May 1, 2018
On April 24, Supervalu announced, in addition to releasing its fourth quarter results, it has entered into definitive agreements to sell eight of its owned distribution centers for approximately $483.0 million and that it is pursuing the sale of its Shop ‘n Save (38 stores based in St. Louis) and Shop ‘n Save East (22 stores in West Virginia, Maryland, Pennsylvania and Virginia) banners. In March, the Company said it would divest its Farm Fresh chain of 38 stores operating mostly in the Virginia Beach area. At the time, Supervalu outlined plans to sell 21 of the 38 stores, including 18 to Kroger (10 to Harris Teeter and 8 to its Mid-Atlantic division utilizing the Kroger banner) and three to Food Lion. Supervalu expects to raise $43.0 million from the sale of those 21 stores; management commented 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.”
As of February 24, Supervalu’s remaining 114 traditional retail grocery stores continuing operations operated under the Cub Foods, (53 stores), Shoppers (52), Hornbacher’s (8) and Rainbow (1) banners in three geographic regions, see below for store concentration map. In the 2018 fourth quarter, identical store sales were positive 0.1%; ID sales now only include the aforementioned 114 stores that are being retained and exclude the chains being divested.
The head of Sears’ real estate division, Jeff Stollenwerck, is leaving after 15 years with the Company. The news comes as Sears continues to shed unprofitable stores. Earlier this year, the Company announced another round of roughly 100 store closures that were recently completed. Seritage meanwhile said this month it will be taking back nine locations from Sears and redeveloping those spaces. Sixteen other Sears stores are being auctioned online. The Company operated slightly more than 1,000 locations at the end of fiscal 2017, compared with 1,430 the year before. Sears once had more than 4,000 stores in operation.
As Amazon announced positive first quarter results last week, including strong net income and sales growth, the Company also said it plans to increase the annual membership fee for Amazon Prime in the U.S., from $99 to $119. The increase will take place in mid-June for new members, and then will be phased in for existing members as their renewals take effect. It has been four years since Amazon last raised the cost of Prime, from $79 to $99. Amazon said that the increase is because of the greater number of features that Prime now offers. It also comes as the Company announced it now has 100 million Prime members globally.
On April 27, Ahold Delhaize’s Food Lion division announced that it agreed to acquire four BI-LO stores in the greater Myrtle Beach, Florence and Columbia, SC areas from Southeastern Grocers, DIP. All locations will remain open as BI-LO units until the transaction is complete, which is expected in late May pending final Bankruptcy Court approval. Meanwhile, the Debtor also filed notice for a proposed sale of a BI-LO store lease in Seneca, SC to Publix for $100,000. The stores being sold to Ahold and Publix were previously disclosed as assumed leases and not part of the 127 stores previously listed as either being closed or sold. The Debtor also filed notices for the proposed sale of five leases, previously identified as rejected leases, and one store, previously identified as an assumed lease.
At Weis Markets’ annual shareholder meeting held last week, Chairman and CEO Jonathan Weis announced plans to invest $101.0 million in new stores, remodels, supply chain improvements and continued IT upgrades. Mr. Weis said the program, which includes a new store in Nottingham, MD, just outside of Baltimore, opened two weeks ago and a store in Randolph, NJ, which will open later this summer, “is designed to produce long-term benefits.” The Company also said it has plans for 20 remodels, a fuel center and four new pharmacies. The Company’s 2017 cash flow benefited significantly from a decrease in its income tax rate due to federal tax reform; the expectation is for similar results in 2018. The Company plans to reinvest these tax savings into its growth and development.
Aldi is in the early stages of opening a new location in Cornelia, GA. The closest Aldi stores are in Gainesville (22 miles away) and Oakwood (26 miles away). The Company currently has 62 stores in Georgia, with new stores in Griffin and Atlanta opening this summer. Since announcing its massive initiative to remodel more than 1,300 U.S. stores by 2020, Aldi has renovated 10 in Georgia, with six more expected to reopen in the coming months.
Aldi will build its first store in Ankeny, IA this spring. The 14,000 square-foot location will be 40% larger than most of its existing stores in the Des Moines metro area and is expected to open in late fall. Aldi currently has five stores in the metro area and 29 in Iowa.
Meanwhile, Aldi closed a store in Heath, OH today that will be relocating to a new location nearby, which opens Friday. The new store, located in part of a former Carnival Foods, offers a modern and convenient layout focusing on fresh food, produce, dairy and baked goods. There are no other Aldi stores in Licking County.
Aldi’s aggressive nationwide remodeling plans will reportedly reach a halfway point soon in Dallas-Fort Worth, where it operates 54 stores and is spending $66.0 million. The Company has finished upgrades to 17 stores.
PCC Community Markets
PCC Community Markets will open a new 25,000 square-foot store in Burien, WA on May 23. It will be the first for PCC south of Seattle and will become the area’s first certified organic grocery store. The store will also offer meal kits and expanded prepared foods. PCC operates 11 stores in the Puget Sound area. The Company plans to open new stores in Seattle’s Ballard neighborhood in 2019 and Madison Valley and Downtown Seattle in 2020.
