July 3, 2018
On June 28, Camping World announced plans to expand the number of its RV sales locations by 40 units (more than a 30% increase) by spring 2019. This will be accomplished through the launch of additional Gander RV Sales units, new store openings and continued acquisitions. Camping World currently owns and operates 133 RV dealerships nationwide, specializing in RV sales, service, and RV after-market accessories. In May 2017, Camping World was the successful bidder for certain assets of Gander Mountain. Following the acquisition, Camping World negotiated leases for a number of the old Gander Mountain locations in key RV markets where Camping World is underpenetrated. Since the beginning of this year, Camping World has opened 53 stores rebranded as Gander Outdoors. The high costs associated with launching the Gander Outdoors and Gander RV Sales units will likely cause the Company to operate at a loss until the new business matures and a sufficient amount of sales are recognized. Additionally, Camping World’s lack of experience in this sector may be a hurdle in the expansion process. We note that one of the strategies behind the Gander acquisitions was to acquire real estate as an inexpensive entry point to expand the RV business.
On June 26, Gander Outdoors opened a 31,000 square-foot store in Cedar Rapids, IA. This is the only planned location for the state.
Publix has entered into an agreement to purchase three Florida stores from Safeway, a banner of Albertsons. The stores are located in Altamonte Springs, Largo and Oakland Park, and are Albertsons’ last remaining stores in Florida since selling 49 stores to Publix in September 2008. Publix plans for the three locations to continue operating as Safeway stores until early September. However, their pharmacies will close prior to the main store closings. All three locations are expected to have grand opening dates in the fourth quarter of this year.
Last week, H.E. Butt opened its first multi-level store in Bellaire, TX, replacing an original H.E. Butt Pantry. The 78,000 square-foot store more than doubles the size of the original location. Following the grand opening, H. E. Butt will introduce The Roastery, a Four J Foods coffee shop and eatery located on the second floor, with indoor and outdoor seating.
Whole Foods opened a new store in Uptown Charlotte, NC on June 13. The 36,000 square-foot store includes an expanded prepared foods section, wine and beer, and an in-house restaurant called Fuel.
In other Company news, Whole Foods signed a lease for a 48,000 square-foot store in Tampa, FL, which will be a relocation of another store about a mile away. The 32,000 square-foot store will be the Company’s largest in the Tampa metro area. The new store is projected to open in fall 2020.
Ahold Delhaize’s Giant Food will invest $21.0 million to open a new store in Olney, MD in spring 2019. The 41,000 square-foot store will feature a full-service pharmacy and self-checkout. Additional store amenities include a florist, a sushi bar, an expanded natural and organic department, and expanded prepared food offerings, as well as a PNC bank branch and a Starbucks.
Meanwhile, the Company opened its 65th Beer & Wine Eatery in a store in Camp Hill, PA.
On June 28, Meijer opened a 155,000 square-foot supercenter in Warren, MI, its second location in the city. The new store is also launching Meijer Home Delivery throughout Warren, Eastpointe, Harper Woods and Roseville. The service is now offered from all 44 Meijer locations in Southeast Michigan. It is one of six new Meijer supercenters and 20 remodel projects in Indiana, Illinois, Michigan and Ohio this year.
Kroger is partnering with Nuro, a maker of fully unmanned vehicles, to pilot on-road, autonomous delivery vehicles. Through this partnership, customers can place same-day delivery orders through Kroger’s ClickList ordering system and Nuro’s app. During the test, orders will be delivered by Nuro’s fleet of autonomous vehicles. This marks the first application and deployment of Nuro’s hardware and software, with testing expected to begin this fall.
Chipotle Mexican Grill
Chipotle Mexican Grill announced plans to close between 55 and 65 locations, including five Pizzeria Locale restaurants, with half slated to close in the next month and the remainder expected to close over the next several quarters. The Company also detailed its previously announced headquarters relocation. The Denver, CO headquarters and an office in New York, NY will be closed, with certain support functions consolidated into an existing office in Columbus OH. The new headquarters will be located in Newport Beach, CA and will house the Company’s business development, marketing, communications, finance, supply chain and other corporate functions.
Last week, Sears informed employees at another 10 of its locations that it would be ceasing operations in late September. Liquidations at these locations are expected to begin July 13. The stores are located in Montana, California (2), Florida, Michigan, New York, Oklahoma, Virginia (2) and Wisconsin. In late May, Sears announced it would slash another 72 unprofitable stores and, not long after, it disclosed it would cease operations at additional five stores.
Toys "R" Us, DIP
On June 27, the Court approved bidding procedures for the sale of 123 properties owned by Toys “R” Us, DIP’s Propco II unit. Initial offers are due by July 16. The procedures specify that if the sum of all bids is less than $375.0 million, the auction will be cancelled, and the lenders will acquire the properties for $480.0 million, as part of a credit bid. Click here to request a list of the properties. Documents filed in the case state that A&G Realty Partners, LLC is tasked with distributing the bidding procedures and other solicitation material to any potential interested bidders.
