May 1, 2019
Tru Kids Brands, a licensing firm formed last year by creditors of Toys “R” Us, plans to open a handful of U.S. stores in time for the holidays. Stores are expected to be 10,000 square feet, downsized from the Toys “R” Us stores that typically spanned 20,000 square feet to 50,000 square feet. Specific locations have yet to be released, but it is expected they will open at the best performing former Toys “R” Us locations (click here to request updates on TRU store openings). Tru Kids owns both the Toys “R” Us and Babies “R” Us brands, as well as the rights to mascot Geoffrey the Giraffe. The Company is owned by investment firms Angelo Gordon and Solus Alternative Asset Management.
Burlington Stores announced a CEO succession plan. Chairman, President and CEO Thomas Kingsbury will step down as CEO on or about September 16 but will remain with the Company as executive chairman during a transition period. Michael O’Sullivan, who recently resigned as president and COO of Ross Stores, will join the Company on or about September 16 as CEO. Lastly, Jennifer Vecchio, chief merchandising officer, was appointed to the newly created role of president, chief merchandising officer. See below for Future Store Openings Map - click here to request a list of openings.
S&P Global lowered the issuer credit rating on Pier 1 Imports to CCC- from CCC+, citing operating trends that continue to deteriorate significantly, with very high levels of cash burn and negative EBITDA; the recovery rating remains a 4. S&P expects this trend to persist through the coming year. The “negative” outlook reflects S&P’s belief that it does not see a path for Pier 1 to return to profitability in the next year, even when factoring in the impact of planned performance improvements. S&P believes that some form of restructuring is increasingly likely given the accelerated cash burn, deteriorating profitability, and challenges associated with rapidly executing turnaround plans under a new management team. Pier 1 released a statement following the downgrade, saying, “The Company is not in default under any of its debt agreements, and those agreements do not contain any financial performance covenants. The term loan that S&P says Pier 1 'could face challenges in refinancing' is not due for two years. We have acknowledged the execution issues under the prior management’s "New Day" plan and have since put in place a capable senior leadership team to develop and implement a new fiscal 2020 plan to reset and rebuild our business. While Pier 1 regularly engages with all of its stakeholders, the Company is not currently contemplating nor discussing any debt exchange. We remain confident our fiscal 2020 action plan will create the runway to return Pier 1 to long-term health and sustainable financial performance.”
Kona Grill Inc., filed a Chapter 11 petition in the Delaware Bankruptcy Court. As of the petition date the Debtor operated 27 stores, down from 42 as of December 31, 2018 (see below for Store Concentration Map). The Debtor stated that the goal of the proceedings is to "enter into an asset purchase agreement with a stalking horse buyer."
In the Shopko Holdings, DIP Chapter 11 case, the Official Committee of Unsecured Creditors filed a motion to convert the Debtors’ “administratively insolvent and liquidating” Chapter 11 cases to cases under Chapter 7, to allow an independent trustee to liquidate the remaining assets, wind down the estates and pursue causes of action to benefit all creditors. The motion states conversion is necessary to minimize the amount of additional administrative expenses accruing and enable a trustee to pursue insider claims unburdened by the Debtors’ continued efforts to “bury those claims in Chapter 11.”
On Thursday, the United Kingdom’s Competition and Markets Authority (CMA) announced it has blocked Walmart’s proposed sale of its British supermarket brand Asda to Sainsbury’s. The deal valued Asda at £7.30 billion (US$9.40 billion) and would have created a mega-retailer with 2,800 stores and combined annual sales of approximately £51.00 billion (US$66.00 billion).
The CMA ruled that the planned takeover, agreed to a year ago, would be bad for consumers as it could lead to higher prices, lower quality goods and a poorer shopping experience in general. In a statement, Walmart commented that, “as a result of the CMA’s findings, Asda, its parent Walmart and Sainsbury’s have mutually agreed to terminate the transaction.”
Back stateside, Walmart announced plans last week to create its own end-to-end supply chain to sell no-hormone-added Angus beef in 500 of its stores across the Southeast later this year. The new supply chain will not cover all of Walmart’s beef needs; currently, Tyson and Cargill provide the majority of product and that likely will remain unchanged. The announcement comes a year after Walmart took control of a milk processing plant in Indiana and six months after competitor Costco announced it was creating a poultry supply chain.
