Panera Bread Company / Au Bon Pain
On November 7, Panera Bread Company, a subsidiary of JAB Holdings Company LLC, entered into a definitive agreement to acquire Au Bon Pain Holding Co. Inc. Financial terms of the transaction, expected to close during the fourth quarter, were not disclosed. Longtime CEO, Chairman and Co-founder of Panera Ron Shaich launched the Au Bon Pain Co. in 1981. After the Company went public in 1991, it purchased the Saint Louis Bread Company, later renamed Panera, and sold Au Bon Pain in 1999 in order to focus on national expansion. Mr. Shaich commented, “With the acquisition we are announcing today, we are bringing Au Bon Pain and Panera together again. This acquisition offers the strategic opportunity for us to grow in several new real estate channels, including hospitals, universities, transportation centers and urban locations, among others.” Panera Bread was recently acquired by JAB Holdings in a deal valued at approximately $7.50 billion.
The Au Bon Pain news came half an hour before Mr. Shaich announced that he is stepping down as CEO, effective January 1; he will remain chairman of Panera’s board. Replacing Mr. Shaich as CEO is Blaine Hurst, Panera’s president who joined the Company in January 2011.
Dean & Deluca
Dean & Deluca is backing out of leases signed for three different Manhattan locations and one in suburban Dallas, TX. The Company has also stopped construction on a downtown Bethesda, MD store and delayed the opening from fall 2017 to 2019. Progress on the space has reportedly halted because Dean & DeLuca is working on changes to the store design. The high-end grocer, founded in New York but now based in Kansas, is known for selling New York classics and luxury foods. Sources claim that the competitive retail food sector and recently signed expensive leases have forced the Company to halt expansion plans. Pace Development Corp., which has owned the brand since 2014, said in a statement that they plan on focusing their efforts on the brand’s existing stores, which includes 11 in the U.S., along with its licensed properties abroad: “The Company is investing in the strategic reassessment required to solve legacy issues and the current challenges that are facing brands in the retail sector.” Meanwhile, that 11th location opened just last week in Hawaii, the Company’s second in Waikiki.
Hy-Vee
Hy-Vee is delaying its timeline for the potential construction of a new distribution center in Austin, MN (outside of Minneapolis), based on its focus on plans to launch smaller-format, 10,000 square-foot stores called “Hy-Vee Fast & Fresh,” primarily in the Twin Cities and other areas of the Midwest. The Company expects to break ground on two such stores in Altoona and Des Moines, IA in the near future. In an interview last week, CEO Randy Edeker said despite the changing industry landscape the Company is not pulling out of its previously announced plans to add Twin Cities-area stores in Maple Grove, Columbia Heights, Farmington and Chaska, though they may be delayed. Mr. Edeker commented, “We just want to make sure we're building the right thing for the consumers of the future.” Hy-Vee entered the Twin Cities metro area in 2015 and opened its eighth store there last week. It originally planned for 25 stores there by 2020. The Company operates 246 locations, which by the end of this month will include 43 Market Grille and 76 Market Grille Express stores.
Macy's, Kohl's, Nordstrom, J.C. Penney, Dillard's
Last week, Macy’s, Kohl’s, Nordstrom, J.C. Penney and Dillard's reported third quarter results. Comp performance improved marginally over recent trends, despite the hurricanes and unseasonably warm weather. From a top line perspective, Macy's turned in one of the weaker performances with sales down 6.1% to $5.28 billion, and comps falling 3.6%. However, improved gross margin and lower expenses limited the EBITDA decline to 1.4% and EBITDA margin improved 40 basis points in the quarter. Macy's now operates at an 11.2% TTM EBITDA margin (above our monitored department store sector average of 6.8%). During the third quarter, Macy's opened eight new freestanding Bluemercury beauty specialty stores for a total of 135 stores, and seven new Macy's Backstage off-price stores within existing Macy's stores; it also announced it will close stores in Laguna Hills, San Francisco, and Los Angeles, CA in early 2018.
