March 20, 2018
Southeastern Grocers
Southeastern Grocers (SEG) entered into a Restructuring Support Agreement with creditors representing 80% of unsecured notes due September 2018 and plans to file a pre-packaged plan of reorganization under Chapter 11 before month end. As part of the restructuring plan, the Company expects to close 94 stores, including 45 of approximately 430 Winn-Dixie stores (mostly in Florida and Alabama), 26 of approximately 80 Harvey’s stores, 22 of approximately 150 BI-LO stores and one of the 23 Fresco y Mas stores. The following Store Concentration Map details the 94 store closures.
Click here for a complete list of the store closure addresses.
The Company is selling 15 Winn-Dixie stores in Louisiana and Mississippi to Brookshire Grocery and Shoppers Value, which would bring its store count down to 582.
Meanwhile, SEG announced it will introduce its Hispanic grocery concept Fresco y Mas in two new markets including Orlando and Tampa, FL. It will rebanner an existing Winn-Dixie store in Orlando to Fresco y Mas and open two new stores in Tampa in April. The concept was launched in South Florida about two years ago and with the new stores, and minus the one they announced for closure, will grow to a total of 25 locations.
Claire's Stores
On March 19, Claire’s Stores, Inc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The Honorable Brendan Linehan Shannon was assigned to the case, which was designated case number 18-10583. Management said it is pursuing a financial restructuring in order to eliminate a substantial portion of debt from the Company’s balance sheet and position Claire’s for long-term success. Claire’s international subsidiaries are not part of the Company’s U.S. Chapter 11 filings. Management said the Company is using this process to effectuate a balance sheet, not an operational restructuring. Management also stated that the Company is current on payments to its trade vendors and has ample liquidity to maintain strong partnerships with its domestic and non-domestic suppliers. Claire’s obtained $135.0 million in debtor-in-possession (DIP) financing commitments, including an asset-based lending facility and a term loan from Citigroup Global Markets Inc.
Toys "R" Us
On March 15, Toys “R” Us, Inc. filed a motion seeking Bankruptcy Court approval to begin the process of conducting an orderly wind-down of its U.S. business and liquidation of inventory in all 735 of its U.S. stores, including stores in Puerto Rico. The Company said it plans to provide more details about the liquidation of its U.S. stores and going-out-of-business (GOB) sales in the near term. In connection with the sale process, the motion included bidding procedures for the Canadian operations. The Company also disclosed that it is engaged in discussions with certain interested parties for a transaction that could combine up to 200 of the top-performing U.S. stores with its Canadian operations. While discussions continue on this potential transaction, Toys “R” Us is seeking Court approval to implement the liquidation of inventory in all of the U.S. stores, subject to a right to recall any stores included in the proposed Canadian transaction. Published reports stated that MGA Entertainment Inc. is trying to organize a group of fellow toymakers to make a bid for the Canadian operations. The reports state that the group also plans to perform due diligence on the U.S. business, with the hope of keeping some of its locations open. This announcement followed a day after the administrator in the U.K. proceedings stated that it will close all 100 stores there over the next six weeks after failing to find a buyer. Approximately 25 stores, earmarked for closure before the administration proceedings, closed last Thursday, and the rest will close following GOB sales. The administrator did not rule out the possibility of potential bidders having an interest in some of the locations.
Published reports indicate that Amazon is looking at the possibility of expanding its retail footprint by acquiring some locations from Toys “R” Us. According to the reports, Amazon does not intend to maintain the Toys “R” Us brand but is considering using the real estate. Amazon’s current retail presence includes more than 450 Whole Foods locations, along with 15 Amazon Books and its Amazon Go checkout-free convenience store.
Central Garden & Pet Company
On March 15, Central Garden & Pet Company announced it signed a binding agreement to acquire all business assets of General Pet Supply, a leading Midwestern U.S. supplier of pet food and supplies. Central previously had a partnership alliance with General Pet Supply serving different regions of the country. The acquisition is expected to close in early April 2018.