Finally, last week Walmart officially opened its new Intelligent Retail Lab (IRL) inside a 50,000 square-foot Neighborhood Market store in Levittown, NY, one of the Company’s busiest locations on Long Island. The lab, which offers 30,000 items, will test new ideas and is equipped with artificial intelligence-enabled cameras, interactive displays and a massive data center.
Sources say Forever 21 is in the process of shuttering its Chinese e-commerce website. This comes after news reports last month indicated that Forever 21 closed its last Taiwan store. While no reason was given for the shutdown, it appears that Forever 21 has struggled to grow in an increasingly competitive market. Domestic e-commerce giants such as Alibaba, JD.com and Pinduoduo hold most of the market share, leaving little room for others to grow. Amazon also recently shut down its China marketplace to focus on cross-border sales. Click here to request a list of Forever 21 Future Openings.
Lululemon Athletica announced plans to place a greater emphasis on its men’s category, projecting that it will double revenues by 2023. It also wants to expand its women’s and accessories business to include footwear, although it didn’t provide further details. The Company has been selling shoes on its website since 2017 through a partnership with Athletic Propulsion Labs. Lululemon projects that its digital revenue will also more than double, while its international revenue will quadruple over the next five years. The Company is opening a 25,000 square-foot experiential store in the Lincoln Park neighborhood of Chicago, IL this July. It will include a yoga studio, meditation spaces, juice/food and community gathering areas.
Last week, Weis Markets announced at an investor meeting that it would earmark $109.0 million in capital expenditures during 2019, slated for “a new store in Bedminster, PA, 14 store remodels, six fuel centers, supply chain and information technology investments.” This figure is up a bit from the $101.0 million it guided for at its 2018 shareholder meeting.
The Company also indicated fiscal 2018 sales rose to a record $3.50 billion, with comps up 18 of the past 19 quarters, and income from operations 9.4% higher year over year. Weis attributed the positive results to its store base and IT investments, with a boost from targeted holiday promotions through its loyalty marketing program, as well as price optimization improvements and more efficient store-level inventory management. Chairman and CEO Jonathan Weis commented, “Our e-commerce investments helped generate a 33.2% increase in our online sales. Today, we offer online ordering with curbside pickup in 125 stores, while 174 of our stores offer home delivery via Shipt. Online ordering is a growing segment of our business that we expect to grow exponentially in the coming years.” Weis Markets operates 200 stores in Pennsylvania, Delaware, Maryland, New Jersey, New York, Virginia and West Virginia.
Amazon’s first quarter sales grew 17% to $59.70 billion, which included $4.31 billion from Whole Foods and other physical stores. Excluding the $1.10 billion unfavorable impact in foreign exchange rates, net sales increased 19% compared with 1Q18. By segment, North America Retail sales grew 17%, and International Retail sales were up 9%; AWS (cloud computing) rose 41% reaching an annual run-rate of over $30.78 billion (approximately 13% of total run-rate sales). In the first quarter, Amazon witnessed three areas experiencing decelerated growth: online sales are now growing at 9%, the lowest ever recorded growth; third-party seller sales grew 20%, following a 27% growth rate in 4Q; and more surprising, other revenues (advertising and co-branded credit cards) grew 34%, following a 95% growth rate in 4Q. Despite growth slowing down, the segment generates $10.79 billion in TTM sales, representing an overall 85% growth rate from last year.The remaining segments were positive, including Whole Foods, which management noted grew sales 6% compared to last year (similarly to Q4), and Amazon saw an uptick in subscription services (Prime). The sales growth and expansion of the Company’s high-margin segments and private label penetration continued to offset rising shipping costs, resulting in an impressive 55.6% increase in EBITDA to $10.55 billion, while EBITDA margin expanded 440 basis points for the quarter.
Meanwhile, during a conference call with analysts Amazon’s CFO Brian Olsavsky announced that the Company is transitioning to free one-day shipping for Prime members, faster than the previous two-day offer. Mr. Olsavksy said Amazon will invest $800.0 million on the effort during the second quarter. The Company will continue to offer same-day and Prime Now one-hour delivery.
In other news, Amazon has begun leasing office space and is on track to create 400 positions this year at its second headquarters in Arlington, VA.
