Retail News

Bon-Ton Stores

Last week, Bon-Ton Stores amended its $880.0 million Tranche A and Tranche A-1 credit facility, which it said provided the Company with immediate flexibility and substantial additional liquidity under its current credit facility. The new agreement eases the excess availability covenant from 20% to 15% but only through December 2. After December 2, the required excess availability increases to the greater of 20% of the lesser of the aggregate commitments and the aggregate borrowing base and $132.5 million. The amendment also lowers the limit on the Tranche A Real Estate availability amount that may be included in the Tranche A Borrowing Base to 12.5% from 20%. The amendment also adds several affirmative covenants related to financial reporting and business operations, including delivery of a detailed business plan and cash flow forecasts. Finally, the agreement requires the payment of certain fees in connection with the closing of the amendment.

Meanwhile, a report on October 26 surfaced stating that Sycamore Partners held talks with Bon-Ton about acquiring certain of the Company’s “assets.” The report indicated the Company’s assets may also attract other suitors. Although the report specifically stated “assets,” it is unclear if the contemplated transaction would include liabilities. Both Sycamore and Bon-Ton did not comment on the report. Bon-Ton, which has been struggling with declining sales and EBITDA, recently hired financial advisors to help it explore alternatives. Sycamore acquired Belk department stores two years ago, and it was rumored that it would be interested in combining Belk with Bon-Ton (at least some of the banners).

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Supervalu

Minority shareholder Blackwells Capital (3.6% ownership) issued a letter to Supervalu’s board on October 26, expressing concern over the recent share price performance and what it perceived as a lack of a clear strategy to unlock the Company’s value. In the letter, Blackwells outlined several initiatives it believes will create substantial value for shareholders. Some initiatives include dividends and share buybacks, which would likely further leverage the Company, while many other initiatives were already being evaluated by the Company.

Wakefern Food Corp.

At its annual shareholder meeting held on October 26, Wakefern Food Corp. reported system retail sales growth of 1.5% to $16.30 billion for its fiscal year ended September 30. Wakefern and its members opened four new ShopRite stores, two The Fresh Grocer stores and two Price Rite Marketplace stores during the year. President and COO Joe Sheridan cited among its accomplishments during the past year the expansion of its Wholesome Pantry line of clean-label products and the introduction of its newest private brand, ShopRite Trading Co. Mr. Sheridan commented, “Wakefern Food Corp. and our supermarket banners continue to innovate and elevate the customer experience with great new brands, our store dietitians, digital platforms and a continued focus on fresh.”

At the meeting, CEO Joseph Colalillo announced the retirement of Neil Duffy, president of Price Rite Marketplace, with 64 grocery stores in nine states. He also announced the retirement of Larry Collins from Wakefern’s board and announced the addition of Patrick Burns, CEO of Burns’ Family Neighborhood Markets, to the board.

Camping World

15 of the former Gander Mountain leases that Camping World will assume as part of its agreement to acquire a minimum of 17 leases under its bid at the Gander Mountain, DIP bankruptcy auction were previously identified. Despite identifying the locations, Camping World appeared uncertain as to the timing of the store openings, which it previously anticipated to occur in November. A recent letter to vendors stated that one of the former Gander Mountain stores will be opened immediately (Lakeville, MN) to refine the concept, but the balance of the initial stores will not open until the first half of 2018. The letter reiterated that leases have been signed for 15 locations, and the Company has agreed in principal to approximately 45 additional locations. In light of the changes, the Company will be downscaling its near-term need for merchandise.

Ahold Delhaize

Ahold Delhaize’s online delivery division Peapod has officially revealed plans to relocate its headquarters from Skokie to downtown Chicago, IL by next spring. Peapod is joining a number of other major food industry companies to relocate from the suburbs to the city, including McDonald’s, Conagra Brands, ADM, Mead Johnson, Beam Suntory, Kraft Heinz, and Oscar Mayer.

In other news, Hanneke Faber, chief e-commerce and innovation officer, has decided to leave Ahold Delhaize at the end of December to run Unilever’s European business. The Company said Mr. Faber’s successor, which has yet to be named, will take on a new role of chief digital officer and will be responsible for driving digital transformation and innovation.

