June 26, 2018
Toys "R" Us, DIP
Court documents show that Toys “R” Us, DIP is looking to sell its intellectual property, which includes the Toys “R” Us, Babies “R” Us and Geoffrey character trademarks. Published reports indicate that the Company has received interest from more than 115 potential bidders and has had “substantive communication with over 85 such parties.” In light of the interest, the auction date to sell its U.S. intellectual property was pushed back to August 6. As previously reported, the Company 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 $50.0 million. All of stores are slated to be closed on or before this Friday.
During Kroger’s first quarter ended May 26, identical store (ID) sales (excluding fuel) remained positive, as the Company posted a 1.4% ID sales increase, following a 1.5% advance in 4Q17. The Company grew digital sales 66%, entered into a partnership agreement with online grocery supermarket Ocado, agreed to acquire Home Chef, expanded its partnership with Instacart to increase its customer delivery coverage area, and completed the sale of its convenience store business unit for $2.15 billion. At its quarterly conference call, Kroger CEO Rodney McMullen said the Company “looks forward to innovating together with Ocado to enhance Kroger’s digital and robotics capabilities.” Mr. McMullen added that Kroger is “working to identify the first three sites for development of the new automated warehouse facilities in the U.S. to deploy Ocado’s proprietary technology and distribution expertise.”
Lastly, on June 22, Kroger completed its acquisition of Home Chef, the country’s largest private meal kit company. The initial transaction price is $200.0 million and future earn-out payments of up to $500.0 million over five years are contingent on achieving certain growth milestones. The merger comes on the heels of Home Chef’s 150% growth in 2017, reaching $250.0 million in revenue, and two profitable quarters. Kroger will make Home Chef meal kits available to customers both in stores and online.
Starbucks Corporation recently highlighted plans to close 150 underperforming U.S. stores in fiscal 2019, compared to a historical average of 50 closures per year, as part of a shift in geographic focus to position the Company for growth over the next three years. The goal is to shift the focus of store openings to underpenetrated markets in the U.S. and China.
The below map identifies states with net openings in blue and states with net closures in red.
Yesterday, Ahold Delhaize’s Giant Food division announced plans to invest $22.0 million in Lancaster County, PA. The investment will be used for a new 38,000 square-foot e-commerce facility, which will serve as a grocery delivery center and will offer curbside pickup. The Company said the facility will enable Giant and its online grocery partner Peapod to serve up to 40% more shoppers. This will be the fifth such facility Giant has opened in Pennsylvania with Peapod.The funding will also go towards the completion of remodels at four stores, lower prices across its stores, and the opening of a new fuel station
This latest investment in Lancaster is in addition to a $70.0 million investment Giant announced earlier this year to grow its store network across Pennsylvania with six new stores, two remodels and four new fuel stations over the next two years.
At a recent conference, SpartanNash’s CFO Mark Shamber commented that he believes independent supermarkets are holding their own despite all the talk of their expected demise. Mr. Shamber said, “When you look at our [independent grocery] customers from a geographical perspective, they’re not necessarily competing in many of those markets with regional players or international players. They may be competing with a deep discounter like Aldi, they may be competing with Walmart or — certainly in the Midwest — with Meijer, who we compete with on a regular basis. But in many of those areas, they’ve been competing with those folks for years, and there’s not enough demographic demand to allow for an entry of another competitor into the space.” According to Mr. Shamber, independent grocers have shown the ability to operate with financial flexibility in a changing business climate. SpartanNash serves about 2,100 independent stores, primarily in the Midwest and southeastern U.S. The Company also has 142 corporate-owned supermarkets under the Family Fare Supermarkets, Family Fresh Markets, D&W Fresh Markets, and Sun Mart banners as well as 30 fuel centers.
Amazon’s Prime Wardrobe service is now available to all Prime members, with no required invitation. The service launched as an invitation-only beta test last year. Shoppers can order (and try on) between three and eight items of clothing, shoes or accessories before they actually have to buy any merchandise. Shoppers can keep the items for seven days. They return unwanted pieces and only pay for the items they keep.
Amazon will open its first fulfillment center in Alabama, located in Bessemer. Construction on the 855,000 square-foot facility is set to begin by the end of the month, with an opening expected for October 2019. Amazon also reportedly purchased land in Kernersville, NC, which is also expected to become a fulfillment center.
