Retail News

Kroger

Last week, Kroger said it would explore strategic alternatives for its convenience store business (estimated to be worth $1.50 billion – $2.00 billion), including a potential sale; the Company has hired Goldman Sachs to identify, review and evaluate options. Initial speculation over potential buyers for the 784 sites located across 18 states (includes 68 franchise operations), operating under the Turkey Hill Minit Markets, Loaf ‘N Jug, KwikShop, Tom Thumb and QuickStop banners, included 7-Eleven and Alimentation Couche-Tard since they both strive to occupy the top spot among c-store operators in North America. However, the fact that 7-Eleven still has not closed on its deal with Sunoco to acquire 1,108 convenience stores in 18 states for $3.30 billion might dampen its desire to bid on the Kroger stores. For its part, Alimentation has added quite a bit of debt following its acquisition of The Pantry in 2015 and CST Brands only a few months ago, so it may also be somewhat reluctant to take on another chunk of stores. Geographically, Casey’s seems a good fit but may not want to operate multiple banners and types of stores that do not fit into its current marketing/branding strategy. Ultimately, we may see the stores sold off in blocks to various buyers.

Ahold Delhaize

Following last week’s speculation that Ahold Delhaize might be considering an acquisition or merger of equals with Kroger, Ahold Delhaize CEO Dick Boer said in a recent interview, “We are just starting to integrate the companies (Ahold and Delhaize) here on the U.S. side. We have our hands full to work on what we have to do today. Today, we need to focus ourselves on delivering the synergies, the value out of this deal and that’s important for us. We, of course, are always looking around to see what is happening.There is always speculation. I leave the speculation to the people who speculate.” As for Kroger, it refrained from any comment on a potential deal with Ahold Delhaize, but when asked about potential uses for its expected cash flow generation in excess of $4.00 billion over the next three years, roughly double what was generated over the previous three years, Chairman and CEO Rodney McMullen said, “I wouldn’t say we’re building a war chest to go out and make some major M&A activity, but I do think you’ll continue to see more opportunities like we did in Indiana with the Marsh stores. There’s assets out there in a market like that today that will wind up trading at a pretty attractive price per store.” In June, Kroger acquired 11 former Marsh locations in Indiana for $16.0 million.

Camping World

On October 12, Camping World Holdings announced plans to purchase Uncle Dan’s Ltd., dba Uncle Dan’s Outfitters, a specialty retailer of outdoor gear, apparel, and camping supplies. Terms of the transaction were not disclosed. Over the past six months, Camping World Holdings has acquired certain assets of Gander Mountain, a hunting, fishing, camping, and outdoor gear retailer; Overton’s, a retailer of boating and marine accessories; and TheHouse.com, an online retailer specializing in bikes, sailboards, skateboards, wakeboards, snowboards and outdoor gear. The combination of these retailers and their e-commerce platforms is intended to facilitate the Company’s transition into the broader outdoor lifestyle market. Camping World most recently said it plans to acquire between 40 and 70 of the former Gander Mountain stores, while its bid at the bankruptcy auction requires it to take a minimum of only 17 units, which include 15 former Gander units and two Overton’s stores. The Company plans on opening the initial Gander Outdoors locations in November, about the same time as GanderOutdoors.com will commence operations. Between 15 and 20 of the Gander Outdoors stores are scheduled to open by the end of 2017, another 15 to 20 will open in the first few months of 2018, and an additional 10 to 30 stores will open throughout 2018. Earlier this month, Camping World entered into an agreement with its lenders to increase its term loan by $205.0 million, to about $940.0 million. The Company did not indicate how it plans to use the proceeds.

This morning, Camping World announced the acquisition of Cooper’s RV Center in Pittsburgh, PA. Camping World currently operates RV dealerships in Hanover and Harrisburg, PA, and with the acquisition of Cooper’s, the Company intends to significantly expand its market footprint and presence in western Pennsylvania.

Southeastern Grocers

Last week, Southeastern Grocers (SEG) announced the continued expansion of its Fresco y Más and Harveys Supermarket banners, with the conversion of eight Winn-Dixie stores throughout Florida. SEG will open five new Fresco y Más stores in South Florida on November 2 and three new Harveys Supermarkets in West Florida on November 8. Fresco y Más caters to the Hispanic population, while Harveys Supermarket is a discount format. The conversions were likely well underway before Hurricane Irma hit last month, which resulted in closed stores and supply disruptions for many of the Company’s stores.

