Retail News

Ahold Delhaize/Kroger

There is growing speculation that Ahold Delhaize might be considering an acquisition or merger of equals with Kroger, including Twitter speculation suggesting Ahold Delhaize has hired advisers to study a possible bid for Kroger. Ahold merged with Delhaize in July 2016, and Kroger’s stock is down more than 40% from a 52-week high of $36.44.

If such a deal were to occur, the combined companies would generate about $170.00 billion in U.S. sales, putting it within striking distance of Walmart’s total U.S. grocery operations (just over $200.00 billion in annual sales).

Ahold Delhaize operates 6,589 stores worldwide, including 1,977 in the U.S. along the East Coast, primarily under the Food Lion, Stop & Shop and Hannaford banners. Meanwhile, Kroger has 2,793 stores in 35 states and D.C. In the U.S., Ahold Delhaize operates about 1,100 Food Lion stores in the Southeast where Kroger already has a presence. Ahold Delhaize also has more than 400 Stop ‘n Shop stores in the Northeast, where Kroger has yet to enter.

Separately, Ahold Delhaize announced a new rewards program at its Food Lion chain called Shop & Earn; the program is currently being rolled out in the Greensboro, NC market after a successful pilot in Raleigh earlier this year. Last week, the Company launched a new app-based loyalty program at its Hannaford stores that rewards customers for buying private-label items.

Meanwhile, Food Lion has reportedly completed a $110.0 million investment in its Richmond, VA-area stores. The renovations, part of its Easy, Fresh & Affordable market renewal strategy, include new signage, flooring and upgraded check-out counters, and the stores offer additional prepared foods and organic products. Fourteen of the 71 stores have new walk-in produce coolers.

Lidl

As was reported last week, Lidl may be falling a bit short of its lofty expectations regarding shopper sales traction in the U.S. In support of that, store-traffic-analysis data firm inMarket recently reported that when Lidl’s first nine U.S. stores opened on June 15 in Virginia and the Carolinas, they lured customers away from other grocers. But Lidl hasn’t been able to sustain that same initial level of traffic, and major grocers including Kroger and Walmart have recovered much of their lost market share. In June, Lidl was drawing 11% of consumer visits to traditional grocers in nine markets in Virginia, North Carolina and South Carolina. By August, Lidl’s share of that traffic fell below 8%. When more diversified food sellers like Walmart and Target are included, inMarket says Lidl’s share of shopping trips in those states peaked at nearly 3% in June before falling in July and August. Lidl recovered some traffic in September, reaching 2% of the market. The timing of Lidl’s U.S. arrival wasn’t ideal. It opened its first stores the day before Amazon announced it would purchase Whole Foods. Supermarkets responded by slashing prices and investing in online ordering and delivery. Lidl does not have an online grocery-shopping operation in the U.S. Nevertheless, according to food research firm Hartman Group, prices in a basket of select goods at new Lidl stores were as much as 39% lower than at competitors Food Lion and Walmart in Virginia and North Carolina. Accordingly, even if Lidl’s market share has not initially been as strong as expected, it is likely having an impact on competitor margins and profitability.

Metro Inc./Jean Coutu Group

Last week Metro Inc. agreed to acquire Jean Coutu for C$4.50 billion, with 75% payable in cash and 25% payable in Metro stock. In a conference call and presentation, Metro provided information detailing the agreement. The combined company will operate 630 food stores and 677 pharmacies, including Metro’s 258 pharmacies (184 in Quebec and 74 in Ontario) and Jean Coutu’s 419 pharmacies (382 in Quebec, 10 in Ontario, and 27 in New Brunswick). Metro has committed financing in place for the approximately $3.40 billion cash component of the deal, and management stated that it has authorization to sell some or all of its investment in Alimentation Couche-Tard to reduce leverage over time following the deal. Metro holds approximately 32.2 million of Alimentation’s Class A voting shares, or 21.81% of the outstanding shares, which at current market value totals C$1.93 billion. Assuming that the investment is sold and proceeds used to pay down debt, management expects the combined company will have a pro-forma debt to EBITDA under 3x, compared to 1.5x presently, and expects to use free cash flow to further pay down debt to get to a long-term target of 2.5x. From an operating standpoint, the Company expects to recognize C$75.0 million in annualized synergies by the end of the third year, primarily through warehouse rationalization and cost savings from procurement and other administrative expenses. The Jean Coutu family, which owns 93.2% of the aggregate voting interest, has already irrevocably committed to approving the agreement. The deal is expected to close in the first half of 2018 but requires regulatory approval from the Competition Bureau.