Kohl’s reported both sales and comps inched up 0.1%. However, gross margin erosion and higher expenses resulted in operating income falling 14.6% to $257.0 million. Management indicated that the Company saw “strong results” during the back-to-school shopping season, but sales slowed in the middle of the quarter due to disruptions from the hurricanes and unseasonably warm weather. The Company now expects fiscal 2017 EPS of $3.60 – $3.80, narrowed from its prior guidance of $3.50 – $3.80.
Nordstrom’s sales were up 2.5% to $3.63 billion, while comps were down 0.9%; the 1.2% sales decline at full-line Nordstrom stores was mostly offset by a 5.5% increase at Nordstrom Rack stores. Operating income fell 17.5% to $208.0 million. The Company opened three full-line stores in the U.S. and one in Canada, as well as 12 Nordstrom Rack stores during the quarter, bringing its total store count to 366, including six in Canada. Nordstrom narrowed its fiscal 2017 EPS outlook to $2.85 – $2.95 from $2.85 – $3.00; the full-year impact from the hurricanes that occurred during the third quarter is estimated to be $26.0 million.
J.C. Penney’s sales decreased 1.8% to $2.81 billion, primarily the result of the 139 stores closed in the year-to-date period. Comps increased a better than expected 1.7%, with home, Sephora, footwear and handbags, women’s specialty and salon the top performing divisions. Management noted that appliance sales increased 30% during the quarter. However aggressive discounting, especially in women’s apparel, led to a decline in quarterly EBITDA of 28.3% to $124.0 million.
Dillard’s reported sales slipped 0.8% to $1.35 billion, and comps decreased 1%, which management attributed to the hurricanes that hit its two largest markets in Texas and Florida; excluding this impact, sales would have been flat for the quarter. The Company noted that sales of ladies’ apparel, ladies’ accessories, lingerie, juniors’ and children’s apparel were all above trend, while sales of shoes and cosmetics were below trend.
SpartanNash
SpartanNash reported third quarter sales growth of 5.9% to $1.91 billion, driven by the Caito Foods Service acquisition, organic growth of 5.2% in food distribution, and significantly improved sales trends in the military commissary business, partially offset by lower retail sales. Military segment sales, while flat year over year, improved sequentially, as the Company saw benefits from new business in the Southwest and the expansion of the DeCA private brand program. DeCA plans to introduce up to an additional 1,400 products in 2018, heading towards a target of up to 4,000 SKUs. SpartanNash’s retail segment continues to be a drag on sales and profits. The 5.3% decline in retail segment sales was attributed to the closure and sale of retail stores and a 2.5% decrease in comps (excluding fuel). Retail segment performance reflected the ongoing challenging environment, characterized by competitive pricing as traditional competitors fight for share and hard discounters continue to expand. Management noted that while comps for the quarter were down 2.5%, the trend improved throughout the quarter. The Company reported an operating loss of $193.8 million, compared to operating earnings of $29.9 million a year earlier, primarily the result of a non-cash goodwill impairment charge of $189.0 million, reflecting lower than previously estimated retail operating results and an overall lower market valuation, as well as $35.7 million in asset impairment and restructuring charges resulting from its store rationalization program. In connection with its continued store rationalization initiative, the Company sold two stores, one each in the third quarter and fourth quarter to-date. The Company also closed three retail stores in the third quarter and one in the fourth quarter. As a result, SpartanNash currently operates 145 corporate-owned retail stores.
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Famous Dave's of America
On November 1, Famous Dave’s of America completed the sale of seven restaurants in Maryland and Virginia to Capital Blue Ribbon Restaurants LLC and Commonwealth Blue Ribbon Restaurants LLC for $2.4 million. Famous Dave’s and the purchasers also entered into a line of credit agreement in the amount of $750,000 on which the purchasers can draw funds to pay for necessary repairs and maintenance. Also effective November 1, Famous Dave’s entered into an asset purchase agreement to sell its Frederick, MD restaurant to Capital Blue Ribbon. Famous Dave’s expects to incur a loss on the sale of all eight restaurants of approximately $3.7 million. Since October 2016, the Company has closed 22 restaurants, ending its third quarter on October 1 with 154 total restaurants, 129 of those franchised and 25 Company-owned.