The announcement came a day after Central Garden & Pet said it purchased Bell Nursery Holdings LLC, a commercial grower of flowers and plants in the mid-Atlantic. Bell Nursery is headquartered in Maryland and has facilities in North Carolina, Virginia, Maryland, Ohio and Delaware. Central Garden expects the acquisition to be accretive in fiscal 2018.
In other news, Central Garden & Pet announced that Brooks Pennington III succeeded Bill Brown as chairman of the board. Mr. Pennington has been on the Company’s board for 20 years and has been its director of special projects since 2006.
Publix
Publix Super Markets is seeking a $14.7 million – $17.7 million grant from the City of Greensboro, NC to build a new regional distribution center. The Company said it plans to make a $400.0 million capital investment on the 1.8 million square-foot DC, which will include dry goods and refrigerated goods facilities. A hearing on the proposal is set for today. The DC would be the Company’s most northern facility, providing support for its continued northerly expansion. Publix currently operates 33 stores in North Carolina, 40 stores just west in Tennessee and eight stores thus far in Virginia to the north of the facility and we would expect more growth in Virginia and possibly north of that.
KB Toys
Ellia Kassoff, the founder of Strategic Marks LLC, which owns the rights to KB Toys, said the Company is working on developing a model to bring back the toy store chain. KB Toys had at one point operated roughly 1,300 mall-based stores nationwide before going out of business in 2009. The KB Toys brand and related intangible assets were sold at the time to Toys “R” Us for $2.1 million. Strategic Marks LLC purchased the chain’s intellectual property in 2016. Published reports say Strategic Marks LLC is in talks with pop-up operators, such as Go! Retail Group, Spencer Spirit Holdings and Party City, to open stores in malls before the Christmas season begins later this year. According to the reports, the Company was originally planning to return online only, before Toys “R” Us announced plans to liquidate. KB Toys specialized in selling discontinued and discounted merchandise. The chain will be competing with major retailers Walmart, Target and Amazon, which are all expected to increase their toy offerings in response to Toys “R” Us’ demise.
Boxed
After weeks of speculation that Boxed.com has been exploring an acquisition, CFO Naeem Ishaq is leaving the Company. In January, Kroger reportedly looked to acquire Boxed for $400.0 million, but that offer was rejected and we reported that Boxed planned to pursue a new funding round to remain private. Sources indicate that Boxed has since had discussions with Amazon, Alibaba, and Costco.
Cardenas Markets LLC
Cardenas Markets LLC announced the completion of the re-bannering of 15 Mi Pueblo stores to Cardenas Markets, following last year’s merger of the two Hispanic grocery chains. The re-bannering began in December 2017 and finished on March 14, with the final two Mi Pueblo stores in East Palo Alto and San Rafael, CA. Cardenas Markets now has a total of 54 stores, 47 of which are under the Cardenas banner and seven under the Los Altos Ranch Market banner. Its stores are located in California, Arizona and Nevada.
Kroger's
Kroger recently opened its new 12,000 square-foot test kitchen and training facility in downtown Cincinnati, OH, called the Culinary Innovation Center. The Company introduced its first restaurant concept, Kitchen 1883, in November and launched its Prep+Pared Meal Kits earlier in 2017. The facility will allow the Company to grow both of these concepts, particularly its Prep+Pared Meal Kits this year, in both flavors and footprint.
In other news, Kroger’s Fred Meyer division said it would exit its firearms business, two weeks after deciding to stop selling guns and ammunition to those under 21. Fred Meyer said the firearm business generated about $7.0 million annually. Fred Meyer operates 133 stores in Alaska, Idaho, Oregon and Washington and sells firearms in 43 of them.
