Rite Aid/Walgreens Boots Alliance
In a letter to associates last week, Rite Aid’s Chairman and CEO John Standley, along with Ken Martindale, CEO of Rite Aid Stores and President of Rite Aid Corporation, informed Company rank and file that a decision regarding Walgreens Boots Alliance’s proposed acquisition of Rite Aid is expected soon. Mr. Standley stated, “We remain actively engaged in discussions with the FTC to attempt to gain regulatory approval, and there can be no guarantee that the merger will be approved. However, we expect a decision sometime soon.” While Mr. Standley acknowledged that the delay in merger approval has negatively impacted Rite Aid results, he said the Company is working toward improving performance.
Unconfirmed reports indicated the FTC was prepared to block the merger, pushing Rite Aid’s shares down 15%, temporarily slipping under the $3.00 range. Rite Aid’s stock closed at $3.02 yesterday.
Fred's Pharmacy
Despite the reports, Fred’s Pharmacy has secured additional financing to meet its obligation to acquire as many as 1,200 Rite Aid stores that are expected to be divested as part of that merger. Fred’s amended the proposed Rite Aid acquisition financing agreements to expand the size of the facilities by $550.0 million and extend the commitment dates to match the July 31 expiration date of the proposed merger. The potential size of the transaction has increased by close to 40% from 865 stores to now as many as 1,200 stores. The Company amended and expanded the ABL, increasing the total capacity from $1.20 billion to $1.65 billion; it permits the Company to further extend the commitment to October 31. The agreement also allows for a senior asset-based term loan to be secured by certain intellectual property, and permits certain real estate financings and sale-leaseback transactions. The Company also amended its term loan facility, increasing the financing from $450.0 million to $550.0 million. The commitment date was extended to July 31, with the ability to extend to October 31. This agreement also permits certain real estate financings and sale leaseback transactions.
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ALDI
Yesterday, ALDI announced a new $3.40 billion capital investment plan to expand to 2,500 stores by the end of 2022. This plan would call for approximately 900 new store openings, as the Company currently operates just over 1,600 locations. ALDI’s fiscal 2016 sales were an estimated $12.80 billion, and these new locations could push sales to around $20.00 billion, which could make it the fifth largest pure grocery chain in the U.S. behind Kroger, Ahold Delhaize, Albertsons and Publix. In February, the Company announced a separate $1.60 billion plan to remodel and expand 1,300 existing locations through 2020. The remodels include various improvements, such as expanded fresh and organic offerings and a more modernized store design. Both the store remodeling plan and yesterday’s capital investment plan could be seen as direct responses to Lidl’s impending entry into the U.S. The Company’s long-time competitor in Europe will open its first 20 U.S. locations on June 15, in North Carolina, South Carolina and Virginia, and plans to have 100 stores opened by the summer of 2018.
The Company also announced plans to open a 19,000 square-foot store in Christiansburg, VA. The store is expected to open in the first half of 2018 and will be right next to a Lidl (a very similar shopping experience to ALDI), as well as a Walmart across the street and nearby Food Lion and Kroger locations. It also said it plans to spend $8.0 million to remodel seven stores in the Peoria and Bloomington, IL markets by 2018.
With roughly 4,000 major retail chain store closings last year and up to another 10,000 expected in 2017, brick-and-mortar retailers are scrambling to remain relevant. Our 20-page Store Activity and Retailer Health Analysis report includes a list of retailers adding and closing stores in 2017 and provides insight into companies expanding into new markets. Click here for more information.
Ascena Retail Group
Ascena Retail Group reported third quarter sales decreased 6.2% to $1.57 billion, and comps were down 8%, with all business segments reporting negative comps. The Company recorded a net loss of $1.30 billion, compared to a profit of $15.0 million. On its quarterly conference call management commented that it expects store traffic declines and the highly promotional environment to continue for the foreseeable future.
As a result of changes in the retail industry and what it sees as fundamental changes in consumer behavior, the Company is accelerating its store-closing program. Management estimates it could potentially close 650 locations, or about 25% of its store base by July 2019. It expects to close at least 250 stores and will seek rent concessions from landlords on the other 400 locations. If the Company can’t achieve an acceptable outcome, those stores will also be shuttered. The Company closed 36 stores in the quarter and will close another 50 locations during the fourth quarter.
