Retail News

Lidl

According to its website, Lidl has opened 28 stores thus far in Virginia, North Carolina, South Carolina and Delaware. It will open its first store in Georgia, located in Augusta, on Thursday, along with another one in Virginia. Other planned openings in September are in South Carolina (3), Virginia (3) and North Carolina (2). By the end of the month, the Company will have 37 stores in operation. See below for Lid's planned openings.

Kroger

In the second quarter of fiscal 2017, Kroger continued to be challenged by the highly competitive environment that has been pressuring the retail grocery sector, as EBITDA was down 3.7% for the quarter; EBITDA margin fell 40 basis points. However, ID sales (excluding fuel) moved back into positive territory, up 0.7%, and total sales grew 3.9%. In its second quarter conference call, management noted that given the “dynamic operating environment,” it will continue to provide annual guidance but will no longer provide longer-term guidance. Previously, the Company had provided a net earnings per diluted share long-term growth rate target of 8% – 11%. On a more positive note, the Company has been ramping up its digital initiatives, with management noting it currently has more than 25 million digital customer accounts, driven by the growth of ClickList. Currently, Kroger operates over 800 ClickList and Express Lane locations, offering online ordering and curbside pickup. By the end of 2017, the Company plans to offer the service at more than 1,000 locations. Management also noted that it is testing various home delivery models with companies like Uber, Shipt as well as handling its own delivery in more than 150 stores.

Meanwhile, the Company is preparing to open a restaurant called “Kitchen 1883” and will offer a combination of American and international flavors on its “New American Comfort menu.” The name is a reference to the year Barney Kroger founded the Company. It will open in Union, KY, near a Kroger Marketplace store.

As mentioned in last week’s edition of this publication, Hy-Vee is also entering the restaurant arena with plans to build and operate 26 Wahlburgers restaurants in seven states, becoming the largest franchisee of the casual burger chain associated with actor Mark Wahlburg.

Benny's

Benny’s, a neighborhood chain of 31 stores selling an eclectic mix of everyday items, announced its intentions to close all of its stores by the end of the year. The Company has 14 stores in Rhode Island, 12 in Massachusetts and five in Connecticut. President Arnold Bromberg said that changes in the retail industry made it “nearly impossible for small family-owned chains like ours to reasonably compete moving forward.” Since the Company owns most of its stores’ land and buildings, it is currently taking real estate offers. Founded in 1924 in Providence, RI, Benny’s stores has a variety of departments including automotive, hardware, toys, bikes, pet supplies, lawn and garden, sporting goods, electronics, housewares and seasonal items.

Amazon/Whole Foods

According to The Wall Street Journal, there seems to be evidence that Amazon’s ownership of Whole Foods has led to increased traffic. The report indicates that several Whole Foods employees said they have noticed an uptick in sales at their respective stores since the merger, beyond the expected back-to-school rush. According to Foursquare Labs Inc., which compiled data from the first two days following completion of the acquisition, customer traffic was up 25%.

Per a survey conducted by Goldman Sachs of roughly 90 items, 20% were marked down last week, with produce down by 31%, packaged goods by 20% and refrigerated items by 19% from before the merger. However, other studies show that while recent price cuts might have stepped up traffic, shopping at Whole Foods is still more expensive generally. While Amazon lowered prices on more than a dozen popular Whole Foods products, it also raised prices on others. According to market research firm Gordon Haskett Research Advisors, average prices at the chain dropped only 1.2% since the acquisition.

Sprouts Farmers Market is one of the many grocery retailers whose stock price has been significantly impacted by Whole Foods’ price cuts. While shares had finally bounced back in 2017 with gains of as much as 30% through the end of July, following the August 24 completion of Amazon’s acquisition of Whole Foods, its stock fell 17% in the three days between August 24 and 28. The stock is currently trading at $19.42.

In other news, on Thursday, Whole Foods will open a 30,000 square-foot 365 by Whole Foods store in Akron, OH. This will be the Company’s 6^th concept store and its first in the Midwest.

Additionally, Amazon.com is searching for a location to build its second headquarters in North America (dubbed “HQ2”) that would reportedly cost more than $5.00 billion and house up to 50,000 staff. The Company is currently seeking proposals from local and state government leaders and plans to select the location next year. The project would initially need more than 500,000 square feet and up to 8 million square feet beyond 2027. It would be similar in size to its Seattle headquarters, which is spread across 8.1 million square feet in 33 buildings. Contenders could include Atlanta, Tampa or Miami.