Smart & Final
Smart & Final’s fourth quarter sales increased 6.7% to $1.07 billion, driven by a 3.2% increase in comps, and new store openings. Comp growth was comprised of a 3.7% increase in average transaction size, partially offset by a 0.4% decrease in transaction count, including the effect of cannibalization from new stores. The Company reported an operating loss of $162.6 million, compared to operating income of $5.7 million, impacted by a goodwill impairment charge of $180.0 million related to its Smart & Final banner as well as higher operating and administrative expenses related to higher minimum wages, new stores and related support costs. For the year the Company reported adjusted EBITDA increased 2.3% to $184.4 million.
During the quarter, the Company opened seven new Smart & Final Extra! stores, completed three expansions of legacy Smart & Final stores to the Extra! store format, and relocated one store. For fiscal 2017, sales increased 5.3% to $4.57 billion, comps rose 0.3%, and the Company reported a net loss of $138.9 million.
Looking ahead at fiscal 2018, Smart & Final expects sales growth of 4% – 5%, comp growth of 1% – 2%, adjusted net income of $31.0 million – $35.0 million, and capex of $80.0 million – $90.0 million. It expects to open 3 – 5 Smart & Final Extra! stores and 3 – 5 Cash & Carry Smart Foodservice stores. The Company also expects adjusted EBITDA to be between $180.0 million and $190.0 million, or a mid-point that’s relatively flat with fiscal 2017 results. On the flat earnings outlook, investors pushed the Company’s stock price down about 12% to close at $6.45 yesterday.
Save Mart
Last week, Save Mart opened its first ground-up Lucky California grocery store in Dublin, CA, its first all new supermarket in over a decade. The 47,000 square-foot Lucky California offers expanded foodservice offerings in addition to traditional groceries. The Company debuted the concept in July 2015, with a 61,000 square-foot store in Daly City, CA and opened another in Carmel in February 2017. The Lucky brand changed ownership many times over the years, but in 2007 Save Mart acquired the Northern California division of Albertsons and converted the stores back to Lucky. There are now 69 stores in the San Francisco Bay area.
WinCo Foods
On March 29, WinCo Foods will open a new store in the Dallas, TX metroplex, its 10th in the market and its 120th overall. The 82,100 square-foot store is in a former Target that closed in 2015. Nearby competition includes an H-Mart, 99 Ranch and Walmart supercenter.
Ahold Delhaize
On June 15, Ahold Delhaize will close a 50,000 square-foot underperforming Stop & Shop in Hempstead Village in Long Island, NY. Pharmacy prescriptions will be transferred to a nearby store in Carle Place. According to the Company, the closure is not part of any other closings in the region.
Stater Bros. Markets
Stater Bros. Markets will open a 44,000 square foot store in Rancho Cucamonga, CA tomorrow.
Starbucks
Starbucks is reportedly building a 20,000 facility in Seattle that will house its “TRYER Innovation Center,” described as a Starbucks store with a separate space for anyone to test their ideas. Ideas can range from a new drink idea to a payment process.
Supervalu
On March 14, Supervalu announced it has entered into three separate definitive agreements to sell 21 of its 38 Farm Fresh Food & Pharmacy stores for approximately $43.0 million in cash to two different companies; Kroger and Ahold Delhaize. Supervalu also indicated it is continuing discussions and exploring potential transactions to sell the remaining Farm Fresh stores to current and prospective wholesale customers and certain Farm Fresh employees.
Amazon
Amazon’s newest offering could be the option for customers to pick up their Whole Foods groceries, Amazon orders and, potentially, purchases from other merchants, in one location. According to a recent job posting, Whole Foods is looking for a finance manager to help launch “the Whole-Foods delivery and pick-up service on the ultra-fast Prime Now app and enable our Prime customers to shop from a set of marquee third party retailers.”
Amazon has reportedly decided to shut down a three-year-old program called Vendor Express, which was designed to make it easier for wholesalers to get inventory onto the site by avoiding having to go through the Company’s invite-only Vendor Central portal. Vendor Express offered a quick way for smaller merchants to have products listed under the ‘sold by Amazon’ tag. Amazon told vendors using the program that it will stop taking orders as of May 21 and that the program will become “permanently unavailable” starting January 1, 2019.