Highfields Capital Management, an investment management firm that holds a 4.4% stake in Rite Aid, said June 27 that it intends to vote against Rite Aid’s proposed merger with Albertsons as presently constituted. Highfields stated that based on the firm’s analysis, the current terms of the proposed transaction do not offer compelling value and is in the best interests of Albertsons and Rite Aid management but not Rite Aid shareholders. A vote on the merger is scheduled for August 9.
In response to some investors who have complained the Albertsons acquisition price is too low, Rite Aid management issued a letter to shareholders last week, which included quotes from analysts and media reports supporting the deal. During a conference call last week following the release of its first quarter earnings, Rite Aid CEO John Standley said the retail pharmacy segment is improving, and the merger with Albertsons will “create a truly differentiated leader in food, health and wellness. This combination will enhance our scale and density to better compete in existing markets, give us access to new markets, significantly improve our omni-channel capabilities and create the opportunity to achieve substantial cost synergies and revenue growth, all of which will strengthen our financial profile and position us to deliver compelling long-term value for customers and shareholders.”
During the quarter, Rite Aid sold the last of 1,932 stores to Walgreens Boots Alliance. Adjusted EBITDA from continuing operations was $147.3 million, compared to last year’s pro-forma adjusted EBITDA of $160.0 million, pulled down by a $14.7 million decline in Pharmacy Services segment (EnvisionRx) EBITDA; pro-forma adjusted EBITDA for retail pharmacy increased $2.1 million.
Shoppers Drug Mart
Shoppers Drug Mart opened a new store in Toronto, Canada. Features include a beautyBOUTIQUE, enhanced convenience food offering, a pharmacy and a full-service Canada Post office.
On June 28, Amazon entered into an agreement to acquire PillPack, an online pharmacy that pre-sorts patients’ medications into personalized dose packets that are delivered directly to their door. PillPack currently has pharmacy licenses in all 50 states but no international presence, with sales of just over $100.0 million in 2017. Terms of the deal were not disclosed. The deal marks Amazon’s entry into the retail drug space, as it would now compete for market share with Walgreens and CVS Health. Shares of those two companies fell 9.9% to $59.70 and 6.1% to $65.78, respectively on Thursday. However, we estimate the acquisition will have a little immediate impact on the major chains. The insured pharmacy business is very complex, while the more immediate potential for Amazon is in the much smaller uninsured/cash market.
In other news, Amazon announced a new service designed to help individuals set up their own delivery businesses that would, in turn, deliver packages for Amazon. “Amazon will take an active role in helping interested entrepreneurs start, set up and manage their own delivery business. Successful owners can earn as much as $300,000 in annual profit, operating a fleet of up to 40 delivery vehicles. Individual owners can build their business knowing they will have delivery volume from Amazon, access to the Company’s sophisticated delivery technology, hands-on training, and discounts on a suite of assets and services, including vehicle leases and comprehensive insurance.”
Effective July 1, Amazon now restricts storage space for sellers that keep their inventory in Amazon warehouses for too long. The restrictions are based on a new measurement system called Inventory Performance Index (IPI), which Amazon launched late last year. Those with a score below 350 won’t be able to send more products into Amazon’s warehouses and will incur a monthly “overage fee” on the inventory that exceeds their storage limits. Sellers above 350 won’t have any restrictions on storage space. Scores range from 0 to 1,000. The goal is to force sellers to better manage their inventory and remove products that aren’t selling. Until now, sellers could rent unlimited storage regardless of how effectively they managed their inventory. In the initial stages of the new program, only a small number of sellers will be affected by the storage limit.
Amazon’s annual shopping event, Prime Day, will begin on July 16, and run through July 17. Prime Day has been extended to 36 hours this year from 30 hours last year, and will include select deals at Whole Foods Market. Amazon said Prime Day 2017 was the biggest in the company’s history, up 60% from the year before.
On June 29, Burlington Stores amended its credit agreement with Bank of America as administrative agent, dated September 2011, to extend the maturity date from August 13, 2019 to June 29, 2023. The Company also made various adjustments to gain additional flexibility to make investments. Burlington plans to invest $250.0 million in capital expenditures during fiscal 2018 to open 60 new stores, remodel 34 existing stores, complete supply chain improvements and renovate its headquarters. It also plans to close or relocate 20 to 25 stores during the year. During the first quarter ended May 5, 24 new stores were opened and one underperforming store was closed. As of the end of the first quarter, the Company had $533.2 million available under the $600.0 million facility.