Whole Foods

Whole Foods has reportedly been meeting some resistance from mall co-tenants, as it seeks to place Amazon lockers in some of its stores. Many large retail mall tenants, such as Target and Best Buy, have stipulations in their leases that allow them to reject certain developments by other tenants, including the placement of Amazon lockers and delivery. Amazon cited the placement of lockers in Whole Foods stores as one of the immediate synergies of its acquisition of the chain earlier this year, but the lockers have been banned in several locations where Whole Foods is planning to open stores in malls. One source indicated that Amazon was limited to displaying its Echo voice-ordering system in 250 square feet of space of a Whole Foods location because of competitive lease restrictions.

Meanwhile, Whole Foods plans to have a nationwide hiring day this Thursday; its goal is to hire approximately 6,000 people for a variety of full-time, part-time and seasonal jobs.

Metro

Metro recently stated that 60% of Quebec’s roughly 8.2 million residents will be able to shop online at Metro.ca by the end of the year, as it continues to build both its click-and-collect and delivery capabilities. The Company first launched online shopping in Montreal in October 2016 and recently expanded the service to include both the Greater Montreal Area and Quebec City. Metro offers next-day delivery for all orders and charges a $4 to $8 delivery fee, depending on the day and time. The Company has introduced a fleet of delivery trucks featuring separate compartments for dry goods, refrigerated and frozen items. The Company also plans to introduce online grocery in Ontario, though it has not yet disclosed a timeline for its rollout.

PetSmart

PetSmart unveiled a new store concept‚ The Groomery, focused exclusively on pet grooming services; the first locations opened in Manhattan, NY and Oak Park, IL last week. Additional locations will open in Scottsdale, AZ, with two more expected to be announced soon. The new format features a salon-style modern design in a boutique-sized space of about 1,800 square feet to 2,500 square feet, smaller than traditional PetSmart stores, which average 27,500 square feet.

Giant Eagle

Giant Eagle is expanding its Curbside Express pickup service to encompass home delivery to 38 ZIP codes in Greater Cleveland, OH. Deliveries will be available from eight Giant Eagle and Market District stores. Giant Eagle already delivers groceries in Pittsburgh and Columbus.

Publix

Publix began testing curbside grocery pickup at two Atlanta, GA area locations (Alpharetta and Brookhaven) on October 16. Publix launched its initial curbside tests last month at two Tampa, FL area stores. The Company commented, “We’ve had great success with Publix Delivery powered by Instacart, and the demand for online grocery services has continued to grow.” Publix says it has been rolling out grocery delivery aggressively since July 2016. By the end of this year, Publix Delivery will be available from more than 90% of its stores.

Conn's

On October 24, Conn’s provided a business update following Hurricane Harvey, as well as guidance for the fiscal 2017 third quarter. Comps during August and September were negatively impacted by 100 lost selling days and reduced traffic associated with Hurricane Harvey. Beginning in mid-September, the Company started to experience positive sales trends, as revenue within Southeast Texas benefited from rebuilding activities. Management said that October’s month-to-date comps in the markets impacted by Hurricane Harvey are up over 15%. In addition, comp trends in markets outside of the hurricane’s area have started to improve (on a relative basis), as the Company fully lapped underwriting refinements made last fiscal year. As a result, the Company expects third quarter comps to be down between 5% and 9%, compared to last year’s third quarter when they were down by double digits. Over 50% of the Company’s products can be considered necessities (beds, furniture and appliances), of which sales generally rebound following a hurricane. Additionally, these items carry higher gross margins than electronics items. Furthermore, despite the forecast for negative comps for the third quarter, margin improvement has the potential to drive EBITDA higher, as occurred in the second quarter when EBITDA rose 149% despite a 15.1% decrease in comps and a 7.9% decrease in sales.

Meijer

Meijer announced plans to open its third store, at 42,300 square feet, in Detroit, MI in fall 2019. The two existing Meijer stores in Detroit are substantially larger, with the Gateway Marketplace standing at 215,000 square feet and the Grand River store at 190,000 square feet; Meijer’s large-format stores average about 200,000 square feet. Meijer is working on a small-format store of similar size in Grand Rapids under the name Bridge Street Market to open early next year. Meijer currently operates 114 stores in Michigan, or close to 50% of its total 236 store count.