Next week, Publix will launch online grocery delivery via Instacart in its hometown of Lakeland, FL and surrounding areas. The same-day service is called Publix Delivery powered by Instacart. Publix said it now offers Instacart delivery in 92% of its operating area, which encompasses 1,187 stores in Florida, Georgia, Alabama, Tennessee, South Carolina, North Carolina and Virginia. Publix announced its partnership with Instacart in July 2016 and said it plans to have the service available in all of its markets by 2020. In select locations, the chain also offers a click-and-collect service via Instacart called Publix Curbside. Publix unveiled the Instacart-powered curbside pickup service in September, testing it in two Florida stores and later expanding the pilot to metropolitan Atlanta stores. Same-day online grocery delivery from Publix stores is also available through Shipt, a subsidiary of Target. Earlier this month, Shipt announced a major expansion in the Southeast that included Publix locations in Ocala, Key West, Lakeland and Pensacola, FL, and in Augusta, GA, where the service launched June 21.
Rite Aid & Albertsons Companies
Earlier today, the Company announced that the registration statement on Form S-4, in connection with the merger, has been declared effective by the SEC. Rite Aid also issued a letter to shareholders detailing the merits of the proposed merger and recommending shareholders vote forthe transaction. In addition, the Company launched a dedicated transaction website, www.riteaid-albertsons.com, containing information about the transaction.
Some shareholders, including top 10 holders, have indicated they plan to vote against the merger, arguing the transaction undervalues Rite Aid. Rite Aid management said that they had conversations with numerous other third parties before agreeing to the Albertsons merger agreement.
In a recent interview, CVS Health CEO Larry Merlo said that he expects to close the $69.00 billion deal to buy Aetna later this year; the merger is currently making its way through the regulatory process. Mr. Merlo also said he thinks the joint venture between Amazon, J.P. Morgan and Berkshire Hathaway will be good for CVS. He commented, “We think that there’s a lot of parallels in terms of what we’re looking to do with CVS and Aetna coming together and what … they’re planning to do in terms of this announcement.”
Dollar General launched its DG Go! App, which allows customers to use their phones to scan items as they shop and checkout directly through the app. The app is being piloted in 10 stores in Nashville, with plans to roll it out to another 100 stores in the second quarter.
Dollar General’s self-checkout expansion coincides with the Company’s rapid growth plan. The Company said that over the next 10 days it is looking to fill management roles across the 44 states it serves to support its growth. The Company said opportunities are available within retail operations, distribution centers and corporate functions. The Company said it expects to create roughly 7,000 new jobs and open 900 stores in 2018.
Academy Sports + Outdoors
Academy Sports + Outdoors will open three stores in Texas later this year, in Mansfield and Richmond, and a third which is a relocation from the Forest Lane shopping center to the Lakewood/White Rock area of Northeast Dallas. All three locations will overlap at least one Dick’s Sporting Goods store within 10 miles. New stores are also planned for Cookeville, TN and Daytona, FL. As previously reported, the Company intends to open eight new stores this year, about half the store openings of 2017. This will allow the Company to reduce capital expenditures and allocate more cash flow to debt reduction.
Shiekh Shoes, DIP
On June 19, the Court entered an order confirming the Chapter 11 Plan of Reorganization for Shiekh Shoes, DIP. The Company operated 127 stores when it filed for bankruptcy protection on November 29, 2017. Seventeen stores were closed in December 2017, 15 in February 2018, five in March 2018, three in April 2018 and four in May, leaving about 83 units in operation when the Debtor emerges from bankruptcy. The Plan contemplates the following schedule of store closings: two in June 2018, 30 in December 2018, one in June 2019, and six stores in December 2019, resulting in 44 units in operation at the beginning of 2020. The additional stores will be closed pursuant to either expiration dates in the underlying leases or lease-termination procedures agreed upon between the Debtor and the particular landlords. We previously noted that the Disclosure Statement provides for general unsecured creditors to realize a recovery of 5.3% of allowed claims.
Sprouts Farmers Market
Sprouts Farmers Market will open its first 30,000 square-foot store in Washington State on August 15, located in Mill Creek. Sprouts hasn’t said whether it will open more stores in the region but plans to open about 30 stores per year and said up to 40% of new stores will be in new markets. In an analyst conference last week, Sprouts said it takes about four to five years to mature a store in a new market from a sales point of view, whereas it only take two to three years for a new store in an existing market. Sprouts said in May that its pipeline of new stores “remains strong with 47 approved sites and 40 signed leases for the coming years.”