Meanwhile, Amazon is building its first New York fulfillment center on Staten Island in order to speed up delivery times in New York City and throughout the state. The 855,000 square-foot fulfillment center is expected to open next year. Amazon already has offices, as well as smaller facilities dedicated to its Prime Now same-day delivery service, in New York. The Company also said it is building a warehouse for sorting packages in Buffalo.

Kohl’s announced it plans to open Amazon “smart home spaces” in 10 of its stores in the Los Angeles and Chicago metro areas, starting in October. Shoppers will be able to buy Amazon gadgets, accessories and smart home products at these locations. The spaces within Kohl’s are 1,000 square feet and will be staffed by Amazon sales associates; revenues would be booked directly by Amazon. At Kohl’s locations, customers can also schedule an Amazon expert to come to their home and install the devices. Amazon’s products are also available in its newly opened Amazon bookstores and at some Whole Foods locations.

Nordstrom

Nordstrom opened a 39,000 square-foot Nordstrom Rack store on September 7 in downtown Minneapolis, MN, bringing its Rack store base to 224 locations. In addition, the Company expects to remodel its Mall of America Rack store in Minneapolis by fall 2018. There are two other Nordstrom Rack locations in Minneapolis, and one in St. Paul, opened earlier this year. By 2020, the Company is expected to have 300 Nordstrom Rack stores system-wide, up from 200 last year.

On October 3, Nordstrom will debut a small-format retail concept in West Hollywood, CA that offers a wide range of personal services but will not sell inventory. The 3,000 square-foot store will be much smaller than the average 140,000 square-foot Nordstrom, and it will offer services like on-site tailoring, manicures, buy online pickup in store, easy returns, and a beverage bar. Customers will have access to “personal stylists” who can transfer requested merchandise from Nordstrom stores or online to the location for customers to try on.

Trader Joe's

Trader Joe’s will open a 13,000 square-foot store in Coralville, IA in October. It will be the Company’s second store in the state. The new store will compete with five retail food locations, including two ALDIs, two Hy-Vee stores, and one Fareway Market.

Cabela's/Bass Pro Shop

On September 6, The Federal Reserve Board approved the acquisition of World’s Foremost Bank, Cabela’s credit card bank subsidiary, by Synovus Bank. As part of the transaction, Synovus will sell the credit card business to Capital One Financial Corp. while retaining $1.20 billion in deposits. This appears to be the last step necessary for completion of Bass Pro Shop’s acquisition of Cabela’s. On July 5, we reported the Federal Trade Commission announced it would not block the merger nor would it require store divestitures. Six days later, the Company’s stockholders approved the transaction. The merger is now expected to close before the October 3 deadline.

Festival Foods

Festival Foods will open a store in Holmen, WI on October 6 that will replace a nearby location. The new store is 67,000 square feet, nearly double the size of the current location, and offers an expanded selection of natural and organic foods. The Company operates about 30 stores throughout Wisconsin.

HD Supply

HD Supply’s second quarter sales increased 5.4% to $1.35 billion, as a result of increases in volume and growth initiatives. Gross margin fell slightly due to the decreasing rebar margin in the Construction & Industrial business, and despite top-line growth, increased investments in growth initiatives deleveraged SG&A margin 30 basis. From the above, quarterly EBITDA increased 2.6% to $201.0 million, and EBITDA margin fell 270 basis points. The EBITDA improvement helped lift TTM interest coverage to 4.1x, from 2.84x last year. Commenting on developments, CEO Joe DeAngelo said, “In our second quarter of 2017, we stepped up our execution to improve performance. We met our revised net sales and adjusted EBITDA targets for the second quarter and recommitted to our full year guidance. Following the sale of our Waterworks business, we achieved our targeted capital structure of 2.0x to 3.0x financial leverage and are committed to delivering profitable growth in excess of market.”

Publix

Publix recently opened a 54,000 square-foot store in Winter Gardens, FL, in southwest Orlando. A Walmart Supercenter that opened in November 2016 is located across the street. The new store was already forced to temporarily close in the wake of Hurricane Irma.

Pure Hockey

Pure Hockey, which operates the Pure Hockey, Total Hockey and HockeyGiant brands, is rebranding all of its retail stores as Pure Hockey in a move to standardize the customer experience across all of its stores. Pure Hockey acquired HockeyGiant in September 2015 and Total Hockey in August 2016, bringing its total store base to 53 locations across the U.S., along with the brands’ respective e-commerce sites. The Company will run a “grand re-opening” event from September 14 to September 17 to celebrate the rebranding process and launch its new “pure rewards” loyalty program.