On Sunday, Wegmans opened its two-story, 146,500 square-foot megastore in Natick, MA. Grocery shopping is spread out on two floors and includes a cart escalator. It is the first store to feature Wegmans’ new restaurant concept, Blue Dahlia Restaurant & Tequila Bar, serving Mexican food. It will also feature a Burger Bar concept. Wegmans first entered New England in 2011. This is its sixth store in the region. Wegmans plans to open a location in Chantilly, VA in June, and one in Lancaster, PA later this year.
Schnuck Markets announced that it will be closing two underperforming Rockford, IL locations on July 8. Pharmacy records from the two stores will be transferred to a nearby Schnucks and Walgreens. One of the closing stores is 65,000 square feet, and the other is 72,000 square feet.
Published reports indicated that Subway has as goal of closing more than 500 of its 26,000 locations nationwide this year, following its closure of more than 800 U.S. stores during 2017. At the same time, the Company is planning to open more than 1,000 new locations outside North America.
Chipotle’s first quarter sales increased 7.4% to $1.15 billion, driven by new restaurant openings and a 2.2% increase in comps. Comp growth was attributable an increase in average check, including a 4.9% benefit from menu price increases, partially offset by fewer transactions. Food costs were 32.4% of revenue, a decrease of 140 basis points over last year. Operating income was up 26.8% to $92.8 million. During the quarter, Chipotle opened 35 new restaurants and closed two, bringing the total count to 2,441.
For fiscal 2018, the Company expects comps in the low-single digits and 130 – 150 new restaurant openings.
CVS Pharmacy is acquiring all 14 of the retail pharmacies operated by Marshall, MO-based Red Cross Pharmacy, effective June 6. CVS Pharmacy said that it would be transferring files from 2 stores, with the remaining locations continuing to operate as usual. The acquisition is expected to be completed in mid-July, with the locations rebranded and converted to CVS Pharmacy banners. With Red Cross Pharmacy’s retail pharmacy operations sold, the Company is left with two long-term care pharmacies and a medical equipment company.
Yesterday, Walmart announced it has agreed to merge its U.K. based Asda supermarket unit with J Sainsbury. The Company will receive about $3.00 billion in cash and a 42% stake in the combined merged entity. The transaction will propel J Sainsbury into the number one market share positon in the U.K., with an estimated 31% share, surpassing current leader Tesco, which holds a 28% share. The combined entity will have estimated revenues of £51.00 billion and approximately 2,800 stores. The deal is expected to receive heavy scrutiny by the U.K.’s Competition and Markets Authority (CMA) and is not anticipated to close until late 2019.
Meanwhile, it was reported over the weekend that Advent International Corp is in exclusive talks to acquire an 80% stake in Walmart’s Brazilian unit, which has been on the acquisition block since early this year.
As previously reported, Walmart could reach a deal to acquire a majority stake in India-based e-commerce company Flipkart by the end of June, according to people with direct knowledge of the matter. Walmart has reportedly completed due diligence and made an offer to purchase at least 51% of Flipkart for $10.00 billion – $12.00 billion. A deal is not yet finalized, and talks between Walmart, Flipkart and its investors are ongoing.
Macy’s received approval for state tax incentives to build a distribution center near Rickenbacker International Airport in Columbus, OH, which would create 410 jobs. Macy’s operates more than 690 locations under the Macy’s and Bloomingdale’s banners, and about 160 specialty stores; more than 30 of its stores are located in Ohio.
Sports Zone Inc., DIP
Three landlords who lease space to Sports Zone Inc., DIP filed a motion to convert the case to Chapter 7 from Chapter 11. The landlords stated that the Company’s Court-approved purchaser, New Jersey apparel wholesaler Halifax of Palisade LLC, has missed deadlines to finalize the purchase and has already fallen behind on rent. Halifax received Bankruptcy Court approval to purchase Sports Zone in early February. Halifax is operating the Company’s Washington, D.C.-area stores, but it has not fully paid the $900,000 purchase price. The motion states that conversion to a liquidation under Chapter 7 is justified because “the Debtor has grossly mismanaged the estate, and there has been continuing loss to, or diminution of the estate, and absence of a reasonable likelihood of rehabilitation.” The Company operates 11 retail stores in Washington D.C., and the Maryland and Virginia suburbs, selling footwear, clothing and accessories.
Tractor Supply’s first quarter sales increased 7.6% to $1.68 billion. Comparable store sales increased 3.7%, compared to a decrease of 2.2% in the prior year’s first quarter. The comp results included increases in comparable transaction count and average ticket of 3.2% and 0.5%, respectively. Comp growth in the quarter was broad based across all geographic regions. The increase in comps was primarily driven by strength in everyday merchandise, including consumable, usable and edible products, along with strong demand for winter seasonal categories. These increases were offset by lower sales of spring and summer seasonal products. Operating income slipped 1.7% to $94.7 million. The Company opened 15 new Tractor Supply stores and four Petsense stores in the first quarter of 2018 compared to 24 new Tractor Supply store openings and nine Petsense store openings (including the conversion of two Hometown Pet stores) in the prior year’s first quarter. At the end of the first quarter, Tractor Supply operated 1,700 namesake locations and 172 Petsense stores.