Neiman Marcus

This morning, Neiman Marcus Group announced fourth quarter sales slipped 0.7% to $1.12 billion, and comps were down 0.5%. The Company recorded a 10.1% improvement in its net loss to $366.3 million compared to $407.2 million last year. During the quarter, Neiman Marcus recorded a non-cash impairment charge of $357.0 million to state certain intangible and other assets, primarily related to its Neiman Marcus and Bergdorf Goodman brands, to their estimated fair value. In comparison, the Company recorded a non-cash impairment charge of $466.2 million in the prior year’s fourth quarter for the same reason.

Nordstrom

On October 3, Nordstrom opened its new retail concept, Nordstrom Local, in West Hollywood, CA. The 3,000 square-foot store offers onsite tailoring, personal stylists, buy-online-pickup-in-store, and nail salon services. While the store has no dedicated inventory, customers can request merchandise from other Nordstrom stores or online to try on in one of eight fitting rooms. That same day, the Company also opened a 154,000 square-foot full-line store in Los Angeles, which is a relocation of a nearby store. The relocated store features an updated design layout with several different merchandise in-store concepts, including a sneaker boutique, “extended sizing” in the denim department, a makeup studio, a style bar (personal stylist service) and Bar Verde (a full-service restaurant and bar). Looking ahead, the Company plans to open its 10th Nordstrom Rack in Los Angeles on October 26.

A previously reported last week, published reports indicated that the Nordstrom family may be having difficulty securing the financing needed to complete a potential going private transaction of Nordstrom.

Sears Canada

A Court hearing is scheduled for October 13 to approve a motion by lenders for a liquidation of Sears Canada, DIP’s remaining assets. The process to begin liquidation would start either October 19 or October 26. Former Executive Chairman Brandon Stranzl has a bid in place to operate the Company as a going concern. The Monitor, FTI Consulting, is working with Mr. Stranzl but emphasized that the Company is “operating at a substantial weekly loss.” However, the Monitor proposed disposing of 11 properties through lease surrenders or outright sales, deals that undercut Mr. Stranzl’s original business plan for the restructured Company. In addition, on October 4, the Honorable Mr. Justice Hainey granted an Order extending the Stay Period to November 7.

Amazon/Whole Foods

Amazon is reportedly experimenting with a new delivery service called Seller Flex that will make more products available for free two-day delivery and relieve overcrowding in its warehouses. The program gives Amazon more functions that are now handled by longtime partners UPS and FedEx, including the pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers’ homes. This will allow Amazon more flexibility and control over the last mile of delivery. The tests originally began in India but have now moved to the West Coast of the U.S. in anticipation of a national rollout next year.

The European Union authorities have ruled that Amazon must pay $294.0 million in back taxes to the government, following a three-year investigation claiming it put the vast majority of its profits in a Luxembourg-based holding company, which allowed the Company to avoid paying taxes on the bulk of its European profits between 2006 and 2014. Under Luxembourg’s tax laws, Amazon’s holding company was not subject to corporate taxes, which ”granted a selective economic advantage to Amazon,” according to European authorities. Amazon is reportedly considering an appeal.

Tomorrow, Whole Foods will open a new store in downtown Metuchen, NJ. The 45,000 square-foot store will be the Company’s first in Middlesex County and its 18^th in the state. The store will feature Comida Fresca Restaurant, serving Mexican food with indoor and outdoor seating; an Asian BBQ section with stir-fry bowls cooked to order; pizza, sushi and a hot food bar; as well as a coffee and juice bar.