Kroger
Kroger will open a new 53,000 square-foot Harris Teeter store in Charlotte, NC on June 20. Among other features typical of a Harris Teeter, the new South Boulevard location will have a Starbucks, a bar serving wine and beer, a pharmacy and a sit-down eating area. The store is in the same neighborhood where the Company opened a location in 1952 that later closed in 1988. Publix opened a store just half a mile away two years ago.
The Company also announced plans for a new store in downtown Cincinnati, OH by summer 2019. The 45,000 square-foot store will replace its nearby smaller (only 11,000 square feet) unprofitable Vine Street store once it opens.
Village Super Market
Village Super Market reported third quarter sales growth of 1.1% to $392.0 million. Comps were also up 1.1%, due primarily to three competitor store closings, sales growth in recently remodeled and expanded stores in Stirling and Chester, and lower sales in 3Q16 due to the impact of Winter Storm Jonas. These increases were partially offset by four competitor store openings and deflation, particularly in the meat, produce and dairy departments. The Company expects fiscal 2017 comps to range from a 1% decrease to flat. Net income rose 2.3% to $6.0 million, driven by higher gross profit percentage, and lower operational and administrative expenses.
Vail Resorts
Vail Resorts closed on its acquisition of Stowe Mountain Resort in Vermont from Mt. Mansfield Company, Inc., a wholly owned subsidiary of American International Group, Inc. The final purchase price was $41.0 million. The Company said that Stowe Mountain Resort is expected to generate incremental annual EBITDA in excess of $5.0 million during its first 12 months of operation following the acquisition. As part of the deal, Vail Resorts acquired all of the assets related to the mountain operations of the resort, including food and beverage, retail and rental, lift ticket offices, and ski and snowboard school facilities.
McKesson Canada
Rx Drug Mart (RXDM) received approval last week from Canada’s Competition Bureau for its acquisition of 27 Rexall Pharmacy locations being divested by McKesson Canada. The retail pharmacies are in Alberta, British Columbia, the Northwest Territories, Ontario and Saskatchewan. Ownership will be transferred from McKesson to RXDM on a rolling basis between mid-June and August 31. The Competition Bureau will also be reviewing McKesson Canada’s planned acquisition of Uniprix, announced in April.
Natural Grocers
Natural Grocers will open a new 15,000 square-foot store in Iowa City, IA on June 21. It will be the Company’s fifth in the state. Natural Grocers currently operates 138 stores in 19 states.
7-Eleven
7-Eleven will open its first store in Vietnam on June 15. Initially, the store will be operated by Seven System Viet Nam JSC (SSV), but is expected to be franchised in the future. The Company said that this is the first of many 7- Eleven stores planned for the country.
Conn's
Conn’s reported first quarter sales fell 8.6% to $355.8 million due to a 15.2% decrease in comps, partially offset by seven new store openings since last year. Comps fell in all categories, with deceases in appliances, electronics, and mattresses of 11.3%, 17.6%, and 14%, respectively. Management attributed the decline in comps to tighter underwriting policies implemented to address increasing delinquencies, which accompanied the previous expansion into new territories. During fiscal 2017, the Company opened three new Conn’s HomePlus stores, two of which were opened during the first quarter in North Carolina, and one of which was opened in May in Virginia, bringing the total store count to 116. The Company does not intend to open any additional stores in fiscal year 2017. Stores in new markets are performing worse than core stores, based on comps for each group.
bebe
On June 7, bebe stores reached an agreement with substantially all of its retail store landlords to terminate its existing leases. The cost to terminate the leases is estimated at $65.0 million. The Company also signed an agreement to sell its distribution center in Benicia, CA for $22.0 million and it is actively seeking to sell its Design Center in Los Angeles, CA. bebe anticipates closing the sale of the Benicia facility in the next 60 days. To fund the cost of lease terminations, the Company has entered into a $35.0 million loan agreement with GACP Finance CO, LLC to make payments to the retail store landlords pending the closing of the building sales. Going forward, bebe anticipates having no retail operations, and its sole operations will be the collection of royalty income from its joint venture with Blue Star Alliance. In accordance with the joint venture agreement, the Company has transferred both the bebe.com website and International Wholesale agreements into the joint venture. The joint venture has executed a royalty agreement with a third party for both the website and wholesale licenses.
