Intelligence and Augmented Reality.” Another two clinics are scheduled to open in the next month, one in Arizona and one in Boise, ID.
Alimentation Couche-Tard
According to published reports, Alimentation Couche-Tard announced last week it has entered into a multi-year agreement with Canopy Growth Corp. to launch a premium cannabis retail brand in London, Ontario. Currently, the only place to buy legal recreational marijuana in Ontario is through a government-run online outlet, the Ontario Cannabis Store. However, private brick-and-mortar shops are set to open April 1. Legal marijuana has the potential to open up new opportunities for convenience stores. According to Scott Sinder, NACS' general counsel, the marijuana business is booming, with Bloomberg estimating revenue hitting $50.00 billion by 2026.
Wendy's
Wendy’s reported fourth quarter revenue growth of 28.6% to $397.8 million, impacted by an increase in sales at Company-operated restaurants, driven by an increase in the number of restaurants in operation and positive same-restaurant sales. Revenues also benefited from an increase in franchise royalty revenue and fees which was primarily driven by new restaurant development and lower franchise incentives. System-wide sales increased 1.4% in North America, 12.1% internationally, and 1.9% globally. North America same-restaurant sales growth was 0.2%. Net income was $18.8 million, down from $159.3 million last year, primarily from a higher tax rate in 2018. For the full year, revenues increased 30% to $1.59 billion, North America comps increased 0.9% and net income was $460.1 million, up from $194.0 million in fiscal 2017.
During fiscal 2018, the Company had 48 net new openings in North America, 29 internationally and 48 globally.
Looking ahead at fiscal 2019, Wendy’s expects global system-wide sales growth of 3% – 4%, adjusted EBITDA growth of 2.5% – 4.5%.
Dine Brands Global
Dine Brands Global reported fourth quarter revenue growth of 21.2% to $214.2 million. Applebee's same-store sales rose 3.5%, while IHOP same-store sales rose 3%. Net income fell to $27.0 million, from $69.9 million last year, which included a benefit related to tax reform.
"Dine Brand's strong performance in the fourth quarter and throughout 2018 is the result of a clear strategic vision and unwavering commitment to sustainable growth," CEO Steve Joyce said in a statement. "Both Applebee's and IHOP have outperformed their respective categories by delivering on comprehensive efforts to drive their businesses and delight guests."
Dine Brands boosted its quarterly dividend by 10% to $0.69 per share, payable on April 5 to shareholders of record as of March 20. The Company's board also authorized a new $20.00 million share repurchase authorization to replace the existing buyback program.
Looking ahead at fiscal 2019, the Company expects same-store sales growth of 2% to 4% at both Applebee's and IHOP. It expects 20 – 30 net closures of Applebee's franchises during the year, while IHOP franchisees and area licensees are expected to add 35 – 55 new restaurants globally. Adjusted EBITDA is expected to be $268.0 million – $277.0 million, with adjusted EPS of $6.90 – $7.20.
Target
Target is inviting retailers (national and specialty brands) to sell on its website. It says it's planning to partner with companies in certain categories, like sporting goods and toys, where it's seeing high shopper demand. It also wants to add more products via third-party sellers in home goods, electronics, musical instruments and outdoor gear. This is different from Walmart and Amazon’s approach, which both make it rather easy to sell on their sites. Brands fill out an application requesting approval to sell there.
Separately, next month, Target will launch three brands to sell women’s bras, underwear and pajamas that it expects will hit more than $1.00 billion in sales in a year. Some of the sales will come from eliminating Gilligan & O’Malley, its existing brand for undergarments and sleepwear. Target said all the new bras will cost less than $22 and include plus sizes.
Walmart
Walmart acquired Aspectiva, an Israeli-based product review insight start-up company, for an undisclosed sum. As part of the acquisition, Aspectiva will be joining Walmart's Store N° 8, the e-commerce incubation arm it launched in 2017. Aspectiva utilizes artificial intelligence and natural language processing technology to analyze large volumes of consumer opinions and turn data into valuable insights and informed recommendations for purchasers. The Aspectiva team joined Store N° 8 on February 25 and will continue to operate from Aspectiva's offices in Tel Aviv.
Walmart Canada is partnering with Freshii Inc. to sell its prepared food offerings in store locations in Ontario. It is Freshii’s first partnership with a major grocery retailer. Freshii’s products will be in 100 Walmart Canada stores by the end of April as well as online.