Published reports indicate that Amazon is looking at the possibility of expanding its retail footprint by acquiring some locations from bankrupt Toys “R” Us, according to people familiar with the matter. The sources indicate that Amazon does not intend to maintain the Toys “R” Us brand with the soon-to-be vacated space but is considering using it for its own purposes. Amazon’s current retail presence includes more than 450 Whole Foods locations, along with 15 Amazon Books and its Amazon Go checkout-free convenience store.
Japan’s Fair Trade Commission has raided Amazon’s offices in the country over allegations the Company asked its vendors to pay for part of the costs of offering their products at a discount on its site. In Japan, this is considered an antitrust violation. Amazon says it is cooperating with the investigation.
Last week, Amazon received a patent for cushioning packages with inflatable airbags so they can be dropped from as high as 25 feet from drone aircraft, which it plans to send out instead of trucks.
Walmart
On March 14, Walmart announced plans to expand its online grocery delivery option to more than 40% of U.S. households by the end of the year. The service, which is currently available in six markets, will grow to serve more than 100 metro areas across the country and include fresh groceries. Walmart also currently offers online grocery pickup in 1,200 stores and plans to add it to 1,000 more stores this year.
FedEx is expanding its retail business, FedEx Office, in the U.S. by adding 500 new locations within Walmart stores in the next two years. The move follows a pilot program that included 47 locations within Walmart stores across six states. FedEx Office offers packing, shipping and printing services. Customers can also direct their packages to be held at any of these locations for up to five business days using FedEx delivery service.
Tri Huynh, a former director of business development at Walmart, has sued the Company, claiming that it issued misleading e-commerce results in an effort to keep up, or create the perception that it was keeping up, with Amazon. Mr. Huynh claims the retailer mislabeled items on its website so that third-party vendors were paid lower commissions, sent customers the wrong orders, and forced merchants to deal with greater returns. The claim also states that Walmart overlooked basic internal controls. Walmart responded, “This litigation is based on allegations by a disgruntled former associate, who was let go as part of an overall restructuring. We take allegations like this seriously and looked into them when they were brought to our attention. The investigation found nothing to suggest that the Company acted improperly.” Walmart says it will “vigorously defend” itself in the suit.
Walmart and home services company Handy announced Monday that they are expanding assembly and installation services for televisions and furniture to more than 2,000 stores next month. The service is now available in 25 stores in Atlanta.
PriceSmart
PriceSmart has acquired Aeropost, one of the largest cross border e-commerce logistic providers and delivery services in Latin America and the Caribbean. Aeropost offers services in 38 countries and territories, including 11 where PriceSmart currently operates. PriceSmart, based in San Diego, will operate Aeropost from its Miami headquarters as a wholly owned subsidiary. This acquisition will allow the Company to offer its club members new online shopping options through its local pick-up points and its local payments platform.
Dollar General
Dollar General’s fourth quarter sales increased 2% to $6.13 billion, including a negative impact of $398.7 million from an extra week in 4Q16. Sales growth was driven from new stores and 3.3% comp growth, resulting from an increase in average transaction size, partially offset by a slight decline in customer traffic. Comp growth was driven by positive results in the consumables and seasonal categories, partially offset by negative results in the apparel and home categories. Net income was $712.2 million, compared to net income of $414.2 million last year, including a benefit of $311.0 million related to U.S. tax reform.
As a result of a strategic review of its real estate portfolio, the Company closed 35 stores during 4Q17, resulting in $28.3 million of related costs. During fiscal year 2017, the Company opened 1,315 new stores and remodeled or relocated 764 stores.
Looking ahead at fiscal 2018, the Company expects sales growth of 9%, comp growth in the mid-2% range, EPS of $5.95 – $6.15, and capex of $725.0 million – $800.0 million. The Company currently anticipates a fiscal 2018 benefit of $300.0 million related to U.S. tax reform. Share repurchases are expected to be $850.0 million. The Company plans to open 900 new stores, remodel 1,000 stores and relocate 100 stores.