Meanwhile, Meijer recently surpassed 500,000 deliveries and is on pace to see more than a million deliveries made from its stores by year-end. Since launching in Detroit last September, Meijer has expanded the service to more than 200 stores. The service, offered through Shipt, is now available to more than 10 million households in Michigan, Indiana, Ohio, Illinois, Wisconsin and Kentucky.

Wegmans Food Market

Wegmans Food Market has received approval for a new store in Chapel Hill, NC. The 130,000 square-foot store is expected to open by 2020. While Wegmans currently has no stores in the state, it recently confirmed plans for three other stores in the Triangle area, one in Raleigh and two in Cary.

Natural Grocers by Vitamin Cottage

Natural Grocers by Vitamin Cottage announced plans to open two stores in Texas, in Keller and North Fort Worth, in 2018. With the new stores, the Company will have 23 in the state. It currently operates about 140 stores in 19 states.

RadioShack

The Bankruptcy Court confirmed the Plan of Reorganization of General Wireless Operations, Inc., DIP (dba RadioShack). Under the Plan, General Wireless will emerge as a reorganized entity and will be vested with substantially all of the remaining property, other than the litigation trust assets. The business operations will consist of the e-commerce business, dealer network operations, warehouse operations and up to 28 brick-and-mortar retail stores.

Save-A-Lot

Save-A-Lot opened a new format store in Dundalk, MD, featuring a new design format being rolled out by the chain. The new store, which replaces an older Dundalk store that recently closed, features a more contemporary design and stands at 17,000 square feet. Save-A-Lot has begun replacing outdated stores with the newer format.

Chipotle Mexican Grill

Chipotle reported third quarter revenue growth of 8.8% to $1.13 billion, driven by 38 new restaurant openings. Comps were up 1%, compared to a 21.9% decline last year. Net income more than doubled to $19.6 million, including the after-tax impact of an $18.2 million estimated liability related to the data security incident announced in April 2017 and the impact from Hurricanes Harvey and Irma. During the quarter, the Company opened 38 new restaurants and closed or relocated three.

Food costs were 35% of revenue, a decrease of 10 basis points over last year. The benefit of the menu price increases taken in select restaurants during 2Q17 and decreased paper cost and usage were offset by higher avocado and beef prices, as well as steak making up a higher portion of its product mix.

For fiscal 2017, the Company expects comp growth of 6.5% and new restaurant openings slightly below the low end of the previously disclosed range of 195 – 210. For fiscal 2018, it expects 130 – 150 new restaurant openings.

Buffalo Wild Wings

Buffalo Wild Wings reported third quarter sales growth of 0.5%, to $496.7 million. Company-owned restaurant sales increased 0.5% to $473.0 million, driven by 21 additional Company-owned restaurants. Revenue includes the recognition of $2.9 million of deferred revenue, as the Company established an initial breakage estimate for a loyalty program. Comps decreased 2.3% at Company-owned restaurants and 3.2% at franchise locations. Net earnings fell 19.7% to $18.2 million and included a loss on asset disposal of $4.1 million for impairment of two restaurants totaling $2.2 million and the write-off of prepaid software licenses of $1.0 million.

During the fourth quarter, the Company expects to open five U.S. Company-owned restaurants for a total of 14 new stores opened during fiscal 2017. It expects a total of 14 U.S. franchised store openings, 20 franchised international restaurants, 2 Company-owned and 10 franchised R Taco Restaurants during fiscal 2017.

For fiscal 2017, Buffalo Wild Wings expects comp growth of -1.5%, chicken wing inflation of 10% – 11%, EPS of $4.30 – $4.60 (compared to $5.16 in FYE16) and capex of $80.0 million (compared to $141.7 million in FYE16).