Office Depot

On October 11, Office Depot announced the acquisition of independent office supplies dealer Complete Office Solutions (COS), in a deal worth $150.0 million. Terms of the transaction indicate that COS will continue to operate as a standalone business with its own staff and distribution centers. COS operates from three divisions in Washington, Wisconsin and California, with a total of 300 employees. The deal comes in the same month Office Depot acquired IT service provider CompuCom Systems from private equity firm Thomas H Lee Partners, for $1.00 billion.

7-Eleven

According to reports, Sunoco LP’s bondholders are creating an obstacle for the $3.30 billion deal to sell 1,108 gas stations and convenience stores to 7-Eleven announced in April. A group of creditors has told Sunoco it intends to oppose its attempt to change the terms of the credit pact governing about $1.60 billion of bonds, a step that Sunoco has said is needed to complete the sale. The debtholders are demanding more money and better protections to agree to the changes in the bond indentures, according to a person with knowledge of the matter, who asked not to be identified as the information isn’t public. On October 10, Sunoco started the consent-solicitation process for $800.0 million of its 6.25% bonds maturing in 2021 and $800.0 million of 6.375% notes due in 2023. The amendment would eliminate Sunoco’s requirement to have immediately redeem the bonds upon the triggering of the change of control clause, according to the statement.

On October 12, The National Coalition of Associations of 7-Eleven Franchisees, which represents the owners of nearly 7,000 franchised locations in the U.S., filed a lawsuit against parent company, 7-Eleven, Inc., alleging the franchisor has not fulfilled its promise of treating franchisees as independent contractors and business owners. The suit challenges certain provisions of the 7-Eleven franchise agreement, and seeks monetary damages, attorney’s fees and costs and other relief for claims relating to unpaid overtime wages and unreimbursed expenses.

Aramark

Aramark announced October 16 that is has entered into definitive agreements to acquire Avendra, LLC and AmeriPride Services Inc. for $1.35 billion and $1.00 billion, respectively. Both deals are expected to close by the end of calendar 2017.

Whole Foods

At a recent conference, Whole Foods CEO John Mackey said that the “marriage" to Amazon has been challenging for the two company cultures and that Whole Foods executives are planning a retreat "to figure out how to reconcile our purpose with Amazon’s higher purpose." Amazon’s culture is said to be more productivity-driven and aggressive, while Whole Foods is more of an idealist Company. Mr. Mackey also said that Amazon plans to slash Whole Foods’ prices again.

Meanwhile, barely a year after it opened, the 365 By Whole Foods store in Bellevue, WA closed this past weekend. The store was the third of the format opened by Whole Foods. A Whole Foods spokesperson commented, “the decision was made by Company leadership prior to the Amazon merger after careful evaluation of both store performance and the site challenges that exist for successfully operating a grocery store.” Despite the closing, Whole Foods remains committed to the 365 format and will keep the other five open. It is also gearing up to open two additional 365 locations in San Francisco (Dec. 6) and Brooklyn (early 2018).

Meanwhile, Whole Foods plans to open a new 56,000 square-foot store in downtowner Denver on November 15. It will be the Company’s 21st in the state and will replace the nearby Union Station store.

Amazon

Amazon is reportedly in talks to partner with Phrame, a maker of smart license plates that allow items to be delivered to a car’s trunk. Phrame’s product fits around a license plate and contains a secure box that holds the keys to the car. Users unlock the box with their smartphones, granting access to delivery drivers remotely. Amazon is also in the process of developing a smart doorbell device that would give delivery drivers one-time access to a person’s home to drop off items.

Amazon.com has submitted a payment-in-lieu-of-taxes (PILOT) application to build a 615,000-square-foot “receive center" in Memphis, TN. The facility will collect and repackage products for distribution to fulfillment centers across the country. Amazon plans to invest $72.5 million in the development.

Amazon plans to open a new fulfillment center in Bolton, UK. Amazon is expanding its UK fulfillment center network to satisfy increasing consumer demands. Amazon has invested £6.40 billion in the UK since 2010.

As the race heats up and cities state their cases to house Amazon’s second headquarters, Moody’s Analytics presented Amazon with ten cities where the new headquarters, which has the potential for 50,000 new jobs and a $5.00 billion investment, should be located. The results were based on five "broad" categories: business environment, human capital, cost, quality of life, and transportation. A sixth criterion, geography, was also considered to "rank cities based on regional and geographic factors that Amazon might be taking into account." According to Moody’s, the top ten metro areas for Amazon’s HQ2 are Austin-Round Rock, TX; Atlanta-Sandy Springs-Roswell, GA; Philadelphia, PA; Rochester, NY; Pittsburgh, PA; New York-Jersey City-White Plains, NY-NJ; Miami-Miami Beach-Kendall, FL; Portland-Vancouver-Hillsboro, OR-WA; Boston, MA; and Salt Lake City, UT.