For the third quarter, Famous Dave’s reported a 13.7% revenue decline to $21.9 million; a loss of $1.8 million, narrowed from $2.5 million in the prior-year period; and a system-wide comp decrease of 1.5%, including a 2.1% drop at franchised units and a 0.9% increase at Company restaurants.
Camping World
Camping World’s third quarter sales increased 25.1% to $1.24 billion due to the opening of 22 new stores and a 9.4% increase in comps on top of a 5.8% increase for the same period last year. EBITDA increased 29.1% largely due to the sales improvement, while TTM interest coverage was adequate at 5.9x. The Company operated 137 Camping World retail locations, two Overton’s locations, two TheHouse.com locations, and one W82 location as of September 30, compared to 120 Camping World retail locations in the prior year period. The Company assumed 15 Gander Mountain leases on October 6 through the exercise of designation rights, and the Company expects to enter into new leases for other locations. Contingent on final lease negotiations, the plan is to open the initial 15 to 20 Gander Mountain stores, which will be rebranded Gander Outdoors, by the end of the first quarter 2018, and an additional 40 to 45 stores during the 2018 second and third quarters.
Sears Holdings
Sears Holdings’ operations continue to deteriorate, store closures are mounting, and the Company is facing a long list of other problems. Last Wednesday, Sears announced a pension plan amendment, along with a third quarter sales and profit warning, which the Company partially blamed on reductions in the number of pharmacies in open Kmart stores and cuts to the consumer electronics assortment across Sears and Kmart stores.
99 Cents Only
On November 8, S&P Global Ratings lowered its corporate credit rating on 99 Cents Only to SD from CC, lowered the issue-level rating on the Company’s first-lien term loan due 2019 to D from CC, and lowered the issue-level rating on its senior unsecured notes to CC from CCC-. The downgrade follows 99 Cents Only’s completed amendment of its first-lien term loan. According to S&P, the amendment is viewed as “tantamount to a default given lenders will receive less than they were originally promised under the original credit agreement due to the three-year maturity extension and because of the Company’s distressed financial condition…. Certain lenders did not consent to the amendment, leaving approximately $26.0 million of first-lien term debt outstanding that matures January 13, 2019.”
A day later, on November 9, S&P assigned its CC issue-level and ‘3’ recovery ratings to 99 Cents Only’s new first-lien term loan due 2022. The ‘3’ recovery rating reflects S&P’s “expectation for meaningful (50% – 70%; rounded estimate: 60%) recovery in the event of a payment default.” S&P commented, “We believe 99 Cents Only's announced separate exchange offer for its senior unsecured notes will constitute a distressed exchange if completed as planned and therefore, we lowered the rating to 'CC' on Nov. 8.”
Dick's Sporting Goods
Dick’s Sporting Goods reported third quarter sales increased 7.4% to $1.94 billion. Comps slipped 0.9%, on par with the Company’s guidance for a low single-digit decrease. E-commerce sales increased 16% and represented 10.3% of total sales, up from 9.6% last year. As a result of margins that were under pressure due to the highly promotional environment, profit fell 24.5% to $36.9 million. Looking ahead, the Company expects fiscal 2017 EPS of $2.95 – $3.07, up from previous estimates of $2.85 – $3.05. CEO Edward W. Stack commented, “We plan to increase investments in our e-commerce business, the technology in our stores and store payroll in order to enhance the customer experience. Meaningful investments will also be made to Dick’s Team Sports HQ, and in the development and support of our private brands.” During the quarter, the Company opened 15 new Dick’s Sporting Goods stores and six new Field & Stream stores; it also closed two underperforming specialty concept locations. As of October 28, the Company operated 719 Dick’s Sporting Goods stores in 47 states, 98 Golf Galaxy stores in 32 states, and 35 Field & Stream stores in 16 states.