On Monday, Kroger completed the previously announced sale of its Turkey Hill business to an affiliate of Peak Rock Capital for $215.0 million; proceeds will be used to reduce debt. The Peak Rock Capital affiliate will continue to operate the Turkey Hill business out of its Conestoga, PA location.
St. Louis, MO-IL Metro Area - Hot Market Report
The St. Louis Metro Area is the 21st largest metropolitan area in the U.S. Home to about 2.8 million residents, the area has had very little population growth over the last decade, as more residents have moved out than moved in since the 2008 recession. The top grocer is Schnuck Markets, which has a solid reputation and arguably some of the best locations in the area. Schnuck took advantage of a competitor exiting the market by acquiring 19 Shop ‘n Save stores from Supervalu in 2018, expanding its footprint by 32%. Our report takes a closer look at the St. Louis real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, and demographics.
Hibbett Sports announced that Christine Skold has temporarily joined the Company as interim CFO, effective April 26, succeeding Scott Bowman, whose resignation was announced on April 5. Ms. Skold will oversee the Company’s financial operations while it conducts a formal search for a replacement.
Ms. Skold spent 15 years with Tractor Supply, holding several positions in accounting; most recently she was VP of investor relations and corporate communications. Additionally, the Company announced that Bill Quinn, VP of digital commerce, and Ron Blahnik, VP and CIO, were promoted to SVP roles. Creditntell analysts note that the changes in the CFO position come shortly after the announcement of the planned retirement of CEO Jeff Rosenthal, who will remain in his capacity until a successor is named. On March 22, we reported that Hibbett decided to close 95 Hibbett stores in fiscal 2019; it plans to open 10 to 15 new Hibbett and City Gear stores. The Company generates solid cash flow and has a strong balance sheet; however, it has been experiencing margin pressure, and it is digesting its acquisition of City Gear.
600+ retailers have filed for bankruptcy year to date, including several major national chains. To request the full list of bankruptcies or to sign up for our daily listing of Chapter 11 filings (all industries), click here.
Fabletics opened its first New York store, a 2,743 square-foot location in the SoHo neighborhood of Manhattan, over the weekend. Last year, the online retailer announced plans to open 75 brick-and-mortar stores, and it now has 28 locations across North America. The Company has been expanding its store footprint because physical stores have boosted their online sales. The Company also has stores coming soon in Pleasanton, CA (June), King of Prussia, PA (June), and Garden City, NY (August); it most recently opened stores in Jacksonville, FL and Austin, TX.
Hy-Vee’s in-store, full-service Market Grille restaurants at three stores in Sioux Falls, SD are being discontinued and replaced with its new Hy-Vee Food Court concept to be rolled out by the end of the year. The other four Hy-Vees in Sioux Falls will keep their Market Grill Express locations. Details of the Food Courts are being finalized but, according to the Company, they will “provide multiple quick-service meal options. The goal is for the grocery stores’ food options to match customer trends.”
Last week, Sobeys opened its first discount grocery store in Western Canada. The store, in Mission, BC, is the first of a dozen shops under the FreshCo banner Sobeys said it would open by the end of this year.
Last week, Target opened its new store in the Kip’s Bay neighborhood of Manhattan. It is the Company’s fifth small-format store in Manhattan and its 78th store in the greater New York area. The store is about 21,000 square feet and has a curated assortment of apparel, home and decor products, as well as health, personal care and beauty products. There is a CVS Pharmacy and a grocery section with grab-and-go items and fresh produce. With the addition of the Kips Bay store, Target now operates 95 small-format stores and plans to open approximately 30 small-format stores a year over the next few years (click here to request a list of future openings).
BJ’s Wholesale Club recently broke ground on its first Michigan location, in Madison Heights. The Company had a second Michigan location planned for Taylor. Both Michigan locations will be about 100,000 square feet and feature groceries, prepared food, furniture, electronics and more. The Company plans to add 15 - 20 new clubs over the next five years, with a focus on infill and adjacent markets.
This information contained in this newsletter is compiled from sources which Market Service Inc. does not control and unless indicated is not verified. Its contents are not to be divulged. Market Service Inc., its principals and writers do not guarantee the accuracy, completeness or timeliness of the information provided nor do they assume responsibility for failure to report any matter omitted or withheld because of their negligence.