J.C. Penney announced plans to hire 18,000 seasonal associates at its 872 stores across the country for the back-to-school season. Positions include cashiers, replenishment specialists, Sephora beauty consultants, and experienced stylists for its salons. Kohl’s Corporation also began hiring for the back-to-school season, and for the fall and holiday seasons. Positions are now available at more than 300 of the Company’s 1,110 stores. Additional hiring is slated to begin in August at all Kohl’s stores, its nine distribution and e-commerce fulfillment centers, and credit operations nationwide. Hiring will continue through the holiday season.
On June 22, REI opened a 27,000 square-foot store in Cleveland, OH, in the suburb of Beachwood. This brings the Company’s store count to 152 locations in 35 states and Washington D.C.
AcuSport Corporation, DIP
The Bankruptcy Court entered an order approving the sale of certain assets of AcuSport Corporation, DIP to Ellett Brothers, LLC. The transaction closed June 29. Ellett acquired AcuSport’s distribution center and related systems in Bellefontaine, OH and assumed leases for the satellite distribution center in Salt Lake City, UT and its Waite Park, MN sales office. Other assets acquired included inventory, real estate, and equipment. The originally negotiated purchase price was $7.75 million, which was subsequently modified downward by $400,000. Ellett Brothers has struggled operationally, as sales of guns and ammo have come under pressure in recent years. This has been highlighted by significant write-downs taken by Prospect Capital Corporation, one of the lenders participating in the Company’s 12.75% Secured Second Lien Term Loan due November 16, 2019.
The Home Depot
The Home Depot is installing lockers to securely store customers’ online orders until they are ready to pick them up. About 45% of the Company’s online orders are picked up at stores, so offering the lockers will simplify the process and provide the convenience of self service. Lockers are one way that chains like Home Depot are using their network of stores for their online sales. The lockers are similar to the ones that Amazon uses, and Walmart is currently installing “pickup towers” from which customers can retrieve online orders delivered via conveyor belt. Home Depot plans to have lockers in all stores by the end of next year. Home Depot hasn’t been as vulnerable to competition from Amazon as other retailers since many of its products include bulky, low-tech items. However, installing the lockers is an aggressive move to address the threat posed by Amazon.
Ace Hardware Corp.
Ace Hardware Corp. announced plans to add more than 300,000 square feet to its existing 534,000 square-foot distribution facility in West Jefferson, OH. This facility was originally opened in 2014 and supplied locations throughout Ohio, parts of Michigan, eastern Indiana, Kentucky, West Virginia and western Pennsylvania. Construction for the expansion is expected to begin in 3Q18 and be completed in 1Q19. The Company also recently invested in a new 1.1 million-square-foot retail support center in Fredericksburg, PA. This facility serves Ace Hardware stores in Pennsylvania, New York, Virginia, New Jersey and Washington, D.C.
Le Chateau’s first quarter sales declined 7.4% to C$41.1 million, driven by 29 net store closures since the first quarter of last year and reflecting a 0.3% drop in comps. Regular store comps declined 0.7%; however, outlet comps rose 1.9%, and e-commerce sales surged 32.7%. Gross margin improved 190 basis points to 63%, due to lower occupancy costs that more than offset the negative impact of merchandise liquidations associated with store closures. Lower store operating expenses resulted in a 170 basis point improvement in SG&A margin and contributed to narrowing the EBITDA loss to C$6.2 million, following last year’s C$8.3 million loss. During the first quarter, the Company closed nine underperforming stores and remodeled one location. As of April 28, the Company operated 151 stores (including 31 fashion outlet stores), down from 180 stores (including 50 fashion outlet stores) at the same time last year. The Company plans to close an additional 11 stores in the remainder of 2018.
Irish budget fashion retailer Primark will open a 57,900 square-foot location in Brooklyn, NY on July 7. This will be the chain’s ninth U.S. location, all in the Northeast. The other locations are in Boston (3), Pennsylvania (2), New Jersey, Connecticut and Staten Island, NY. The Brooklyn store will be about 30% larger than the typical Primark store, which averages about 40,700 square feet. Next year it plans to open its 10th location in Sunrise, FL, which will be its first foray into the Southeast. It also expects to open its second store in New Jersey, though the location is still to be determined. Primark, which operates 352 stores throughout Europe, made its U.S. debut in 2015, in Boston, MA. Primark is a retail subsidiary of Associated British Foods.
One year after Alimentation Couche-Tard closed on its acquisition of CST Brands Inc., it is rebranding CST’s 400 Corner Store locations in Texas to the global Circle K banner. The rebranding efforts in Texas will take place over the next several months into 2019, with the first to be located in the greater San Antonio market. More than 2,500 locations in Europe and more than 1,450 locations in North America display the new Circle K brand. Additional locations in the U.S., Canada and Ireland will transition by the end of the year.