Alimentation Couche-Tard

Alimentation Couche-Tard’s pending deal to acquire Holiday Stationstores is on track to close in the third quarter of Couche-Tard’s 2018 fiscal year. Published reports indicate that once the purchase goes through, Couche-Tard expects to continue using the Holiday brand and logo: “Holiday Stationstores have strong name recognition and reputation in the region, and we plan to continue that legacy (which includes the name/brand) following the close of the acquisition.” The Company declined to comment on specific locations, and it is unknown if all 500-plus Holiday Stationstores sites will retain the name or if some will be rebranded Circle K. The news comes despite the Company’s announcement in 2015 that it would consolidate its Circle K, Statoil, Mac’s and Kangaroo Express retail brands under a single refreshed Circle K global banner. As of July 23, nearly 1,800 stores in North America and 1,300 stores in Europe had been converted to the Circle K brand.

Holiday also operates a food commissary, which Couche-Tard plans to leverage in its foodservice efforts. Couche-Tard President and CEO Brian Hannasch recently stated, “We certainly see an opportunity to leverage not only the commissary itself, but the learnings that Holiday has in terms of doing that in a broader sense and certainly outside of core markets where you are delivering fresh every day.”

Ross Stores

Ross Stores completed its 2017 store opening plans with the debut of 30 new Ross Dress for Less stores and 10 dd’s Discounts stores in September and October (on top of the 44 new Ross and 12 new dd’s stores opened during the first half of the year). The stores were opened in 22 markets across the U.S., with nearly half in the Company’s newest market, the Midwest. The Company now operates more than 1,400 Ross stores and over 200 dd’s Discounts stores. Looking ahead, management is confident that Ross can grow to 2,000 locations and dd’s can reach 500 stores in operation.

Fairway

According to a recent report in The New York Post, John Catsimatidis, owner of Gristedes supermarkets, is engaged in “informal discussions” with GSO Capital Partners, the owner of Fairway Market, though a deal is not “imminent.” Mr. Catsimatidis commented, “We put out feelers that we had interest before they went bankrupt and after.” He has explored buying the 15-store chain in the past. In May 2016, Mr. Catsimatidis made an offer after Fairway filed for Chapter 11, but GSO Capital, which is owned by the Blackstone Group, outbid him. The attractiveness of the asset with its high leverage and continued competitive challenges make a very compelling bid a long shot.

Academy Sports + Outdoors

Academy Sports + Outdoors' first half comps fell 6% – 8%, as the Company continues to work through soft industry trends, which pressured margins as well. Responding to the difficult environment, the Company expects to cut its store openings to roughly eight new locations in 2018, compared to the 16 locations opened in 2017, which should effectively reduce net capital expenditures to less than $90.0 million in 2018 from about $135.0 million in 2017. Additionally, the Company confirmed that it continues to evaluate its cost structure, which could result in additional layoffs (in January the Company laid off 100 workers). It should also be noted that CFO Michael Arnett recently resigned, and the Company has not yet named his replacement. Despite the concerning operating trends, the Company still expects to generate positive free cash flow in 2017 of less than $100.0 million. From a liquidity perspective, management noted that it has in excess of $550.0 million available under its $650.0 million ABL, which is more than adequate to fund short term capital requirements. We believe the Company will be able to repay all outstanding borrowings with positive cash flow generated in the fourth quarter. According to the Company, Hurricane Harvey only had a minor impact on operations, and management expects it could benefit to a small degree in the months following, as customers replenish damaged merchandise. Additionally, the Company confirmed that it experienced an increase in gun sales following the horrific events in Las Vegas, which we believe will also likely provide sales support for the duration of fiscal 2017 as dialogue about tighter gun control legislation intensifies. However, since the new administration is not as inclined to propose tighter restrictions, the spike in sales may be somewhat subdued relative to previous incidents.

