June 19, 2018
Citing an oversaturated marketplace, last week Kroger said it plans to close its 14 stores in the Raleigh-Durham, NC by August 14.However, Kroger’s Harris Teeter subsidiary will acquire eight of the closing units and convert them to the Harris Teeter banner. According to Nielsen, as of January 2018 Kroger had six stores and a 13.5% market share in the Durham-Chapel Hill metro area, while Harris Teeter has nine stores and a 21% market share. In Raleigh, Kroger had eight stores and a 6.5% market share, while Harris Teeter had 30 stores and a 22.4% market share. Click here for geocoded list of closing NC locations.
Jerry Clontz, president of Kroger’s Mid-Atlantic Division, commented, “After a thorough evaluation of the market for a significant time period, we have decided to close our stores in the highly competitive Raleigh-Durham market. While we have had some success, we have not been able to grow our business the way we would like in this market.” This will allow Kroger to focus on its more successful banner in the area and not have to compete with itself. See below for concentration map of closing North Carolina locations.
Toys "R" Us, DIP
On June 14, Toys “R” Us, DIP provided a list of the successful bidders and backup bidders at the recent Court-supervised auction of the remaining 273 owned properties and commercial leases of Toys “R” Us-Delaware, Inc. Please click here to request the list. The Company previously auctioned 50 of the 146 leases it offered for sale, for proceeds of over $50.0 million.
Supervalu has proposed a reorganization of its corporate structure into a holding company that would separate its wholesale and retail operations. The proposal will be voted upon at the Company’s 2018 Annual Meeting of Stockholders.
Albertsons' Tom Thumb
Albertsons’ Tom Thumb chain will open its first convenience store, a 2,500 square-foot location in Dallas, TX tomorrow. It will offer six gas pumps and quick-stop basics, along with fresh items from a nearby Tom Thumb supermarket. The store is across the street from a 10-story apartment building being built, which will have a Tom Thumb supermarket on the street level. The complex will not be completed until 2019.
Sprouts Farmers Markets'
At a recent conference, Sprouts Farmers Markets’ CEO Amin Maredia said that the Company is well-positioned to extend its customer reach via online delivery. Maredia said Sprouts’ business through Instacart has been brisk since the Company launched that partnership in January. Previously, Sprouts used Prime Now for online grocery delivery. Mr. Maredia commented, “What we’re seeing generally is 70% of our sales come from within seven minutes of the physical store, and our home delivery business is the inverse. And so, we can truly extend the trade area and drive incremental sales to EBITDA, both EBITDA dollars and EBITDA margin.”
After emerging from bankruptcy on May 31, Southeastern Grocers recently announced it would undertake nearly 100 store remodels this year. Last Thursday, three remodeled BI-LO stores reopened in Greenville, Five Forks and Seneca, SC. Another two newly remodeled stores will open in Greenwood this Thursday. The Company has not divulged how substantial of an investment it is making in its remodeling process.
Amazon will add more than 1,000 new jobs in Ireland over the next two years, bringing its workforce there to more than 3,500. Amazon said the roles will include software engineers, security specialists, and big data specialists at both Amazon and Amazon Web Services. The Company announced earlier this month that it would add 2,500 jobs in Britain, boosting its presence there to nearly 28,000.
Meanwhile, Amazon plans to open a one million square-foot distribution center in Schodack, NY in the third quarter of 2019. It will be the second distribution facility in the rural town.
Walmart plans to open a new concept store from its Sam’s Club division in a 32,000 square-foot space in Lower Greenville in Dallas, TX that had previously housed a Neighborhood Market store, which closed in January 2016. The new concept has not been named yet, but it will reportedly be more technology driven, and include more fresh foods. The store will also have about 1,000 – 2,000 items versus 6,000 in a regular Sam’s Club, and will lean more on convenience items and grab-and-go meals. The new store will be member exclusive and shoppers will be able to use the Scan & Go self-checkout system.
Meanwhile, Walmart has opened its first small-format Walmart Supermarket, in Shenzhen, China, with five additional locations planned for the country by the end of the year. The 10,000 square-foot store emphasizes fresh foods, fast delivery and convenience. It carries more than 8,000 items, with product assortments tailored to the community. Ninety percent of the inventory is also available online (on the Walmart Supermarket site at JD Doajia). In addition to traditional checkout, the store offers Walmart’s Scan & Go system.