ALDI

ALDI recently opened its fifth grocery store in Northeast Florida, in St. Johns Town Center. It has two more in the works for the Yulee and the Oakleaf areas that are expected to open in 2019 or 2020.

Conn's

Conn’s reported second quarter sales fell 7.9% to $366.6 million, reflecting a 15.1% comp decrease that came on top of a 5.1% decrease in the prior-year period, partially offset by the opening of four new stores during the year. Sales were negatively impacted by tighter underwriting standards initiated during the 2017 fiscal year and general softness in consumer spending. Gross margin improved due to a shift in product mix to more profitable items, such as furniture and mattresses. Credit revenue increased 21.9%, which reflects the transition to higher-yield direct loan products. Additionally, the tighter underwriting policies are beginning to bear fruit, as the provision for bad debt fell to 13.4% of sales in the second quarter compared to 15.1% for the same period last year. TTM EBITDA margin increased 270 basis points to 8.7%, while TTM interest coverage remained in critical territory at only 1.4x (although it increased from 1.1x).

Management also provided an update following Hurricane Harvey, saying “Hurricane Harvey caused Conn’s to close 23 stores, its distribution and service centers in Beaumont and Houston, as well as its Beaumont corporate office. All of Conn’s stores are now open, as well as the Company’s Beaumont corporate office, and distribution and service centers. In total, Conn’s lost 100 selling days as a result of the storm. Over the near term, retail sales and collections will be unfavorably impacted by the loss of selling days associated with store closures. Management expects these trends will be temporary and, as the Company experienced in prior storms, retail sales rebounded in subsequent quarters as rebuilding efforts got underway. In addition, as customers’ lives get back to normal over the next several quarters, collections are expected to improve.”

Pharmaca

Pharmaca Integrative Pharmacy announced its expansion into the Chicago market, with the acquisition of Aaron’s Apothecary in Lincoln Park. It also announced the acquisition of Roxbury Pharmacy in Beverly Hills, CA. Pharmaca stores feature a full-service pharmacy, including specialty medications and in-store immunizations, along with vitamins and supplements, natural beauty products and guidance from licensed health care practitioners. The opening of the new stores brings Pharmaca’s brick-and-mortar footprint to 28 pharmacies and 2 Pharmaca Wellness & Natural Beauty stores in California, Colorado, Illinois, New Mexico, Oregon and Washington.

Destination Maternity

Destination Maternity reported second quarter sales fell 7.7% to $98.3 million, primarily driven by the closure of underperforming stores, a 3.4% decline in comps, and exiting the Kohl's business, which was included in prior-year results. Comps included a 30.2% jump in e-commerce sales. Gross margin was 53%, up 150 basis points over the prior year, primarily due to the lower volume at the lower margin leased department business. SG&A for the second quarter of fiscal 2017 decreased 6.7% to $52.8 million; as a result, quarterly EBITDA increased more than 33% to $3.7 million. Although improved, TTM EBITDA margin is just 2.1%. During the first half of the year, the Company opened five new stores and closed 13 locations. Destination Maternity ended the quarter with 507 stores and 643 leased department locations.

In other news, Destination Maternity appointed Allen Weinstein as interim CEO on September 7; Mr. Weinstein has served as a director on the board since January 2010 and is currently executive chairman and director of Villa, a privately owned footwear and apparel retailer. Also on September 7, Anthony M. Romano stepped down as president and CEO. The board is currently searching for a qualified candidate to serve as permanent CEO. Meanwhile, Barry Erdos was elected to succeed Arnaud Ajdler as non-executive board chairman. Mr. Erdos also served as a director since January 2010 and is currently a consultant in the retail industry; he was CEO of F.A.O. Schwarz from March 2009 until its acquisition by Toys “R” Us in May 2009.

Gap

At Goldman Sachs’ 24th Annual Global Retail Conference, Gap CEO Art Peck outlined the Company’s growth strategy for the next few years, including store openings offset by store closures and an expanded investment in online and digital platforms. The Company is shifting to a heightened value and digital focus to follow consumer shopping trends, and the profitability of these two channels is five times that of Gap’s specialty channel. To this end, approximately 200 Banana Republic and Gap specialty stores are scheduled to close over the next three years, offset by 270 store openings under the Athleta, Old Navy and Factory (Gap and Banana Republic) banners. Value and active are winning with the consumer and Gap Inc. hasn’t seen any slowdown in its active business at Athleta; in fact, the Company is expanding its girl’s offerings and sees a mother and daughter shopping opportunity. Athleta is projected to reach $1.00 billion in sales in the next few years, and Old Navy, $10.00 billion. Value and active are working at Gap and Banana Republic brands as well and as the specialty stores close, some will be replaced with Gap Factory and/or Banana Republic Factory stores.