Cardenas Markets

On October 5, Cardenas Markets LLC announced the acquisition of Los Altos Ranch Market, including seven stores in Phoenix, AZ, from CNG Ranch, LLC (CNG Ranch is a partnership formed by Northgate Gonzalez Market and Cardenas Markets). Financial terms of the deal, expected to close within 45 days pending final approvals, were not disclosed. This acquisition expands Cardenas’ footprint into the Arizona market and brings its total store count to 53. During a transition period, Northgate Gonzalez Market, a managing partner of CNG Ranch, will continue to provide key operational support services to Cardenas Markets. The acquired stores will be gradually integrated into its operations. Earlier this year, Victory Park Capital made investments in the former Cardenas Markets Inc. and Mi Pueblo San Jose Inc., merging the two to become Cardenas Markets LLC.

Sprouts Farmers Market

Sprouts Farmers Market said it plans to open nine new stores during the first three months of 2018. Three stores will be located in Arizona, two in New Mexico and one each in California, Florida, Maryland and North Carolina. The Maryland store will be Sprouts’ first in the Northeast. For the full year (2018), Sprouts plans to open a total of 30 new stores. It currently operates more than 280 stores.

Maurice Sporting Goods

Yesterday, Maurice Sporting Goods announced that Peak Global Holdings, the parent company of Big Rock Sports, Head Quarters Taxidermy Supply, and Bluefield Brands, signed a letter of intent to acquire the Company. Maurice Sporting Goods said it will continue to operate without interruption, as the transaction is finalized. The Company also stated that it will operate as a stand-alone subsidiary of Peak Global Holdings and a sister company of Big Rock Sports. The details of the transaction were not provided, including whether it will be a purchase of stock or assets.

Jamba Juice

Jamba Inc.’s largest franchisee, Vitaligent LLC, has acquired 21 units from a former Jamba Juice franchisee. As part of the deal, Vitaligent committed to developing 12 additional stores in the Seattle area over the next five years. The deal bring Vitaligent’s franchise group to 100 stores in California, Missouri and Washington. Terms were not disclosed.

Uniqlo

Uniqlo is opening a new location at Union Station in Washington D.C. today. The 3,400 square-foot store will carry products for men and women, with a focus on light, packable essentials. The store will emphasize grab-and-go items to meet the needs of traveling customers. This is Uniqlo’s 46th store in the U.S. and second in the D.C. metro area, following its first D.C. opening in McLean, VA last year. The chain’s 47th location is expected to open later this year in Los Angeles; that location will be dedicated to denim and will be Uniqlo’s ninth store in the Los Angeles region. Uniqlo, a Japanese fast-fashion retailer that operates as a subsidiary of Fast Retailing Group, has more than 1,900 stores in 19 markets worldwide.

Walmart

On October 6, Walmart announced a cash tender offer for up to $8.50 billion of certain of its outstanding debt securities. The tender offer commenced October 6 and expires on November 3.

On the heels of Walmart’s recently announced partnership with Google, Walmart customers can now shop more Walmart.com items via voice through Google Home devices. Walmart also announced that customers who buy such devices from Walmart can receive up to $25 off a Walmart order.

Meanwhile, Walmart announced plans to launch Mobile Express returns, an addition to the Walmart app that lets customers start the process for returning an item from their mobile device then complete the transaction in a store. The new service sets a goal of bringing the time it takes to return an item to 30 seconds. Mobile Express Returns will be available starting early November for items sold and shipped from the Walmart website. It will apply to in-store purchases in early 2018.

Ahead of its annual meeting to be held today, Walmart reiterated its FYE18 EPS guidance of $4.18 – $4.28. For FYE19 it expects EPS to increase 5%. The Company also added that for FYE19, sales are expected grow at or above 4%, driven by comp and e-commerce growth. Anticipated U.S. e-commerce sales growth is 40%, with plans to add 1,000 online grocery locations. The Company expects capital expenditures to be approximately $11.00 billion for FYE18 and FYE19. It expects global unit growth of approximately 280 for both years. Walmart U.S. expects to open fewer than 15 Supercenters and fewer than 10 Neighborhood Markets in FYE19. Walmart International expects to open approximately 255 new stores, with a focus in key markets such as Mexico and China.