Lastly, this week Walmart opened a new 250,000 square-foot milk processing facility in Ft. Wayne, IN. The Company expects it to be at full production by late 2018. The facility will serve Indiana and several neighboring states. Walmart operates about 130 retail units and 10 distribution centers Indiana.
Since its $2.88 billion acquisition of a 46% stake in China’s top hypermarket operator Sun Art Retail Group last fall, Alibaba Group has been applying new technologies and web improvements across its RT-Mart banner “to expedite its digitization, sync its online and offline operations, improve its in-store layout and increase efficiencies in the grocer’s inventory management,” according to the Company. So far, updates have been rolled out at 100 RT-Mart stores, and the Company plans to complete the digital transformation across the rest of RT-Mart’s stores by the end of the year. The Company operates nearly 400 hypermarkets under the Auchan and RT-Mart banners in China.
Macy’s announced a partnership with b8ta (“beta”), a business that helps emerging brands build out brick-and-mortar stores. Macy’s plans to use the tech retailer’s software platform to expand The Market @ Macy’s, a pop-up shop marketplace concept currently in place in 10 Macy’s stores. As part of the deal, Macy’s has also acquired a minority equity stake in b8ta. Launched in February 2018, The Market @ Macy’s is composed of rotating shops from new brands in categories across the board. Powered by b8ta’s technology, Macy’s will test new size formats for the marketplace concept and expand the size of existing pilot locations. B8ta has nine freestanding locations; instead of earning revenue from product sales, b8ta leases space in its stores to product developers, who pay a monthly subscription fee. In April, b8ta launched an initiative to help brands open stores with minimal effort using its “retail-as-a-service” model, where b8ta handles everything from landlord negotiations to providing the technology platform.
In other news, Macy’s named Naveen Krishna as its new chief technology officer. Mr. Krishna joins Macy’s from The Home Depot, where he was VP of technology.
Acusport Corporation, DIP
Documents in the Acusport Corporation, DIP Chapter 11 case indicate that the asset purchase agreement between Ellett Brothers, LLC (the stalking horse bidder) and Acusport was modified to reduce the purchase price by $500,000. The adjustment was made due to Ellett’s need to purchase new computer equipment to operate certain assets it agreed to acquire from Acusport. The asset purchase agreement states that Ellett will acquire AcuSport's distribution center and related systems in Bellefontaine, OH; it will also assume leases for the satellite distribution center in Salt Lake City, UT and its Waite Park, MN sales office. Other assets to be acquired include inventory, real estate, and equipment. The originally negotiated purchase price was $7.75 million.
Acusport requested the Court to schedule a hearing on the proposed sale on the earliest date available, noting that a date prior to June 29, 2018 is necessary to allow it enough lead time to close the transaction and transition the majority of its remaining employees to Ellett Brothers. Documents in the case also noted that no other qualified bids for Acusport’s assets were received on or before the bid deadline.
The Michaels Companies
The Michaels Companies reported first quarter sales slipped 0.3% to $1.16 billion, due primarily to the closure of 94 full-size Aaron Brothers stores during the quarter. Comps were up 0.4% due to an increase in average ticket, partially offset by a decrease in customer transactions. Operating income fell 43.3% due to a $47.5 million one-time restructuring charge, higher distribution-related costs, and occupancy cost deleveraging, partially offset by benefits from higher merchandise margin from the Company’s ongoing sourcing initiatives. As a result, adjusted EBITDA fell 5.3% to $167.3 million. During the quarter, the Company opened six new Michaels stores, closed one Michaels store, and relocated nine Michaels stores. At the end of the quarter, the Company operated 1,243 Michaels stores and 36 Pat Catan’s stores. It also continues to operate three smaller-sized Aaron Brothers, two in Dallas, TX and one in Fort Worth, TX. Going forward the Company plans to reposition Aaron Brothers as a “store-within-a-store” concept, providing custom framing services in all of its Michaels stores.
Ingles Market recently purchased a Triad shopping center in Thomasville, NC for $3.43 million, where it will open a 32,000 square-foot supermarket. The center previously housed an 86,500 square-foot Kmart, which closed in late December 2016.