Ingles Markets Inc. - Strategic Sales Insights
Hudson's Bay Company
On February 21, Hudson’s Bay Company announced: (i) it will close its Home Outfitters business in Canada (about 38 stores), and (ii) it is reviewing the 133 stores in its Saks OFF 5th division and could close as many as 20 of those stores in the U.S. Commenting on the developments, management said, “These actions are part of the Company’s strategic plan to reduce costs, simplify the business and improve overall profitability.” The Company said most markets served by Home Outfitters also have a Hudson’s Bay store. The last Home Outfitters stores are expected to close this year, and once completed, the closures are expected to be slightly favorable to adjusted EBITDA. The Home Outfitters unit sells housewares, bedding, towels, and other household items. Home Outfitters, OFF 5th, and Lord & Taylor have been underperforming and are significant contributors to the Company’s cash burn. Liquidity is adequate, and the Company recently closed on the sale of its Lord & Taylor flagship store, which generated proceeds of about $850.0 million.
Neighborhood Goods
Dallas, TX-based department store startup Neighborhood Goods announced plans to open its second location later this year, in New York City. The Company made its retail debut in November with a 14,000 square-foot store in Plano, TX. The store sells a variety of brands, the majority of which are digitally native and new to brick-and-mortar, along with several of the Company’s own retail concepts. The Company has received $14.5 million in funding from a variety of investors. The most recent $8.8 million in funding was led by previous investor Global Founders Capital, with participation from prior lead investor Forerunner Ventures. Others in the round are NextGen Venture Partners, Revolution’s Rise of the Rest Seed Fund, Group up Ventures, Capital Factory and Michael Dubin, CEO of Dollar Shave Club.
Jack in the Box
Jack in the Box reported first quarter sales fell 1.2% to $290.8 million, reflecting the sale of Qdoba Restaurant Corporation in March 2018. Company-owned comps increased 0.5%, franchise comps fell 0.1% and system-wide comps fell 0.1%. Operating income was $31.1 million, compared to $12.9 million last year.
For fiscal 2019, the Company expects same-store sales of flat to 2%, commodity cost inflation of 3%, adjusted EBITDA of $260.0 million – $270.0 million, and capex of $30.0 million – $35.0 million. It expects to open 25 – 35 new restaurants, the majority of which will be franchise locations.
During a call with analysts, Jack in the Box, which is exploring a sale amid criticism from its franchisees, said it has eliminated several redundant menu items at 150 test stores, which has resulted in fewer mistakes, increased speed of service, and a reduction in food waste. CEO Lenny Comma also said that it will invest in its drive-thrus, which account for 70% of sales. Changes include adding digital menu boards, placing canopies over menu and order windows, enlarging the order window for better customer interaction, and improved landscaping.
AutoZone
AutoZone reported second quarter net sales of $2.45 billion, an increase of 1.6%, while domestic same store sales rose 2.6%. Quarterly net income increased 1.8% to $294.6 million. Operating profit nearly doubled, benefitting from Tax Reform in both years from a lower effective tax rate, and last year also benefited from the revaluation of deferred taxes, offset by last year’s after-tax impact from impairment charges related to the sale of two businesses. At the end of the quarter, the Company had $635.0 million remaining under its current share repurchase authorization. Chairman, President and CEO Bill Rhodes commented, “Every year, our second quarter’s financial results are challenging as it is our seasonally lowest sales quarter and weather impacts can drive significant variability in sales. Today, we are pleased to report solid performance in DIY while our Commercial business growth rate accelerated for the fourth consecutive quarter. Our industry fundamentals remain strong, and we continue to be excited about the initiatives we have underway to further enhance our inventory availability, to continue to accelerate Commercial and to meet our customers how, when and where they want to be met with our omni-channel efforts. As we continue to invest in our business, we remain committed to our disciplined approach of increasing operating earnings and cash flow, and utilizing our balance sheet and capital effectively.” During the quarter, AutoZone opened 20 new stores in the U.S., one store in Mexico and two stores in Brazil. As of February 9, the Company had 5,651 stores across the U.S., D.C. and Puerto Rico, 568 stores in Mexico, and 22 stores in Brazil for a total count of 6,241.
Dillard's
Dillard’s reported fourth quarter sales decreased 2.4% to $2.01 billion. Total merchandise sales increased 1%, and comps were up 2%. Sales trends were strongest in home and furniture followed by cosmetics and men’s clothing and accessories. Gross margin from retail operations declined 69 basis points to 30.3%, primarily due to increased markdowns. Income decreased 46% to $85.1 million, as the Company recorded a tax benefit of $77.4 million in the prior-year period. During the quarter, the Company closed its 115,000 square-foot West Town Center clearance center in Cincinnati, OH. It also announced the upcoming closure of its 186,000 square-foot Southern Park Mall full-line location in Boardman, OH. That store is expected to close during the first quarter. As of February 2, the Company operated 265 Dillard’s locations and 26 clearance centers across 29 states.