Walmart also announced it launched a new two-year, $20.00 billion repurchase plan that replaces a $20.00 billion buyback program approved in October 2015.

Office Depot

On October 3, Office Depot entered into a definitive agreement to acquire CompuCom Systems, Inc., a provider of IT support services and products for small and midsize businesses. Office Depot will acquire CompuCom from Thomas H. Lee Partners, L.P. (THL), a private equity firm, for a total consideration of $1.00 billion, which includes the repayment of approximately $750.0 million in CompuCom debt and issuance of new Office Depot shares. Following the transaction, THL will hold an equity position in Office Depot of 8% of total shares outstanding. Management indicated the acquisition will add $1.10 billion in annual revenue and deliver expected cost synergies of over $40.0 million within two years. Office Depot has sought to diversify away from its current 50/50 mix of retail and business services in an environment of falling demand. Management estimates that following the transaction, revenue will be 46% retail, 45% business services, and 9% CompuCom.

Costco

Costco’s fourth quarter sales jumped 15.7% to $42.30 billion, driven by comp growth of 5.7% (excluding the impacts from fuel and foreign exchange). Comps increased 5.7% in the U.S., 4.8% in Canada and 6% in Other International. Net income increased 18% to $919.0 million. For fiscal 2017, sales rose 8.7% to $129.0 billion, comps increased 3.8%, and net income was up 14% to $2.68 billion. Net income was positively impacted by an $82.0 million tax benefit in connection with the 3Q special cash dividend, and other benefits of $51.0 million for nonrecurring net legal and other matters. E-commerce sales increased 21% for the quarter and 31% for the year. During fiscal 2017, Costco added a net of 26 new stores, bringing its total count to 741. Costco also reported September sales growth of 12.1% to $12.40 billion and comps of 6.2%.

Costco is upgrading its home delivery options, offering two-day delivery on shelf-stable food from its own website, while also expanding its fresh-food delivery partnership with Instacart (one-day delivery). The new Costco.com delivery service, dubbed CostcoGrocery, will offer free shipping on around 500 products for orders of at least $75. Its Instacart partnership will sell around 1,700 grocery products like eggs, meat and fruit, with free same-day delivery on orders of at least $35. Both Costco.com and Instacart previously sold some Costco groceries but at higher prices. CFO Richard Galanti says that while the Company still prefers customers “to just come in and buy and take it home,” it would rather opt to offer delivery and lose the in-store business to itself rather than to the competition.

Following last Friday’s announcement, shares fell 6% to close at $157.09, as analysts and investors worried about the consequences of having fewer in-store shoppers. Costco has historically done well with impulse items.

Suitstudio

Netherlands-based Suistudio, an online women’s apparel retailer established in the spring of 2017, is opening its first U.S. store at the end of October in New York City. This will be Suistudio’s third brick-and-mortar location, joining two standalone stores in Amsterdam and Shanghai. In addition to suits, the merchandise mix includes shirts, dresses and evening wear; in-store tailoring will also be available. Suistudio is a subsidiary of Suitsupply, which was founded online in 2000 and now operates 84 menswear stores worldwide, including 25 in the U.S.

BJ's Wholesale Club

BJ’s Wholesale Club will relocate its Hooksett, NH store to a former Sam’s Club building in Manchester, NH. The new location will be 110,000 square feet. The Hooksett BJ’s will close in early 2018.

Big Lots

On October 6, Big Lots opened a store in Mesa, AZ. The store reflects a new format dubbed “Store of the Future” that showcases merchandise categories of Furniture, Seasonal, Soft Home, Food, and Consumables with prominent positioning, and is part of the Company’s broader initiative to reposition the brand as a community retailer offering value and friendly service.