Stein Mart
Stein Mart reported fourth quarter sales decreased 0.2% to $384.9 million, while comparable store sales were down 5.4%. Management commented that most of the comp decline was due to fewer clearance sales. Management noted that sales trends in February and March were driven by very strong regular priced selling, particularly in warm weather and resort markets. Gross margin for the fourth quarter was 26.6% compared to 22.6% in 2016. Gross profit rate expansion was primarily due to fewer markdowns. Management said that average inventory per store is down 10%, which should reduce the need for markdown activity in the first half of fiscal 2018. Operating expenses decreased 2.8% in the quarter. As a result, Stein Mart’s quarterly EBITDA climbed to $15.4 million from $2.0 million in the fourth quarter of fiscal 2017. Nonetheless, the improved fourth quarter results were not enough to offset the weak operating results in the first nine months of the year, and fiscal 2017 EBITDA fell 87% to just $4.9 million. The Company expects comparable store sales in the first half of fiscal 2018 to be flat to down in the low single digits, and gross margin to improve by 20 basis points, which will result in operating income of $8.0 million. The Company had an operating loss of $11.5 million in the first half of fiscal 2017. During fiscal 2017, the Company opened nine new stores and closed six locations ending with 293 locations. In fiscal 2018, the Company expects to open two new stores and close four to six locations.
In other news, on March 14, Stein Mart completed the closing of a $50.0 million term loan with Gordon Brothers Finance Company. The Company also amended its current credit agreement with Wells Fargo to provide for the repayment of the existing $25.0 million first-in, last-out (FILO) A-1 Tranche of the credit facility. All other terms of the facility remain unchanged. Proceeds were used to pay down borrowings under the credit facility, including the A-1 Tranche. This increases unused availability under the facility by up to $25.0 million. The term loan matures March 2020.
Dick's Sporting Goods & Hibbett Sports
Both Dick’s Sporting Goods and Hibbett Sports reported high single-digit sales increases during their fourth quarters ended February 3, driven by store expansion. At Dick’s, sales increased 7.3% to $2.66 billion, but comps decreased 2%, following a 5% increase in the prior-year period. E-commerce sales jumped 9%, as the Company successfully completed its first holiday season on its new web platform; online sales represented 19% of total sales, up from 17.9%. During the quarter, the Company relocated one DICK’S Sporting Goods store and closed three DICK’S stores and four Golf Galaxy stores. As of February 3, the Company operated 716 DICK’S Sporting Goods stores in 47 states, 94 Golf Galaxy stores in 32 states, and 35 Field & Stream stores in 16 states. The Company expects to open 19 new DICK’S Sporting Goods stores and relocate four DICK’S stores in 2018. Eight of the new stores are expected to open during the first quarter. The Company does not expect to open any new Field & Stream or Golf Galaxy stores in 2018.
At Hibbett Sports, sales increased 8% to $266.7 million due to a 1.6% comp increase, which followed a 2.2% decrease in the same period last year. The Company opened 44 new stores during the year, expanded 11 high-performing stores and closed 43 underperforming units. E-commerce sales represented 7.6% of total sales for the fourth quarter, just six months following its website launch in July 2017. Gross margin fell to 31.5%, down from 33% for the same period last year, largely due to promotional markdowns taken to sell slow-moving inventory. SG&A margin deteriorated due to higher costs associated with the e-commerce platform, and ultimately EBITDA fell 21.6% to $18.9 million, and EBITDA margin was down 270 basis points.
Champs Sports
Champs Sports, a division of Foot Locker, opened an 8,000 square-foot multi-level flagship location in Times Square in Manhattan, NY. The new store is nearly four times the size of Champs’ previous Times Square location; stores are typically 3,500 square feet. Champs operates more than 500 locations nationwide, including 27 in New York. The Company also has a store in the Harlem neighborhood of Manhattan.