Carter's
Carter’s reported fourth quarter sales increased 5.7% to $1.09 billion, primarily driven by a 7.1% increase in retail sales and a 6.5% increase in wholesale sales. Retail comps rose 5.7%; the Company opened 19 new stores during the quarter and closed five underperforming locations. The wholesale segment sales increase was partially offset by the loss of sales to Toys “R” US and Bon-Ton. The two chains had contributed $32.0 million in sales during the fourth quarter of fiscal 2017. International segment sales decreased 2.4% to $128.6 million, primarily driven by lower demand in China and unfavorable movements in foreign currency exchange rates, partially offset by increased demand in Mexico. Adjusted EBITDA rose 1.7% to $193.1 million.
Vitamin Shoppe
Vitamin Shoppe announced fourth quarter net sales dropped 5.1% to $248.5 million. Total comparable sales were down 4.7% in the quarter, comprised of a 5.4% drop for comparable store sales and a 0.1% decrease for comparable digital sales. Quarterly operating loss was $5.4 million, compared to a loss of $7.2 million in the same period of the prior year. The Company closed six stores in the quarter and did not open any new ones. Fiscal 2018 net sales decreased 2.8% to $1.11 billion, with total comparable sales down 2.8%. Commenting on the results, CEO Sharon Leite stated, “We are encouraged by our performance year over year as we continue to accelerate our evolution to an even more customer-centric health, wellness and fitness retailer. Full year comparable sales performance has improved relative to the prior year and importantly we are still seeing margin improvement. Lastly, we ended the year with a healthy balance sheet and solid free cash flow after re-purchasing $83.3 million face value of our convertible notes in 2018.”
Looking ahead to fiscal 2019, the Company expects to report comparable sales of negative low single digits to flat, adjusted EBITDA of $62.0 million to $65.0 million, capital expenditures of approximately $33.0 million (which includes the opening of roughly 10 new stores), and the closure of approximately 60 to 80 stores over next three years.
Store Activity
Publix
Publix has selected three new cities to expand its GreenWise Market banner, including Odess and Nocatee (Ponde Vedra Beach), FL, and Lexington, SC. In March 2017, the Company announced plans to “reignite” its GreenWise concept, a 25,000 square foot store for organic specialty store. The Company’s first “second-phase” GreenWise Market opened in Tallahassee, FL in October 2018. The other announced locations are Mount Pleasant, SC; Lakeland, FL; Boca Raton, FL; Marietta, GA; Mountain Brook, AL; and Ft. Lauderdale, FL - see below for Future Store Openings Map. The Mount Pleasant and Mountain Brook stores are expected to open this summer, and the Lakeland and Boca Raton stores are expected to open later in 2019. The Company continues to look for additional GreenWise Market locations throughout its operating area. Click here to request a list of future Publix locations.
Bi-Mart
Last week, Bi-Mart closed four of its pharmacies located in Washington and Oregon due to competitive pressure. Pharmacy files were transferred to nearby chains and the rest of the store will remain open and operational for the foreseeable future. Bi-Mart has 79 locations in the Northwest.
Big Lots
Big Lots will open a new, 36,200 square-foot store in Summerville, SC, in a former Bi-Lo. It will be replacing a smaller 28,100 square foot existing store nearby, right next to an Aldi. The expanded store is expected to allow more room for home furnishings. An opening date has not been set but renovation work is expected to be completed by mid-March.
Hy-Vee
Hy-Vee has acquired Weber & Judd Pharmacies, a 10-store independent drug chain in Minnesota. Financial terms were not disclosed. Plans call for all of the sites to close on April 12 and then reopen under the Hy-Vee name on April 15. The one Weber & Judd pharmacy located within a Rochester Hy-Vee supermarket will be rebranded as a Hy-Vee pharmacy, while the other nine will be converted to Hy-Vee HealthMarket Rx locations. The Weber & Judd transaction marks Hy-Vee’s second pharmacy acquisition this month, following its purchase of the assets for six Shopko pharmacies located in Iowa (4), Minnesota (1) and Nebraska (1). It also acquired prescription files from 22 Shopko pharmacies in December.