Papa Murphy's Holdings
Papa Murphy’s Holdings said it plans to close as many as 16 Company-owned restaurants across several markets by the end of the year. The closures follow a strategic review of its Company-owned restaurant portfolio, as it seeks to franchise more locations. The Company operated 168 of its 1,566 units as of April 3. The closures represent nearly 10% of Company operations.
The Company also announced it has partnered with Olo, a digital ordering provider, to create a platform for online and mobile ordering. The service will be operational in the first quarter of 2018. Meanwhile, Papa Murphy’s began delivery service in the Portland, OR, and Seattle, WA areas through Amazon Restaurants. The Company believes delivery service is a key element to its future.
The costs associated with the move to Olo and closures are expected to result in a one-time charge of $7.4 million and impairment charges of as much as $6.6 million but should improve EBITDA by $1.9 million.
Starbucks
Starbucks will expand its operations in Nevada’s Carson Valley as part of a $50.0 million project. The plans include the addition of 700,000 square feet to its distribution plant, which will be completed by the summer of 2018. Only the distribution portion of the 341,000 square-foot building will be enlarged, allowing Starbucks to increase capacity and streamline regional sourcing. The roasting side of the operation will be unchanged. The facility serves all of California, Nevada and Utah, as well as parts of Arizona and Asia Pacific.
Destination Maternity
Destination Maternity’s first quarter sales decreased 14.5% to $106.4 million, reflecting 19 net store closures and a comp decrease of 7.3% (on top of a 5.4% decline last year). The decrease in sales was primarily driven by the wind-down of the Kohl’s, Sears and Gordmans leased departments and by a decline in comps due to weaker foot traffic. However, management noted that sales have improved in the second quarter, as the Company’s new e-commerce platform gained more traction. Although the Company had better inventory management and cut corporate expenses, EBITDA still declined 50.2% to $6.3 million due to the deleveraging impact of lower sales base; the Company now operates in the bottom tier of our apparel sector coverage at a 4.1% TTM EBITDA margin (compared to the industry average of 9.6%). Management stated that it’s progressing with the completion of the merger with Orchestra-Prémaman and expects the transaction to close by the end of the third quarter of 2017. During the first quarter, the Company opened four stores and closed eight, ending with 511 locations.
Dunkin' Donuts
Dunkin’ Donuts signed a multi-unit store development agreement with franchisee Sandwich Group Inc. to develop nine Dunkin’ Donuts restaurants in St. Louis, MO, the first of which is expected to open in 2018. One of the locations will also include a Baskin-Robbins. There are currently 17 Dunkin’ Donuts located in the Greater St. Louis area, and the Company said it is continuing to recruit franchisees in surrounding areas, as well as in Kansas City, Joplin and Kirksville, MO, and in Des Moines, IA.
Ignite Restaurant Group, Inc., DIP
On June 5, Ignite Restaurant Group, Inc., DIP entered into an asset purchase agreement for $50.0 million with KRG Acquisitions Co, LLC, as a stalking horse purchaser. KRG is an affiliate of Kelly Investment Group. The agreement contemplates the sale of substantially all of the Debtors’ assets.
Tailored Brands
Tailored Brands’ total net sales decreased 5.5% to $782.9 million, driven by a 3.1% decrease in comps and 183 net store closures during the year. Comps by retail segment decreased 3.1% at Men’s Wearhouse, increased 3.5% at Jos. A. Bank (following a 16% decline last year), declined 7.4% at K&G, and dropped 5.3% at Moores. Going forward, management noted that it will focus more on custom fitting (Joseph Abboud, 30% of MW sales) and it expects to shrink its overall store fleet. As previously announced, the Company plans to close all 170 tuxedo shops at Macy’s in the second quarter. In addition, the Company now expects to shutter approximately 20 net stores compared to its previous outlook of net 10, with the increase due to additional Jos. A. Bank store closures.
Le Chateau
Le Chateau’s first quarter sales decreased 8.7% to $44.4 million due to 26 fewer stores in operation compared to the prior year; comps were down 1.5%, with traditional store comps up 0.7% and outlet store comps down 9.9%. The Company recorded a net loss of $12.9 million, narrowed 9.9% from last year’s loss of $14.3 million. During the first quarter, the Company renovated one existing location and closed seven underperforming stores. As of April 29, the Company operated 180 stores, including 50 fashion outlet stores. In fiscal 2017, Le Chateau plans to close 18 stores.