Amazon will hire 120,000 U.S. seasonal workers for the holidays this year, about the same number it hired last year. The positions will be in its network fulfillment centers, sortation centers and customer service sites around the country. Amazon expects thousands of the workers will be transitioned into full-time roles after the holidays, as was done last year.

Published reports indicate certain manufacturers are producing small amounts of sportswear products for Amazon as part of a trial, which would mark the Company’s first foray into private-label sportswear. The reports name Makalot Industrial Co., a Taiwanese vendor that produces clothing for Gap, Uniqlo and Kohl’s, and Eclat Textile Co., another Taiwanese supplier that produces clothing for Nike, Lululemon Athletica and Under Armour. Amazon previously ventured into private-label fashion (business attire, jackets and dresses), but moving into active wear would bring it into competition with athletic brands. It should be noted that the Company hired Kirsten K. Harris in January 2017 as a senior brand manager for active apparel; Ms. Harris previously ran product development at Nordstrom’s active-wear brand for women, Zella.

Fastenal

Fastenal Company’s third quarter sales increased 11.8% to $1.13 billion, driven primarily by higher unit sales from improvement in underlying market demand and contributions from industrial vending and Onsite locations. The Company signed 4,771 industrial vending machines during the third quarter, and its installed device count increased 14.3% to 69,058 from the prior-year period. The Company also signed 81 new Onsite locations, increasing its number of active sites 47.6% to 555 locations. As a result of top-line growth, profit rose 12.8% to $143.1 million.

Kwik Trip

Kwik Trip has begun taking ownership of the 34 PDQ Food Stores located throughout Wisconsin that it agreed to acquire back in July; published reports indicate that Kwik Trip spent at least $13.7 million on the real estate for 12 PDQ locations in Madison and Milwaukee. The Company, which plans to invest a total of $30.0 million – $40.0 million in PDQ store renovations, will close each location for 24 hours as it transitions the stores to the Kwik Trip brand.

Village Super Market

One less week of sales in the fourth quarter of fiscal 2017 was the reason Village Super Market’s sales declined 6.1% during the period, to $410.7 million. Adjusting for the extra week, comps rose 0.6% primarily due to three competitor store closings and sales growth in recently remodeled and expanded stores in Stirling and Chester, NJ. These increases were partially offset by four competitor store openings. Net income was down 19.4% to $6.8 million, due primarily to a lower gross profit percentage and higher operation and administrative expenses. For fiscal 2017, sales were down 1.9% to $1.60 billion, comps were flat, and net income fell 8.5% to $22.9 million.

Village Super Market operates a chain of 29 supermarkets under the ShopRite name in New Jersey, Maryland and northeastern Pennsylvania.

The Tile Shop

The Tile Shop’s third quarter sales increased 7.5% to $84.4 million, and comps were up 1.1%. However, as a result of increased promotions and competitive pricing activity during the quarter, profit fell 46.8% to $2.4 million. CEO Chris Homeister commented, “As previously announced, a more competitive environment and increased demand for opening price point offerings led to weaker than expected results in our third quarter. In response, we increased our promotions, competitive pricing and advertising in the quarter as we sought the best results possible for both sales and gross profit dollars within the environment. This activity in combination with product mix changes resulted in a lower gross margin percentage during the quarter. Our actions for the remainder of the year include completing our annual product transition, further differentiating our product assortment for 2018 and continued emphasis on delivering an outstanding customer experience at The Tile Shop.” The company opened four new stores during the quarter, including two in the Houston area (Webster and Sugarland, TX), one in Glendale, AZ and one in the Detroit area (Troy, MI). As of September 30, the Company operated 134 stores in 31 states.

Trader Joe's

Last week, Trader Joe’s said it opened its final three stores for 2017, bringing the total number of store openings for the year to 14 and its total store count to 474. The openings include a 13,000 square foot store in Allston, MA; a 13,000 square-foot store in Kalamazoo, MI; and a 12,000 square-foot store in North Brunswick, NJ. For the past 10 years, Trader Joe’s has opened an average of 23 stores annually. The Company said plans for 2018 locations are already underway, including a store in Rockville, MD in the summer of 2018.

Aldi

Aldi plans to open a new, 21,000 square-foot store in Mandarin, FL, putting it right next door to a Trader Joe’s on San Jose Boulevard that opened last week. It will be Aldi’s 10th Northeast Florida location.

Meanwhile, the Company has begun construction on a new 55,000 square foot cold storage distribution facility in Athens, GA in addition to the renovation of 100,000 square feet of existing perishable storage areas. Construction is scheduled to be completed in May of 2018. The expansion will allow the Company to offer a wider selection of products and the ability to support store growth in the area. Aldi currently operates 1,600 stores across 35 states including a store in Athens on the Atlanta Highway.