Walgreen Co. plans to open a new office in Chicago, IL where it anticipates 1,800 people will be based. The new office is anticipated to open in fall 2019. Walgreens Boots Alliance will remain headquartered in Deerfield, IL, where approximately 3,200 employees continue to work. The new office space will include approximately 200,000 square feet and allows the Company to increase its presence in Chicago.
Last week, Home Depot announced an initiative to build 170 new distribution centers over the next five years. According to CEO Craig Menear, the $1.20 billion plan will include 40 flatbed distribution centers to handle building material products for professionals, 100 market delivery operations centers to deliver large products like grills and appliances, and 30 local direct fulfillment centers to deliver products directly to customers at home. Mr. Menear indicated that the aim is to have “same-day, next-day network for 90% of the population.” According to Mr. Menear, 90% of the U.S. population lives within 10 miles of a Home Depot store.
In other news, Tesla CEO Elon Musk revealed in an email to employees that the Company is pulling out of its arrangement with Home Depot to sell its residential clean energy products at 800 Home Depot locations. The plan called for the stores to carry renewable energy merchandise, including solar panels. As part of the plan, Tesla was in the process of setting up kiosks in 600 Home Depot stores, which will now be removed by year end. Tesla indicated in the email that it will sell these products at its own stores and online. Tesla also announced a 9% workforce reduction plan. Mr. Musk commented, “Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today.” Tesla bought SolarCity Corp. in 2016 for $2.00 billion; previously, SolarCity sold products through Home Depot under its own brand, which has since been consolidated under the Tesla banner.
Gander Outdoors opened its first store which includes an RV dealership, a large-format 87,000 square-foot unit in Kenosha, WI. The chain now operates 49 locations in 16 states, with another 17 stores expected to open in the next month. In addition to Gander’s standard fare of fishing, marine, and active sports products, RVs will be sold at approximately 25 existing or soon-to-be opened stores.
Modell's Sporting Goods
Modell’s Sporting Goods opened another Brooklyn, NY location, bringing its total store count to 157. The 13,600 square-foot store opened on June 14 in the Sheepshead Bay neighborhood; it is the Company’s ninth Brooklyn location. The Company signed a 10-year lease for the space in February.
On June 9, Academy Sports opened its new 63,000 square-foot store in Columbus, GA. The store had been in the planning stage for nearly two years and construction began at the start of the year. The Company operates 16 stores in Georgia and 244 units nationwide.
The Finish Line and JD Sports Fashion plc
On June 18, The Finish Line and JD Sports Fashion plc announced the completion of their merger, which we previously reported on March 28. As a result of the transaction, Finish Line has become an indirect wholly-owned subsidiary of JD Sports. The combined entity is expected to have pro-forma annual revenue of $5.78 billion and annual EBITDA of $592.1 million (10.2% EBITDA margin); synergies are not anticipated. This acquisition should substantially benefit JD Sports, as it will now have a new geographic market in the U.S. with access to top brands and a larger global presence of 2,199 locations.
Destination Maternity reported a 3% decline in first-quarter sales to $103.2 million, reflecting the closing of 27 stores during the year, lower wholesale and franchise sales, and a slight decrease in comps. The 0.1% comp decline came on top of last year’s 7.3% decrease. Comps reflect a 9.1% decline in brick & mortar sales due to lower store traffic and conversions, partially offset by a 42.8% increase in e-commerce sales, which expanded to 26% of total sales, up from 18% last year. The shift to less profitable e-commerce sales was instrumental in the 70 basis-point erosion in gross margin. Nonetheless, EBITDA rose 7.7% to $6.8 million due to lower employee and occupancy expenses that improved SG&A margin by 140 basis points. TTM EBITDA continues to follow a negative trend, falling 22.5% to $9.3 million; EBITDA margin of 2.3% is significantly below the 8.8% average of companies we monitor in the industry. TTM interest coverage of 2.2x remained below our 3x warning threshold, and total debt to TTM EBITDA deteriorated to 4.6x, partly due to higher revolver borrowings, which also accounted for the 9.3% increase in total debt to $42.7 million. Going forward, management reiterated that it would focus on improving profitability by reducing SG&A expenses, with a goal of realizing annualized savings of $10.0 million in fiscal 2018. During the quarter, the Company closed three stores; there were no openings. For 2018, the Company expects to open only three stores and close between 20 and 25 units.