On June 9, the Company renewed its asset-based revolving credit facility for a three-year term ending on June 9, 2020, with a limit of $70.0 million. In addition, the Company has entered into a three-year $15.0 million term loan with a subordinate lender, with the same maturity date. Proceeds will be used to reduce the amount outstanding under the revolving credit facility.
CVS Health
CVS Pharmacy announced plans to buy Doc’s Drugs, a chain of 14 drug stores in Illinois. Financial terms were not disclosed. CVS said the Doc’s stores will be converted and re-bannered as CVS Pharmacy by late July. Doc’s full-service pharmacies provide a range of clinical services as well as home medical equipment, with showrooms in several stores.
Dollarama
Dollarama reported first quarter sales growth of 10% to $704.9 million, driven by a 4.6% comp gain and new store growth. The Company added 70 net new stores over the past year, opening 13 of those during the first quarter. Comp growth consisted of a 6.1% increase in the average transaction size, which offset a 1.4% decline in the number of transactions (mainly the result of strong year-over-year comparisons of a 2.8% increase). Net earnings rose 13.9% to $94.7 million.
On June 7, Dollarama announced the renewal and approval to purchase for cancellation up to 5.68 million shares, representing 5% of the 113.61 million shares outstanding as of June 6. Purchases may commence on June 19 and will terminate no later than June 18, 2018.
Looking ahead at fiscal 2018, the Company expects comp growth of 4% – 5%, net new store growth of 60 – 70, and capex of $90.0 million – $100.0 million.
Lewis Drug
Published reports indicate that Lewis Drug plans to open four more stores this year. According to VP Nikki Griffin, despite a challenging retail landscape, the Company is making the necessary changes to keep it competitive. For example, it is moving a store in Sioux Falls a little further north so it will be easier to access. It also continues to expand its product mix and make changes based on customer feedback. During 2016, the Company opened two locations in Clear Lake and Sioux Falls, SD. Lewis Drug currently operates 52 stores.
Sears Holdings Corporation
After closing 242 locations in 2016, last week Sears Holdings Corporation announced another 150 store closures. On June 6, the Company announced it is closing an additional 72 locations, including 16 Sears stores, 49 Kmart stores, and seven auto centers (click here for full list). Most of the stores will close in September. Earlier today, Sears provided an update on its restructuring efforts, announcing that approximately 400 fulltime positions at its corporate offices and support functions will be eliminated.
Sears filed its second lawsuit in less than a month against one of its Craftsman hand tools suppliers, Western Forge, alleging that the vendor is abruptly ending its relationship and refusing to fill purchase orders. Sears announced last Monday that it had settled its dispute with the first supplier, One World Technologies, which it sued on May 15. That lawsuit claimed that One World threatened to cancel its contract with Sears because of concerns about the retailer’s financial stability unless Sears agreed to cut back its orders. The lawsuit against Western Forge states that up until the end of April, when the agreement was set to expire, Ideal Industries (owner of Western Forge) discussed extending the deal. But “after several weeks of assurances by Ideal intended to lull Sears into the belief that Ideal would agree to extend the agreement, Ideal abruptly informed Sears that it will not agree to extend the contract beyond its term,” ending a 50-year relationship between Sears and Western Forge. Ideal, under a “transition” period in the contract, is supposed to continue to supply products for six months, through the end of October, but Sears alleges that Ideal did so for only one month. Sears wants the Court to force Ideal to continue providing the products through the end of October. The retailer says in court documents that it has been seeking a new supplier.
Sears Canada
Acknowledging a challenging environment with recurring operating losses and negative cash flows over the last five years, Sears Canada noted in its first quarter earnings release this morning that based on management’s current assessment, cash and forecasted cash flows from operations are not expected to be sufficient to meet obligations coming due over the next 12 months. The Company had expected to borrow up to an additional $175.0 million against its owned and leased real estate as part of a second tranche of its existing term loan; however, based on current negotiations, that amount was reduced to $109.0 million. That and other uncertainties as to the Company’s ability to continue to satisfy its obligations raise significant doubt as to its ability to continue as a going concern. The Company has commenced a process to address its liquidity situation and to source and structure financial solutions and strategic alternatives to continue to finance its business. Alternatives may include a financial restructuring or sale of the Company. A special committee of the board has been established, comprised of independent directors, and the Company has retained BMO Capital Markets, as a financial advisor, and Osler, Hoskin & Harcourt LLP, as a legal advisor.
