May 15, 2018
Walmart
Walmart has ended its grocery delivery partnerships with Uber and Lyft, first announced in 2016. According to published reports, the end of the partnership “undercuts a vision the ride-hailing companies laid out: a service that can efficiently deliver anything on-demand, including people and cargo, at the touch of a smartphone app.” Walmart has a number of other channels through which it offers delivery. It has partnered with Postmates and DoorDash; it has excluded Instacart because it wanted Walmart to list its retail items within the Instacart app, whereas Walmart wanted to use Instacart as a delivery partner while exclusively selling items on its own digital property. Today, Walmart launched its online grocery delivery service in Houston and its suburban areas. The Company announced in March that it would expand the service to more than 100 metro areas across the county; Houston is the 10th city on the list. Additionally, Walmart’s curbside pickup service currently is available at 41 stores in the Houston metro area.
Five Below
A published report claims Five Below will open a store in Oceanside, CA on August 3, with a second location to follow in Mira Mesa, CA in the first half of 2019. Both stores will be in the San Diego, CA metropolitan area, where the Company will compete directly with Target and Walmart. Five Below operates 625 U.S. stores, with just 15 in California, and is currently in an ambitious expansion plan to add around 125 new locations this year. Longer term, the Company is looking to operate 2,500 total stores, according to CEO Joel Anderson. See below for store concentration map.
Amazon
Four months after Amazon opened its first Go convenience store in Seattle, WA, the Company said on Monday that it will bring new Amazon Go locations to San Francisco and Chicago later this year (click here for a complimentary copy of our Amazon Go visit). Previously, news sources reported in February that Amazon planned to open as many as six new Amazon Go storefronts in 2018, with potential locations in Los Angeles and Seattle. According to an analysis by Gordon Haskett Research Advisors, since the launch of an October pilot program to accept Amazon returns in some Kohl’s stores, traffic at participating Chicago Kohl’s stores has been about 8.5% higher than others. About 56% of those who returned Amazon goods to a Kohl’s location were new Kohl’s shoppers, or they hadn’t visited Kohl’s at least since July 1. That’s higher than in other locations, where less than 43% of those visiting were considered new to the chain.” Kohl’s has said that it is in conversations with Amazon about expanding the pilot. Last week, Amazon raised the price of its annual Prime membership from $99 to $119 on May 11. The new prices will apply to all renewals beginning December 11.
Applebee's
Last Tuesday, the second-largest franchise owner of Applebee’s (parent is Dine Brands Global), Atlanta-based RMH Franchise Holdings, filed for bankruptcy. The filing listed assets and liabilities each in the range of $100.0 million to $500.0 million. RMH operates more than 160 Applebee’s restaurants in 15 states.
Toys "R" Us
In the Toys “R” Us, Inc., DIP Chapter 11 case, the Court entered an order establishing bidding procedures for an auction of the remaining 273 owned properties and commercial leases of Toys “R” Us-Delaware, Inc. The Debtor previously auctioned 50 of the 146 leases it offered for sale, for proceeds of over $50.0 million. All stores will close by the end of June 2018.
H.E. Butt
H. E. Butt plans to invest $130.0 million to build a new distribution, manufacturing and food processing facility in the San Antonio, TX area. In October, the Company purchased 871 acres of vacant land in Bexar County.
Southeastern Grocers
On May 14, the Court confirmed Southeastern Grocers, DIP’s Prepackaged Plan of Reorganization. The Plan will decrease the Company’s total debt by $600.0 million, of which $522.0 million will be exchanged for equity. The Company expects to complete its financial restructuring process over the next few weeks and emerge from Chapter 11 bankruptcy thereafter. It will operate over 575 stores under the Bi-Lo, Fresco y Mas, Harveys Supermarket, and Winn-Dixie banners. The Court also approved the debtor’s motion to extend the time to reject the Montgomery, AL and Orlando, FL leases to October 23, 2018. The debtors indicated the two distribution centers, operated by C&S, are being closed and they need more time to wind down the operations.
Hy-Vee
On May 22, Hy-Vee will open the first of 26 Wahlburgers restaurants across eight states as part of a franchise arrangement that will double the size of the restaurant company. The 5,500 square foot restaurant will be the first in Minnesota (Mall of America) for Wahlburgers, which has 26 locations in 11 other states and Canada. The next partnership restaurant to open will be in West Des Moines, IA in the fall. About that time, Hy-Vee will begin offering some Wahlburgers menu items in its Market Grille restaurants within Hy-Vee stores.
Meanwhile, Hy-Vee is also experimenting with Basin and Beauty departments within its stores. The Company has incorporated Basin shops, which feature bath and body products, in 11 of its supermarkets, including several of its new stores in the Twin Cities. Many of the Company's other stores have a small assortment of Basin products placed on special shelving. A recently opened Basin shop in a store in Urbandale, IA covers about 2,200 square feet that was carved out of the store's existing retail space.
Hy-Vee has other partnerships with national brands such as F&F clothing and Orangetheory Fitness, as its attempt to drive more traffic into its stores.
Wendy's
Wendy’s reported first quarter sales growth of 3.7% to $153.6 million, driven by franchise flips completed in 2017 and same-restaurant sales. North America same-restaurant sales growth, including both Company-owned and franchised restaurants, was 1.6%. Net income was $20.2 million, compared to $22.3 million last year. In the first quarter the Company had 33 global restaurant openings, with a slight decrease in net new unit growth. It continues to expect 2018 global net new unit growth of approximately 2%, with 1% growth in North America and 16% growth for International.