Tailored Brands’ first quarter sales increased 4.5% to $818.0 million, with retail sales up 4.1% to $754.8 million due to the calendar shift and an earlier Easter, as well as an increase in retail comps of 2.1%. By segment, comps were up 3.2% at Men’s Wearhouse, 1.2% at Jos. A. Bank, and 1.8% at Moores, but comps were down 1.7% at K&G. Corporate apparel sales increased 9.6% to $63.1 million, almost entirely due to the impact of a stronger British pound compared to the prior-year period. Gross margin decreased 30 basis points to 42.2%, primarily from increased promotional activities, mostly offset by lower occupancy costs. Operating income rose 70.6% to $52.9 million. The Company ended the quarter with 1,476 stores in operation, down from 1,663 stores in the prior-year period. The Company expects to close a net 10 underperforming stores in 2018, including the net one store closure during the first quarter.
Canada Goose, a Canadian outerwear brand known for its signature goose-down jacket with fur-trimmed hood, plans to open three new stores this fall. The openings include the Company’s fourth U.S. location, in Short Hills, NJ, along with stores in Montreal, Quebec and Vancouver, British Columbia. The Short Hills and Montreal locations will include the first “cold room” where shoppers can test the outerwear in temperatures as low as -25 Celsius (-13 Fahrenheit). The Company recently revealed that 2017 sales increased 46.4% and its direct-to-consumer sales rose 121.3%. The Company also recently announced plans to expand in China with stores in Beijing and Hong Kong, along with launching its e-commerce site via Alibaba’s Tmall platform, and establishing its regional headquarters in Shanghai. Canada Goose currently operates retail stores in seven cities including London, Toronto, New York, Boston, Chicago, Calgary, and Tokyo, and it sells online in 12 countries.
Uniqlo plans to open four stores in Canada this fall, including three stores in Toronto, Ontario, and one store in Coquitlam, British Columbia. The largest of the new stores to open will be at Vaughan Mills, Toronto, with a sales floor of more than 20,000 square feet. The other two Toronto stores will be 15,000 square feet, and the Coquitlam store will be 12,000 square feet. Once these stores open, Uniqlo will operate nine stores in Canada. Uniqlo currently operates 57 U.S. locations.
The Walking Company, DIP
On June 13, The Walking Company, DIP announced that its Plan of Reorganization was confirmed by the Bankruptcy Court, and it expects to emerge from the Court-supervised restructuring process by the end of June. Management also said that certain Company shareholders have committed to invest $10.2 million in new equity into the Company. Wells Fargo Bank will provide exit financing. The Disclosure Statement provides for general unsecured creditors to receive a recovery of between 18% and 22% of allowed claims. The Company closed about 35 locations during the bankruptcy proceedings.
On June 13, rue21 Holdings named Laurie Van Brunt as CEO. Ms. Van Brunt comes to the Company from Chico’s FAS, where she was president of its SomaIntimates division. Before Chico’s FAS, Ms. Van Brunt worked at J.C. Penney, managing store brands. There has been a merry-go-round in the executive suite, with three interim CEOs since October 2016. The Company also brought on Stephen Sommers as chief marketing officer and Michele Pascoe as CFO. Mr. Sommers joins the Company from specialty retailer Vineyard Vines, while Ms. Pascoe previously worked at financial advisory firm Alvarez & Marsal. In May, the Company increased maximum borrowing capacity under its secured revolver with Bank of America from $125.0 million to $145.0 million. The Company currently operates 752 stores in 45 states, after closing 421 underperforming locations during the bankruptcy process.
On June 18, Rent-A-Center (RAC) announced that it will be acquired by Vintage Capital, an Orlando-based private equity firm, for a total cash consideration price of $15.00 per share, or $1.37 billion, including net debt. This transaction comes at a premium of approximately 25% to the Company’s closing share price on June 15, or roughly 23x TTM EBITDA. Pursuant to this merger, RAC will be taken private. The deal was made after nearly 13 months of activist investor pressure, deteriorating operations, and high senior management turnover, during which Rent-A-Center received four official bids, including two from Vintage Capital. RAC previously rejected a $13.00 per share offer from Vintage in November 2017. While shareholders appear pleased with the results, this transaction will likely add quite a bit of debt to Rent-A-Center’s already leveraged balance sheet, although financing terms were not disclosed.