BJ's Restaurants

BJ’s Restaurants' third quarter sales increased 5.7% to $247.0 million, and comps fell 1.7%. Net income was $2.4 million, compared to $7.2 million last year. Through the end of the third quarter, the Company opened eight new restaurants and is on schedule to open two more in 4Q, achieving its stated goal of 10 new restaurants in fiscal 2017. President and CEO Greg Trojan commented, “This quarter was a challenging time for us and the overall restaurant industry. Operations were severely impacted by Hurricanes Harvey and Irma, resulting in estimated lost sales of approximately $1.7 million. Besides the lost sales, we incurred approximately $0.9 million of direct costs related to property damage, food spoilage, labor and other expenses from the hurricanes. We also incurred approximately $0.4 million in severance and other costs in the third quarter as we reduced certain corporate overhead positions primarily related to supporting new restaurant openings.”

CVS Health

Following the news of Amazon’s potential move into the pharmaceutical space, rumors surfaced last week that CVS Health is making a bid to buy the nation’s third largest insurer, Aetna. CVS might pay more than $200 per share in a deal that could be worth about $66.00 billion, according to people familiar with the matter. Such a deal would combine a health insurer that covers 22 million people with a Company that runs 9,700 drugstores and more than 1,100 walk-in medical clinics. The vertically integrated deal could help CVS Health streamline and cut costs in the pharmaceutical supply chain as well as help it grow its clinic pharmacy benefit manager business.

In other news, CVS Health introduced a new PBM performance-based pharmacy network, covering 30,000 stores anchored by CVS Pharmacy and Walgreens, along with up to 10,000 community-based independently owned pharmacies across the U.S. The network is designed not only to deliver unit cost savings but also to improve clinical outcomes, including improving medication adherence that will lead to lower overall health care costs for CVS Caremark PBM clients and their members as well as Walgreens customers. The network is available to eligible PBM clients for implementation beginning March 2018. The new network is seen to be in tandem with the transition in health care from a volume to value based system.

Rite Aid

Rite Aid closed its distribution facility in Poca, WV on Saturday. Rite Aid announced in April 2014 that it would be shutting down the center in a few years, laying off 250 employees in the process. Contract negotiations had broken with the union. A new labor agreement was approved two months later to keep the warehouse open until November 2017.

Specialty Retail Shops Holding

Specialty Retail Shops Holding’s (Shopko’s) largest landlord, Spirit Realty Capital, disclosed that it received a letter from Shopko addressed to its vendors, providing an update on Shopko’s recent financial results. According to the letter, comps for the first half of fiscal 2017 were down 3%, and main store comps were down 2.2%. It was confirmed that former Chairman, President and CEO Peter McMahon departed Specialty Retail Shops Holding approximately 10 months ago, but the Company has been very secretive about it, never disclosing the executive change.

Tractor Supply Company

Tractor Supply Company’s third quarter sales increased 11.6% to $1.72 billion, and comps were up 6.6%. The comp gain was driven by an increase in both traffic and ticket, with comp store transaction count increasing 5% and average ticket up 1.5%. Profit rose 2.7% to $91.9 million. During the quarter, the Company opened 36 new Tractor Supply stores and two Petsense stores, and it closed one underperforming location, a Del’s store. CEO Greg Sandfort stated, “We delivered a strong third quarter with sales growth in all of our major product categories and geographic regions, as well as positive same store sales in both traffic and ticket. Our teams took the necessary steps to ensure we were well-stocked with the right products and inventory levels to meet the needs of our customers during the extended summer selling season and storm events.”

BJ's Wholesale Club

BJ’s Wholesale Club announced plans to open a new store in Roanoke, VA next year. The store will be located at a previous Kmart location that closed last spring. In addition to offering food and clothing items, BJ’s will also sell gas; BJ’s currently operates 214 clubs in 15 states, including 12 in Virginia.

Lumber Liquidators

Lumber Liquidators’ third quarter sales increased 5.4% to $257.2 million, and comps were up 3.8%, driven by a 3% increase in the average sale and a 0.8% increase in the number of customers invoiced. Comparable merchandise sales grew 1.8% during the quarter. Net loss widened 2.6% to $18.9 million, primarily due to the incremental legal and professional fees the Company continues to face in connection with the settlement of class action lawsuits related to the alleged use of formaldehyde in certain of its products. The Company opened three stores in the quarter and closed one underperforming location, bringing its total store count to 387 as of September 30. CEO Dennis Knowles said, “We saw continued growth in sales and positive comp store growth for the fifth consecutive quarter. That is despite the unusually severe hurricane season that we believe had a slight negative impact on net sales in some of our stores. We saw gross margin expansion as well as improvement in operating results on an adjusted basis.”