On April 25, Charming Charlie announced that it successfully completed its financial restructuring and emerged from Chapter 11. Charming Charlie currently operates 264 locations after closing more than 100 stores during the bankruptcy process.
Boot Barn Holdings
Boot Barn Holdings acquired certain assets of Lone Star Western & Casual LLC, an individually owned retail company with three stores in Waxahachie, Corsicana and Athens, TX. As part of the transaction, Boot Barn purchased inventory, entered into new leases with the stores’ landlords and offered employment for all employees. Boot Barn funded the acquisition from cash on hand. Boot Barn now operates 229 stores in 31 states, including 47 in Texas, where it operates more than 20% of its store base.
Abercrombie & Fitch
Abercrombie & Fitch announced at its annual investor meeting that it plans to grow sales to $5.00 billion over the next few years, up from fiscal 2017 sales of $3.49 billion. To achieve this goal, it is looking to continued growth of direct-to-consumer sales, including online, and an improved store base due to a remodeling effort that includes 100 – 150 Hollister locations and 50 – 75 namesake locations over the next three years.
During fiscal 2017, the Company opened five new stores and closed 39 locations. The Company closed fewer than the 60 units originally projected due to improved store trends and favorable lease renewal terms. The Company also completed 35 Hollister interior remodels and seven new A&F prototype stores, which included downsizing 16 existing stores across the brand. In fiscal 2018, A&F expects to open 21 full-price stores, 13 Hollister, four A&F and four A&F Kids locations. The Company also plans to downsize 10 A&F stores and remodel approximately 40 Hollister locations. Management also expects to close up to 60 stores (7% of stores), primarily in the U.S. pending lease negotiations. Management noted that it has closed 400 stores since 2010, and with 60% of its U.S. leases expiring over the next two years it has significant flexibility to drive efficiency by remodeling or resizing, renegotiating leases or closing stores.
GNC Holdings’ first quarter revenue declined 5.8% to $607.5 million as a result of lower sales from the divestiture of Lucky Vitamin, fewer franchised locations, and the discontinuation of the Gold Card Member Pricing Program. Domestically, comps improved 0.5% during the quarter (GNC.com accounted for 240 basis points). It should be noted that comp growth followed a 3.9% decline in comps during the prior-year period, so cumulative comps were down 3.4% over the two-year period. Gross margin improved 110 basis points due to an improved product mix, as more profitable private-label sales represented 50% of overall sales for the domestic unit, compared to 43% last year. SG&A margin increased 210 basis points, reflecting increased advertising expenses and higher corporate overhead as well as the deleveraging impact of the lower sales base. Ultimately, EBITDA decreased 15.3% to $59.8 million from $70.5 million, and EBITDA margin fell 110 basis points to 9.8%. Looking ahead, GNC plans to close approximately 200 stores in the U.S. and Canada this year, as part of its plans to streamline its store portfolio; it also plans to limit new store openings. The Company ended the quarter with 8,905 stores worldwide. On April 26, the shareholders of Harbin, one of China’s largest drug makers, voted to approve the proposed $300.0 million investment in GNC. GNC extended its vote, as only holders of 36% of its common stock had submitted proxies. However, of the 36%, 92% voted in favor of the investment.
O’Reilly Automotive’s first quarter sales increased 5.9% to $2.28 billion, and comps were up 3.4%, on top of a 0.8% increase in the prior-year period. Gross profit increased to $1.20 billion, or 52.6% of sales, from $1.13 billion, or 52.5% of sales, representing a 6% increase. Operating income rose 5% to $423.0 million, or 18.5% of sales, from $403.0 million, or 18.7% of sales. During the quarter, the Company opened 78 new stores, ending with 5,097 stores in operation. CEO Greg Henslee commented, “We believe the long-term drivers for demand in our industry remain intact, including a growing and aging vehicle fleet that has driven over three trillion miles each year; but more importantly, we are very confident in our ability to continue to gain market share, and we are well positioned to build on the improved trends we drove in the first quarter.”
Toys "R" Us
On April 30, the Court authorized the sale of 100% of the equity interest in the Canadian operations of Toys “R” Us, DIP to Fairfax Financial Holdings Limited. Fairfax is a Toronto-based investment firm controlled by financier Prem Watsa. The transaction, valued at $300.0 million for the 82 stores, is expected to close during the second quarter. Melanie Teed-Murch, president of Toys “R” Us Canada Ltd., stated that under new ownership the Canadian unit “will have resources to reinvigorate stores and grow its market position.”
Documents filed on April 26 indicate that a compromise was reached between a group of post-petition trade vendors, members of the Creditors’ Committee, and Toys “R” Us, DIP. Under the agreement, the Debtors established a $156.0 million reserve to pay vendors for certain post-petition shipments of merchandise. The trade vendors noted that this amount will not come close to covering the approximately $800.0 million of unfunded administrative claims related to the shipments. It should be noted that the compromise has a limited scope as it relates only to the cost of the goods received by the Debtors on or after March 5; it does not cover other potential administrative claims.