Wegmans will open a new 120,000 square-foot store in Lancaster, PA in September. Wegmans currently operates 97 stores in New York, Pennsylvania, New Jersey, Virginia, Maryland and Massachusetts.
Natural Grocers by Vitamin Cottage
On June 21, Natural Grocers by Vitamin Cottage opened a 14,400 square-foot relocated store in Richardson, TX. Natural Grocers currently operates 23 stores in Texas and plans to continue growth in the region.
H.E. Butt has begun construction on a 140,000 square-foot store in South Austin, TX. The store is expected to open in late 2019 or early 2020.
J. Crew Group
J. Crew Group named Johanna Uurasjarvi as chief design officer. Ms. Uurasjarvi joins J. Crew from West Elm, where she was the creative director of the brand; prior to that she was creative director for the Anthropologie brand. J. Crew is currently working on a redesign to boost sales, which have been tumbling for more than three years due to changing consumer habits and increased competition. The Company has introduced a series of new products, including intimates, swimwear and vintage clothing, and it will begin slashing prices. It is also in the process of closing 70 underperforming stores, after which about 250 will remain. J. Crew continues to struggle to reduce about $1.70 billion in debt, which exists largely from its 2011 leveraged buyout by private equity firms TPG Capital and Leonard Green & Partners.
Party City will expand its temporary store offerings through piloting approximately 50 new ‘Toy City’ pop-up stores. The Company will launch the Toy City sites in early September 2018, alongside its Halloween City pop-up stores, and will operate both concepts through the holiday season. Party City will also expand its online merchandise assortment of toys. Commenting on the news, CEO James M. Harrison stated, “Party City is the unmatched leader when it comes to relevant product offerings for everyday occasions and seasonal celebrations, and we’re always looking for opportunities to enhance these assortments for our customers. The creation of a Toy City concept to complement our temporary seasonal retail strategy is a logical extension of our brand; one that will allow us to leverage our existing pop-up store capabilities and capitalize on the category whitespace that has recently been created.” Management’s decision comes at an opportune time, as competitors try to capture Toys “R” Us’ lost market share. Although Party City announced just 50 new Toy City pop-up sites, we believe that if this experiment is successful, the Company may see an improvement in sales and comps and could increase the number of Toy City pop-ups by locating them near the 272 Halloween City seasonal pop-up locations, which it operated in 2017.
Barnes & Noble
Barnes & Noble witnessed a 4.3% fourth quarter sales decline to $786.1 million, driven by comps falling 4.1% (on top of a 6.3% drop last year) due to weaker foot traffic and three net store closures. Gifts, music and DVD businesses all had double-digit sales declines, while café, toys and games grew slightly. On a full-year basis, sales declined in all segments. Revenue at B&N stores (90% of sales) declined 5.1% due to lapping last year’s Harry Potter book release and lower promotional activity, online sales (7% of sales) declined 10.1%, and NOOK sales (3% of sales) declined 23.9% on lower device unit volume and lower average selling prices. From weaker sales, gross margin eroded 80 basis points, while SG&A deleveraged 10 basis points, resulting in EBITDA falling 21.6% for the year to $152.0 million. The Company now operates at a 4.2% TTM EBITDA margin. Although EBITDA declined significantly compared to last year, it was in line with management’s previous guidance.
Looking ahead, management noted that although its turnaround efforts are taking time, it believes the Company is heading in the right direction as the NOOK segment reported its first ever full-year profit, generating $3.5 million of EBITDA. Additionally, from the new $40.0 million of cost cuts announced in March, the Company expects EBITDA for 2019 to improve to $175.0 million – $200.0 million (15% – 32% growth from 2018). On the real estate front, Barnes & Noble expects to open several new prototype stores in 2019 that are between 13,000 and 15,000 square feet. The Company is still analyzing the success of the previous prototypes it opened late last year and has not provided insight on any new store openings or closures for its namesake banner.
ABC Supply acquired G&F Roof Supply, a roofing products retailer with stores in Anaheim, Whittier and Gardena, CA. The acquisition increases ABC’s footprint in the Los Angeles market; current G&F associates will continue to work at the locations. The news comes a month after the Company announced the opening of three stores in San Diego, CA; Seattle, WA; and Mankato, MN. With the latest acquisition, the Company has roughly 725 locations nationwide.