Sears Canada’s first quarter sales declined 15.2% to $505.5 million primarily due to a decrease in revenues in the Company’s Direct business as a result of a planned reduction in catalogues, certain products not being available on the new website, and a decline in the number of merchandise pick-up locations to reduce costs. Comps were up 2.9%. Sears Canada continues to focus on its new format, Sears 2.0, with 10 stores planned to be opened this summer, on top of the four opened last year. Net loss of $144.4 million more than doubled from the prior year, which included a gain on sale and leaseback transactions of $40.6 million.
Big Lots
Big Lots plans to open a 37,000 square-foot store in Columbus, OH in a portion of a former Giant Eagle location. When it opens in October, it will be the Company’s first unveiling of its new “store of the future” design. Back in March, CEO and President David Campisi said Big Lots would test its “store of the future” in two markets this year. He said, “We’re looking for a fresh perspective. We want a fun, engaging shopping experience.”
99 Cents Only
Last Thursday, 99 Cents Only released 1Q18 results. Excluding some of the Company’s questionable add-backs to their adjusted EBITDA figure, we showed EBITDA falling 30 basis points during the quarter and at an unsustainable 1.1% margin for the TTM period. However, comps are improving, up 6.9% and following a 6.4% increase last quarter. The Company indicated a strong sales momentum in its fresh offering and added that it “was no longer materially impacted by the deflationary environment in milk and eggs that we experienced in fiscal 2017.” The Company also said comps at the 48 Texas stores have increased 15.5%, partially driven by anniversarying adverse weather in Texas from the same time last year. The Texas store base is one of its strategic areas of focus for 2018, as those stores “have lagged the overall chain, both in terms of same-store sales and profitability for a variety of reasons, including poor assortment and in-stock conditions.” The Company is cleaning up and decluttering the Texas stores and has created a Texas buying team. Imported merchandise will now be shipped directly into Houston, TX and go through their Katy, TX DC instead of coming from California.
With borrowings under the revolver down $6.2 million from FYE, availability jumped from $37.2 million to $50.8 million at first quarter end, partially assisted by an increase in the borrowing base related to an approximate $9.0 million increase in inventory. The decline in borrowings was facilitated by $10.8 million in sale/leaseback proceeds during the quarter. They sold and leased back two more properties subsequent to quarter end, raising another $13.3 million in cash. While the Company mentions attractive opportunities and that it is investing this cash back in the business, it is still burning through cash and has significant interest obligations; debt payment requirements over the next couple of weeks include a $13.75 million interest payment on the senior notes due this Thursday, June 15, and $8.2 million in principal and interest on the term loan coming due on June 30.
BCBG Max Azria Global Holdings
On June 9, BCBG Max Azria Global Holdings, LLC, DIP announced that it entered into an agreement to sell its core business assets to Marquee Brands LLC and Global Brands Group Holding Ltd. for total consideration of $165.0 million. Under the agreement, Marquee Brands will purchase BCBG’s intellectual property for $106.0 million in cash, and Global Brands will pay $23.0 million in cash to operate certain wholesale and e-commerce operations, and up to 22 standalone store locations. Prior to the filing, the Company operated 175 locations. Additionally, as part of the agreement, Marquee Brands will provide an estimated $36.0 million in royalty payments to Allerton Funding, LLC, a pre-bankruptcy lender. The agreement, which includes a $3.2 million breakup fee, is subject to Bankruptcy Court approval at a hearing scheduled for June 23. The transaction is expected to close on July 31.
Amazon
Published reports indicate that Amazon is expanding the loans that it has been providing to third-party sellers on its site, distributing more than $1.00 billion over the past 12 months. Between 2011 and 2015 it has loaned out a combined $1.50 billion. More than 20,000 sellers have received loans at this point, which have ranged between $1,000 and $750,000, at reported interest rates of between 6% and 14%.