Sears Canada, DIP

Yesterday, Sears Canada, DIP received approval from the Ontario Superior Court of Justice to proceed with liquidation sales at its remaining stores, starting this Thursday. The Company will dispose of all of its inventory and furniture, fixtures and equipment. A joint venture of Gordon Brothers Canada ULC, Hilco Global, Tiger Capital Group, and Great American Group was retained by the Company to operate the liquidation sales at all of its full-line and Sears Home locations. In light of the liquidation, Brandon G. Stranzl resigned as executive chairman of the board.

Target

Last Thursday, Target announced it is deepening its partnership with Google to make online shopping easier. The partnership includes Target’s nationwide expansion on Google Express, including voice- activated shopping, as well as the addition of Target REDcard as a payment option in 2018. The expansion of Google Express follows Target’s successful trial of the home delivery shopping service in California and New York City. Items are shipped from a nearby Target store, with two day shipping available. Target and Google also will partner to explore and develop future digital experiences focused on Target’s signature style categories.

On October 16, 2017, Target commenced a tender offer for six separate debt securities totaling $2.21 billion. The securities range in maturity from 2028 to 2038 and all have coupons that exceed 6.00%. The tender offer expires on Friday, October 20, 2017. On the same day, the Company filed a prospectus to issue new debt for the purpose of re-financing the tendered securities. The Company plans to issue $750.0 million of 3.90% senior unsecured notes due November 2047. The re-financing gives the Company the opportunity to replace higher cost debt with a lower coupon issue and presumably extend maturities.

Toys "R" Us Canada, DIP/Toys "R" Us, DIP

In a filing submitted on October 12 as part of its CCAA proceedings, Toys “R” Us Canada, DIP said it borrowed under the DIP Facility to repay in full its obligations under the pre-filing ABL Credit Facility and to obtain additional liquidity for the operation of the Canadian business. As of October 4, Toys Canada owed the full US$200.0 million under the Canadian DIP Term Loan, and it has drawn C$35.0 million under the $300.0 million Canadian DIP Revolving Facility. The facilities are part of the $2.30 billion ABL/FILO DIP Facility provided by JPMorgan Chase Bank, N.A. in the U.S. Chapter 11 proceedings. Toys Canada anticipates it will have sufficient liquidity to complete the holiday inventory build and to operate in the normal course throughout the proposed Stay Period. The budget provides that Toys Canada will generate over $467.0 million in revenue through January 20, 2018. It is also anticipated that for the period beginning in late November through the end of the period, Toys Canada will generate positive net cash flow of $40.0 million. Cash flow for the entire period is expected to be negative $30.0 million, with an ending cash balance of $5.0 million.

In other news, published reports indicate Toys “R” Us, DIP is evaluating the possibility of an IPO for its Asian business. There is speculation that the Company and the Fung Group, the local joint venture partner, have been in discussions with investment banks to consider listing the Asian business on the Hong Kong stock exchange. A transaction could value the unit at as much as $2.00 billion, according to the reports. The Asian unit was not included in the Chapter 11 proceedings last month. Toys “R” Us owns about 85% of the Asian venture, while Fung Group holds the remainder.

Walmart

On October 12, 2017, Walmart announced that it had priced six debt offerings for a total of $6.00 billion of senior unsecured notes. As of July 31, 2017 Walmart had $47.64 billion in debt and $6.45 billion in cash on its balance sheet. On October 6, 2017, the Company announced a tender offer for up to $8.50 billion of its debt securities (see October 9, 2017 Special Update). The proceeds from the sale of these securities will be used for the redemption of the tendered securities and for general corporate purposes.

According to a published report, Walmart will focus its Jet.com website on shoppers in New York, Chicago, Boston and other large cities, while the Walmart online store will focus on the rest of the country. A spokeswoman for Jet.com, said the message from senior leadership is that Jet.com is “honing its focus on reaching urban millennial shoppers [in New York, Boston, San Francisco and Chicago] through innovations as well as by offering premium assortment and premium products on Jet.com.

Nordstrom

Nordstrom announced that the Nordstrom family has suspended active exploration of the possibility of proposing a transaction to take the Company private for the balance of the year and intends to continue its efforts to explore a going-private proposal after the holidays. The family includes Co-Presidents Blake W. Nordstrom, Peter E. Nordstrom and Erik B. Nordstrom; President of Stores James F. Nordstrom; Chairman Emeritus Bruce A. Nordstrom; and Anne E. Gittinger.