Starbucks
More than a year after investing in high-end Italian bakery Princi, Starbucks has opened its first Princi location in a Reserve Roastery and Tasting Room in Seattle, WA. Offerings include more than 100 items, such as croissants, focaccia sandwiches and salads. While Princi food will only be available at Starbucks’ Roasteries, the Company plans to open standalone Princi stores starting in 2018. The Princi bakery is Starbucks’ stepping-stone into the lunch segment.
DineEquity
DineEquity reported a third quarter sales decline of 7.3% to $144.7 million. IHOP’s domestic system-wide comps fell 3.2%, while Applebee’s comps fell 7.7%. The Company posted a net loss of $451.7 million, compared to income of $24.3 million last year, largely due to impairment charges of $531.6 million related to the write-downs of Applebee’s goodwill and other intangible assets and partially offset by a deferred tax benefit of $64.1 million.
The Company revised its guidance and now expects fiscal 2017 domestic comps at Applebee’s to be -5.5% to -6.5%, compared to previous guidance of -6% to -8%. It reiterated its expectation for IHOP’s comps to be -1% to -3%. The Company expects to close 105 – 135 Applebee’s and 25 – 30 IHOPs, compared to previous guidance of 20 – 25.
Wendy's
Wendy’s reported a third quarter sales decline of 15.4% to $308.0 million, due to the ownership of 249 fewer Company-operated restaurants. North America comps increased 2%. Operating profit fell 41.9% to $61.7 million due to a year-over-year decrease in gains from the Company’s system optimization initiative. Net income fell more than 70% to $14.3 million.
During the quarter, the Company opened 22 net new stores globally, including 12 in North America and 10 internationally. This compares to 13 net new global openings last year, all of which were in North America.
Looking ahead at fiscal 2017, Wendy’s expects comp growth in North America of 2% – 2.5%.
Meanwhile, Wendy’s is partnering with DoorDash to bring delivery to 48 markets and 2,500 stores by the end of the year. The Company started testing delivery earlier this year in central Ohio and Dallas.
Target
Target unveiled its first “next generation” store in the Houston metro area last week. The 124,000-square-foot store in Richmond, TX has two distinct entrances: busy families can enter the “ease” side of the store, which offers a supermarket-style experience and allows customers to pick up online orders, both in store and curbside, as well as buy grab-and-go items like groceries, wine, last-minute gifts, cleaning supplies and prepared meals; and leisure shoppers can enter the “inspiration” side, similar to a department store, which allows customers to wander aisles of seasonal decor, beauty products and specialty brands. On the “ease” side, Target moved its grocery section to the front and expanded its selection to offer more fresh produce, prepared meals and local foods. The “inspiration” side offers a Starbucks with outdoor seating and brightly lit sections with names like TrendSpot, Kitchen World and Wondershop that showcase popular apparel, cookware and seasonal decor. The new format is part of the Company’s multibillion-dollar effort to redesign more than 1,000 stores nationwide to better compete with Amazon and Walmart’s e-commerce capabilities. Target plans to remodel more than half of its 1,834 stores nationwide to incorporate elements of its Richmond store.
Separately, Target announced that it’s closing a dozen stores across Minnesota, Michigan, Kansas, Louisiana, Florida, Illinois, Maryland, Texas and Georgia. The closures, which will occur after the holiday season in February, are based on an analysis of performance over the past several years. The Company is still on track to open 32 stores this year and 35 in 2018.
Walmart
According to a published report, Walmart has adopted a policy of charging more for some products on its website as compared to its stores — including certain dry packaged goods, HBC items and pet food. In some cases, the site is transparent about the price differential, and its online prices also “often” match those of Amazon. The story notes that “the move is unusual for Walmart, which has long honed an ‘everyday low price’ message and has worked to keep online prices at least as low as shoppers find in its 4,700 U.S. stores … Walmart previously aimed to keep online and in-store prices equal for many of its most popular products, unless competition drove them lower. But the Company is experimenting with a new system, which has at times resulted in higher web prices for goods that would otherwise be unprofitable to ship.” Marc Lore, president/CEO of Walmart eCommerce U.S., indicated that it is simply cheaper to sell products in stores than online and that the higher costs of e-commerce are reflected in the prices.