DSW
DSW opened its newest international store, an 8,000 square-foot location, at the Dalma Mall in Abu Dhabi, United Arab Emirates. This is its third location outside of North America, joining international locations in Oman and Saudi Arabia opened last year through regional franchise partner Apparel Group. Last year, the Company announced plans to build as many as 40 locations in the region over five years, with Apparel Group.
DSW announced it intends to wind-down its Ebuys segment. Ebuys operates ShoeMetro and Apparel Save, two online-only brands that offer deep marked down prices of footwear and accessories on third-party marketplaces such as Amazon and eBay. In March 2016, DSW decided to acquire Ebuys for $62.5 million in cash, as the Company wanted to scale its off-price sourcing capabilities and further enhance its online presence. However, over the past few quarters management struggled to scale Ebuys and in November recorded an impairment on goodwill and intangibles totaling $52.7 million, while also looking for a potential buyer. The liquidation of Ebuys was favorable for DSW to help it focus on its core competency rather than diverting its attention to the Ebuys fulfillment model, which centers on sales of heavily discounted shoes. Ebuys overall contributed 8.1% to total sales for fiscal 2017; however, it operated at a 6% gross margin and an operating loss.
Signet Jewelers Limited
On March 15, Signet Jewelers Limited announced plans to close more than 200 stores this fiscal year, and open 35 – 40 new locations (for a total of 165 – 170 net closings) primarily outside of shopping malls by year-end. The top line continues to be impacted by weakness in physical stores caused by changes in consumer buying behavior. The Company notes that it did not invest fast enough in e-commerce and mobile commerce and was slow responding to changes in the sector and in consumer behavior. As such, Signet is embarking on a three-year cost optimization plan and ongoing strategic initiatives centered on its e-commerce growth, digital capabilities and product innovation. This comes after Signet posted another disappointing quarter, with net sales edging up 1%, and comparable store sales declining 5.2% compared to last year. CEO Gina Droso stated in the latest earnings call that she doesn’t expect Signet’s performance to improve until 2020. Additionally, the Company is seeing profit margins fall from a more unfavorable merchandise mix, and as a result EBITDA fell 15% to $381.1 million for the most recent quarter, and dropped 320 bps on a margin basis. The Company’s capital structure is fairly unlevered with a debt to TTM EBITDA ratio of 0.9x; it has healthy interest coverage ratio of 14.8x, and adequate liquidity to cover working capital requirements. In terms of store closures, continued net closures are expected going forward as same store performance will likely continue to deteriorate while competition in the retail environment continues to intensify.
Williams-Sonoma
Williams-Sonoma’s fourth quarter sales increased 6.2% to $1.68 billion, and comps were up 5.4%. E-commerce sales grew 8.4% to $877.0 million and represented 52.2% of total revenues, up from 51.1% in the prior-year period. Retail revenues increased 3.9% to $803.0 million. Comps were positive across all brands, including 4.1% at Pottery Barn, 12.3% at West Elm, 4.3% at Williams Sonoma, 0.9% at Pottery Barn Kids, and 2.6% at PBteen. However, operating income slipped 7.8% to $198.9 million on $6.2 million of expenses related to the acquisition of Outward (a 3-D imaging and augmented reality platform) in November 2017, $2.9 million in reorganization expenses, and $41.5 million in income tax expense related to the tax reform. During the quarter, the Company opened seven new stores and closed 12 underperforming locations, ending the year with 631 stores. Looking ahead, Williams-Sonoma is expecting to open 20 new stores and close 30 underperforming locations in fiscal 2018.
Bed Bath & Beyond
Buybuy Baby, a chain owned by Bed Bath & Beyond, opened its seventh location in Canada, a 23,000 square-foot store in West Edmonton, AL. The Company also plans to open stores in Winnipeg, Manitoba, North Calgary, Alberta and Western Ontario, though opening dates have yet to be provided. The chain’s other Canadian stores are located in Edmonton, AB (two); Langley, BC; and Whitby, Woodbridge, and Ottawa, ON.