As of the end of the end of the quarter, 44% of the Company’s global system was reimaging or new, as part of its Image Activation initiative. This compares to 43% image activated at the end of 2017. The Company continues to expect 10% to be image activated on an annual basis through 2020.
Office Depot
Office Depot’s first quarter sales increased 5.8% to $2.83 billion, reflecting a 1% increase in revenue in the wholesale unit and the addition of the IT and service-oriented CompuCom Systems, Inc. The slight increase in wholesale revenue was the first positive showing since 2012. Services now comprise 14% of revenue, and business-to-business operations (wholesale and CompuCom) now constitute about 60% of revenue. The top-line improvement was partially offset by lower sales in the retail unit, reflecting the closure of 63 stores since last year and a 4% decrease in comparable store sales, on top of a 5% decrease in the same period last year. EBITDA and EBITDA margin fell 21% and 180 basis points, respectively, while TTM EBITDA margin dropped to 5.4% from 6.1%. The Company is responding to the slowdown in the office products market by transitioning from sales of traditional office products to business services for small and midsize companies. This strategy was initiated last year with the acquisition of CompuCom, which provides onsite IT services for business customers who lack in-house support functions. Despite the negative cadence of first quarter results, they beat management’s expectations, prompting an upward revision in the outlook for full-year results, including a $200.0 million increase in projected revenue to $10.80 billion, a $10.0 million increase in adjusted operating income to $360.0 million, and a $25.0 million improvement in free cash flow to $350.0 million. Free cash flow during the first quarter increased to $170.0 million from $58.0 million in the same period last year, due to favorable changes in working capital items, despite a small increase in capital expenditures. TTM free cash flow remained positive. Financing for the CompuCom acquisition led to a significant increase in debt, and the balance sheet became moderately leveraged, with the ratio of debt/TTM EBITDA increasing to 1.8x from 0.6x. The states with the largest concentration of stores continue to be Texas and Florida at 15% and 13%, respectively.
Tops Holding II Corporation
A judge in the Tops Holding II Corporation, DIP case signed an order on May 10 approving procedures for the debtors' store closing sales. In a motion filed last month, the debtors requested the authority to close stores at their discretion in order to preserve liquidity and maximize the value of their estates. They also requested, and now have approval of, streamlined procedures to sell, transfer or abandon furniture, fixtures and equipment, inventory and other assets at any closing store, free and clear of any liens, claims or encumbrances.
J.C. Penney
J.C. Penney is closing its 54,000 square-foot J.C. Penney Home store in Peoria, AZ this summer. Operations will be consolidated into its main store in Peoria. J.C. Penney operates eight stores in the Phoenix market and 21 in total in Arizona, out of its more than 870 stores across the U.S. and Puerto Rico. The below map highlights store concentration for J.C. Penney in Arizona.
Camping World
Camping World reported sales increased 20.4% to $1.06 billion in the first quarter, due to a 3.9% increase in comparable store sales, which came on top of a 9.6% increase in the same period last year. Additionally, the Company opened 57 new locations, including 28 Gander Outdoors units. EBITDA increased 0.7% to $77.3 million, while EBITDA margin fell 140 basis points to 7.3%, due to deterioration in both gross margin and SG&A margin. TTM EBITDA margin was 8.8%, slightly down from 8.9% in the same period last year. Interest expense increased 60% for the quarter, and TTM interest coverage dropped to 4.95x, which remained adequate. Leverage metrics deteriorated as the ratio of debt/TTM EBITDA increased to 5.4x from 4.4x, reflecting higher debt balances and lower EBITDA. Additionally, tangible net worth remains negative, although there was a slight improvement.
National Stores, Inc.
A lawsuit was filed against National Stores, Inc. alleging damages of $252,000 for non-payment of rental equipment used for property repairs. The lawsuit was filed by Sunbelt Rentals, Inc. on May 4, in the Superior Court of California, County of Los Angeles. In April 2018, the Company reportedly hired a restructuring advisor to address operational issues; a lawsuit for non-payment of invoices was filed in the same month, alleging damages of $184,000. National Stores operates approximately 364 discount department and home stores under the Factory 2-U, Fallas, Fallas Paredes, Fallas Discount banners and Anna’s Linens by Fallas banners. Store sizes typically average 10,000 square feet – 20,000 square feet. The Company has expanded over the years by acquiring distressed or bankrupt retailers, including Weiner’s Stores, Factory 2-U Stores, Conway Stores and Anna’s Linens.
Kroger
Kroger renovated and reopened a former Marsh store in Carmel, IN. It invested about $5.0 million in the store, which now offers a Starbucks and ClickList online ordering.
Grocery Outlet
Grocery Outlet will open its third Lehigh Valley area store in Palmer Township, PA by the end of the year. The store will be 18,000 square feet. On May 17, the Company is opening its 300th store in Inglewood, CA.
Trader Joe's
Trader Joe’s will open a new store in New York City located in Soho on May 18. Earlier this month it opened a new location, also in New York City, on the Upper West Side.
Ingles
Ingles reported second quarter sales growth of 4.1%, to $984.6 million, while comps rose 1.7% (excluding fuel and the effect of extra 2018 Easter sales). Operating income was down 6% to $23.6 million. Net income increased 1.6% to $9.3 million. For the first half of the year, capex was $88.8 million, up almost 50% over last year’s $59.4 million. The Company continues to invest in new stores, along with ongoing improvements to its existing store base. For fiscal 2018, capex is expected to be $140.0 million – $160.0 million, compared to $127.7 million in fiscal 2017. The Company currently has $147.0 million available under its $175.0 million line of credit.