Amazon plans to open its first Oregon fulfillment center in Troutdale in 2018. The 855,000 square-foot facility will ship smaller customer items such as books, electronics and toys. The Company currently operates a sortation center in Hillsboro and a Prime Now hub in Portland. Another Amazon fulfillment center will open in Thornton, CO that will also focus on smaller items. The Company already operates a fulfillment center in Aurora, CO, but the Thornton location will be the first in the state to use Amazon Robotics. In Connecticut, Amazon will build an 855,000 square-foot fulfillment center in North Haven. The Company currently has operations in Wallingford and Windsor, CT. Amazon also said it plans to invest $200.0 million in a new 800,000 square-foot facility in Utah. The hefty price tag reflects the Company’s plans to make the facility highly robotized.
Amazon recently opened its two AmazonFresh pickup locations in the Seattle area to the general public after months of beta testing with Amazon employees. The locations are in the SoDo and Ballard neighborhoods. Amazon Prime members can expect to pick up their orders in as little as 15 minutes after they are placed via AmazonFresh.
Meijer
Meijer is expanding its home-delivery grocery service in Michigan to Allen Park, Belleville, Brighton, Flat Rock, Hartland, Howell, Lincoln Park, Monroe, Oxford, Southgate, Taylor, Woodhaven and Ann Arbor (beginning June 22). Meijer started offering the service in southeast Michigan in September. It is using Shipt to offer delivery of about 55,000 items, including groceries and smaller household goods.
Meijer received approval to open a new store in Sheboygan, WI, which is slated to open by late 2019.
At Home Group
At Home Group’s first quarter sales increased 23.1% to $211.8 million, driven by the net addition of 23 stores and a comp increase of 5.8%. Seven stores were opened during the first quarter, and one store was closed that will be relocated later this year. Profit rose 37.2% to $10.0 million. The Company ended the quarter with 129 stores in 31 states, a 21.7% increase in total stores since April 2016. CFO Judd Nystrom stated, “We are very pleased with the strength of our business in the first quarter and expect to deliver another year of substantial growth.” The Company raised its fiscal 2018 sales outlook to $906.0 million – $913.0 million, up from previous guidance of $903.0 million – $910.0 million.
PriceSmart
PriceSmart reported that May sales increased 1.8% to $234.2 million, and comps rose 1.5%. For the year-to-date period, sales increased 3% to $2.20 billion, while comps increased 1.4%. Over the past year, the Company has opened one new club, bringing its store count to 39 at the end of May.
Claire's Stores
Claire’s Stores reported net sales of $299.6 million for the 2017 first quarter, flat compared to the fiscal 2016 first quarter. Net sales would have increased 2.4% excluding the impact of foreign currency exchange rate changes. Consolidated comps increased 4.4%, with North America comps increasing 0.3% and Europe comps increasing 13%. Management noted that for the fiscal 2017 second quarter-to-date period, consolidated comps have increased in the low single-digit range, with North America performing similarly to Europe. During the first quarter, the Company closed 31 stores, 12 in North America and 19 in Europe. On its quarterly conference call, management said it had no defined target for store closures in 2017 and will evaluate each store based on profitability and lease expiration. Management stressed that it remains committed to its mall-based stores.
Dollar General
Dollar General recently opened its fifth store in Prattville, AL. It also opened a new location in Saint Amant, LA over the weekend and said it is working on receiving approvals for a 7,500 square-foot store in Mishawaka, IN. Meanwhile, construction has begun on a new 7,220 square-foot Dollar General in Croghan, NY that is slated to open mid-fall.
Future Retail Store Closings
AggData monitors upcoming retail store closings throughout the day and maintains an active database of store locations and anticipated closing dates. Here is a sample of recently announced store closings.
Click here to view future retail store closings.
2017 Mergers & Acquisitions Report
After three consecutive years of increases, 2016 global merger and acquisition (M&A) activity fell to $3.840 trillion, from the 2015 record high of $4.660 trillion. Analysts are predicting 2017 will keep pace, as companies and investors remain receptive to building scale. The Merger & Acquisition Activity report includes a list of all significant M&A activity including notable asset sales within the retail / wholesale food, convenience store, foodservice, retail / wholesale drug, casual dining / restaurant, mass merchandise, electronics / office products, home improvement / building materials, sporting goods, department stores / apparel / footwear / jewelry, and e-commerce sectors. Click here for more information.