Walmart de Mexico (Walmex) reported October sales rose 5.1%, and comps increased 4.7%.
Styles For Less Inc., DIP
Styles For Less Inc., DIP (dba Styles), a teen fashion retailer, filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. The Anaheim, CA-based Company listed assets and liabilities between $10.0 million and $50.0 million in its filing. According to the filing, its biggest creditors include wholesale suppliers Vivace and Ambiance. Styles sells women’s apparel and accessories at 93 stores in malls and outlets in California, Nevada, Utah, Arizona and Florida. The Company cited several factors for its bankruptcy, including industry discounting, digital threats, and the rise of fast-fashion competitors; it had already closed 55 underperforming stores, laid off 311 employees, cut salaries and slashed expenses in an attempt to turnaround prior to filing. Styles is looking to reorganize its debt while under bankruptcy protection, and is seeking debtor-in-possession funding for working capital purposes. The Company joins a list of apparel retailers that have filed this year, including Payless, rue21, Gymboree and True Religion.
Rent-A-Center
Rent-A-Center responded to Vintage Capital’s offer to acquire the Company for $13 per share. The Company stated, “Given the early stage of the strategic review and the level of inbound interest from other parties, we do not believe it is in the best interests of our stockholders to enter into an exclusivity agreement with Vintage at this time.” Rent-A-Center added that it “looks forward to additional dialogue” with Vintage Capital. Following the recent board resignations and activist pressure, which subsequently allowed the Company to seek strategic alternatives, Rent-A-Center will likely continue to assess potential offers.
Vitamin World, DIP
According to documents filed on November 8 with the Bankruptcy Court, Vitamin World, DIP stated that sales have been significantly lower than expected, leading the Company to evaluate plans to immediately liquidate half of its retail stores and sell the related assets. The Company further stated that the failure to meet performance goals in the DIP Facility, which recently received final approval, has led to the possibility of a default. Counsel for the Debtor proposed a dual-track sale process under which the Company will liquidate the inventory at 140 of its 280 retail locations prior to closing the units. The Company will concurrently seek a purchaser for the remainder of its stores, on a going concern basis. Vitamin World indicated it does not yet have a stalking horse bidder, however, the sponsor of the original Plan of Reorganization had expressed interest in acquiring the assets at a price that could exceed the amount of existing prepetition and post-petition debt held by Wells Fargo.
Amazon
Amazon is officially making a foray into the furniture and home goods segments, with the launch of two new private labels sold exclusively on amazon.com called Rivet and Stone & Beam. The two lines will be produced by contract manufacturing and will reportedly offer lower price points than name-brand competitors.
Meanwhile, Amazon is returning to the private-label diaper business, under its new baby product label called Mama Bear. The Company previously had a private-label diaper line as part of Amazon Elements that was discontinued after customer complaints about quality.
According to published reports, Amazon’s physical retail and fast delivery businesses are now under a single leader, SVP Steve Kessel. Mr. Kessel will head the Whole Foods unit, as Amazon works to consolidate its online and physical businesses. He will also oversee Prime Now, AmazonFresh and Amazon’s physical stores. Mr. Kessel has been the force behind the Amazon Books bookstores and Amazon Go convenience stores.
Amazon recently launched in-home delivery drop-off service Amazon Key in Seattle, WA. It is now available in 37 U.S. cities, with more rolling out in the future. The service allows Prime shoppers to have their packages securely delivered inside their doorway without having to be present.
Amazon plans to open its fourth fulfillment center in Maryland in Baltimore. The new facility will be 855,000 square feet and will pack electronics, books, housewares and toys.
Amazon plans to open five pop-up stores at select Whole Foods locations for the holidays. The Amazon-staffed centers will launch beginning this week in Illinois, Michigan, Florida, California and Colorado. Shoppers will be able to try Amazon devices and learn about Amazon services and Prime memberships. Roughly 100 Whole Foods stores already carry Amazon devices. The move is in line with Amazon’s growing presence in retail stores. In October, it launched “smart home spaces” inside 10 Kohl’s stores in the Los Angeles and Chicago areas.