Carter's

Carter’s reported third quarter sales increased 5.2% to $948.2 million, driven primarily by growth in the U.S. retail segment and the benefit of Skip Hop, acquired in February 2017, which contributed $27.9 million in sales during the quarter. U.S. retail sales increased 7.7% to $454.0 million, and comps were up 2.6%, comprised of e-commerce growth of 20.9%, partially offset by a store comp decline of 3.2%. In addition, U.S. wholesale sales decreased 1.1% to $369.6 million, reflecting a decrease in demand for Carter’s and OshKosh products. International sales increased 17.6% to $124.6 million as a result of growth in Mexico, Canada and China, partially offset by decreased demand in other markets; Canadian comps increased 0.7%, comprised of e-commerce comp growth of 60.7% and a store comp decline of 3.9%. Overall, profit rose 2.1% to $82.5 million. During the quarter, the Company opened 12 new stores in the U.S. and four new stores in Canada; and it closed one underperforming U.S. location.

GNC Holdings

Despite 64 additional locations, GNC Holdings reported third quarter sales declined 2.9% to $609.5 million as a result of weaknesses in the U.S. franchise segment and the manufacturing/ wholesale division, slightly offset by growth in its online business and the international segment. Domestically, comps fell 1.2% during the quarter. Gross margin eroded 200 basis points due to deleveraged occupancy expenses and greater promotional activity initiated to help drive foot traffic and fend off online competition. Based on the subpar operating results, the Company cut full-year free cash flow guidance from $250.0 million to a new target of $190.0 million – $210.0 million, which still appears overly optimistic, as it implies GNC will generate approximately $75.0 million in free cash flow for the 4Q period (it historically generates about $40.0 million in that period).

The Marcus Corporation

The Marcus Corporation’s third quarter sales increased 6.3% to $153.8 million. However, as a result of the weak film slate during the quarter, profit fell 23.6% to $11.0 million. Marcus Theatres reported a 9.6% increase in revenues, largely due to the 14 Marcus Wehrenberg locations acquired in December 2016, offset in part by the weak summer film slate and numerous Marcus Wehrenberg screens out of service for renovations. Marcus Hotels & Resorts’ revenue increased nearly 2%; the Company was a minority investor in the Omaha Marriott Downtown (Omaha, NE) that opened in August, and it assumed management of the Sheraton Chapel Hill Hotel (Chapel Hill, NC) in early September. CEO Gregory S. Marcus said, “The weaker than anticipated film slate hampered the traditionally strong summer movie season. While July and August were down for Marcus Theatres, the division ended the quarter with a very good September and we are heading into what we expect will be a strong fourth quarter for our theatres. Marcus Hotels & Resorts once again outperformed the competitive set in its markets, despite lower group revenues during the third quarter.”

Aaron's

Aaron’s third quarter sales increased 9.1% to $838.9 million. Progressive Leasing sales increased 29.1% to $398.3 million; Aaron’s Business sales decreased 4.9% to $431.7 million; and DAMI sales rose 37% to $8.9 million. Profit fell 14% to $25.3 million; excluding the effects of amortization expense from the Company’s 2014 acquisition of Progressive Leasing, transaction costs from the 2017 acquisition of its largest franchisee, and restructuring charges for the Aaron’s Business and DAMI divisions, the Company would have recorded a profit of $31.3 million. CEO John Robinson said, “We are pleased with our third quarter results, particularly in light of the disruptions caused by Hurricanes Harvey and Irma. The storms affected hundreds of stores and retail partners in some of our most important states. Despite the impact of the storms, Progressive Leasing continued its impressive momentum and the Aaron’s Business showed improvement on a number of fronts. Excluding the financial impact of the storms, we remain on track to deliver our full year outlook.”