Marcus Lemonis Fashion Group

Marcus Lemonis Fashion Group opened its newest fashion retail concept, called Marcus, in Chicago, IL. The Company operates a variety of banners, including Denim & Soul, Union 73, and Final Sale. The newest concept, a 4,000 square-foot store, is described as a luxury and lifestyle destination offering the latest in contemporary styles. Additional locations are expected to open within the next six months in Aspen, CO, Hinsdale, IL and New York City. Marcus Lemonis, a retail entrepreneur and owner of the Company, is also the CEO of Camping World. Between his many businesses and TV show, you have to wonder if Mr. Lemonis is spreading himself too thin. Turning around the Gander business is a full time job in and of itself.

Forever 21

Forever 21 is rolling out its newest mall-based beauty boutique concept, Riley Rose, at 13 General Growth Properties (GGP) locations across the U.S. The first store opened last week in Los Angeles, CA, and nine more locations are expected to open before year end; three stores are slated to open in 2018. Riley Rose stores will sell accessories, cosmetics, and home goods targeting the millennial customer. As a retailer in the struggling apparel industry, Forever 21 is turning to beauty products to boost growth, as the beauty sector typically has higher margins. Riley Rose plans to launch its own website this November. The concept will face competitors such as Ulta Beauty, Sephora and Macy’s Bluemercury.

PriceSmart

PriceSmart reported September sales rose 3.8% to $237.2 million, while comps increased 2.8%. The Company operates one club in St. Thomas, U.S. Virgin Islands, where Hurricanes Irma and Maria both hit. The store there did not sustain substantial damage, but the impact on the island resulted in nine days of closure and an additional 16 days of reduced hours during the month. The Company announced on October 5 that it opened a new club in Santa Ana, Costa Rica, its seventh club there. PriceSmart now operates 40 stores.

IKEA Group

IKEA Group plans to open a 289,000 square-foot store tomorrow in Fishers, IN, marking its first location in Indiana, 45th in the U.S. and 408th worldwide. The Company most recently announced plans to open a 348,000 square-foot store in Glendale, AZ in the spring of 2020. This will be Ikea’s second location in Arizona, joining a store in Tempe, AZ that has been in operation for the past 13 years. Construction on the new store is expected to begin in the fall of 2018.

As previously reported, Ikea recently announced it is acquiring TaskRabbit, an on-demand services platform that connects customers with workers who offer services such as furniture assembly, moving and packing, general handyman repairs, and home improvements. TaskRabbit will operate as an independent company within the Ikea Group.

Spirit Halloween

Spirit Halloween plans to have 1,300 temporary locations operating across North America this season, up from the more than 1,100 pop-up stores that operated last year. The Company has been expanding its physical footprint over the past 15 years, adding roughly 50 to 100 stores throughout the U.S. and Canada each year. Because the Company is flexible about where its stores are located, this year more locations will be inside malls, in addition to open-air strip centers. CEO Steven Silverstein indicated that this year there is more availability in “quality real estate” for short-term leases due to the growing number of tenants closing stores or going out of business. Consumer spending around Halloween is expected to reach a record $9.10 billion this year.

Perfumania Holdings, DIP

On October 6, Perfumania Holdings, DIP received Bankruptcy Court approval to move forward with its prepackaged Reorganization Plan, which is expected to become effective tomorrow. Under the Plan, Perfumania will continue to operate as a privately-held Company, and complete the previously announced closures of 65 underperforming stores (store closing sales began last month), which will leave it with about 160 stores in operation. The Company expects to pay vendors and suppliers in full in the ordinary course of business. The Plan calls for all outstanding shares of Perfumania’s common stock to be canceled, and shareholders will be given the opportunity to receive $2 per share in exchange for completing a shareholder release form. Perfumania will receive an equity infusion from certain current shareholders and holders of its unsecured debt that will be used to make distributions under the Plan, to fund the consideration being paid to shareholders, and to fund ongoing operations.