Walmart

Last week, Walmart opened its 1,000th online grocery pickup location in Seattle, WA (about 21% of its 4,692 U.S. stores). The free service was initially piloted in Denver in 2013.

On September 14, Walmart’s Sam’s Club is opening a new store in Hanover, PA. It will be one of the first locations in the Northeast to offer Sam’s Club’s new look. New features include organic beef, an expanded seafood section, and fresh sushi made daily. There will be a café with self-order kiosks, expanded seating with charging stations, and an updated menu.

Vitamin World

This morning, Vitamin World, Inc., DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The proceedings were designated case number 17-11933. Documents filed in the case indicate the Company believes that funds will be available for distribution to unsecured creditors. The Company reported assets of between $50.0 million and $100.0 million and liabilities of between $10.0 million and $50.0 million. According to the Petition, the Company is contemplating a DIP facility with Wells Fargo Bank, N.A. as letter of credit issuer and agent. On September 6 it was previously reported that Vitamin World was preparing to file for Chapter 11 in an effort to unburden itself from some of its leases. Vitamin World’s stores are primarily located in enclosed malls and its typical lease agreements are five to 10 years at varying annual base rents and percentage rents.

Le Chateau

Le Chateau’s second quarter sales dropped 7.7% to C$55.3 million, driven by a net 22 fewer stores and a comp decline of 1.7%. Full-price store comps rose 0.1% but were offset by an 8.4% comp decline at outlet locations. Digital sales rose 20.3%. Footwear was the only category to achieve sales growth, up 1.8%. During the quarter the Company experienced improvements in adjusted EBITDA and cash flow from operating activities as it implemented its strategy to recalibrate its retail network, close underperforming stores and strengthen its e-commerce platform. As a result of these initiatives, the Company recorded a net loss of $1.0 million, narrowed 84.1% from the prior year. By the end of the fiscal year, Le Chateau expects to achieve 90% of its objective to reduce its store network to approximately 150 stores; there are currently 175 locations operating across Canada.

Dollarama

Dollarama reported second quarter sales growth of 11.5% to $812.5 million, driven by comp growth of 6.1%, over and above comp growth of 5.7% in 2Q17, along with the addition of 74 new stores. The Company’s store count was 1,125 as of July 30. Comp growth consisted of a 5.9% increase in average transaction size and a 0.2% increase in the number of transactions. Net earnings jumped 23.9% to $131.8 million, impacted by sales growth, a stronger gross margin, and a lower SG&A margin.

Looking ahead at fiscal 2018, Dollarama expects EBITDA margin of 22.5% – 24% and capex of $100.0 million – $110.0 million. It plans to open 60 – 70 new stores. On the news, Dollarama’s shares reached an all-time high of $132.29 last Thursday on the Toronto Stock Exchange.

Tailored Brands

Tailored Brands reported second quarter sales decreased 6.5% to $850.8 million, with retail sales down 4.5% to $793.0 million and corporate apparel sales down 27.3% to $57.8 million. Retail sales were down primarily due to the impact of last year’s store closures, and corporate apparel sales fell primarily due to the anniversary of last year’s rollout of a large new uniform program. Men’s Wearhouse comps decreased 2.2%, stemming from a decrease in transactions and units per transaction, partially offset by an increase in average unit retail. Jos. A. Bank comps increased 7.8% primarily due to an increase in transaction and units per transaction that more than offset a decrease in average unit retail. K&G comps decreased 1.7%, while Moores comps increased 0.3%. Profit rose 134.1% to $58.5 million. CEO Doug Ewert commented, “We were pleased that all brands posted sequential improvement in comps on a one- and two-year stacked basis during the second quarter. That said, the retail environment remains challenging and therefore we have a cautious outlook for the second half of the year.” During the conference call, Mr. Ewert commented on the aftermath of Hurricane Harvey, saying, “Houston is home to 2,000 of our employees and our enterprise support functions, including retail and rental distribution, e-commerce fulfillment, customer service, and other corporate support operations, as well as many of our retail and dry-cleaning stores. 32 retail stores and 39 dry-cleaning stores were closed for three or more days.” All stores, facilities and offices have reopened except for one K&G store and one dry-cleaning location that suffered significant flooding.

In other news, Tailored Brands appointed Frank Hamlin as EVP and chief marketing officer and Boris Sherman as EVP and chief technology officer. Most recently, Mr. Hamlin served as chief marketing officer at GameStop, and Mr. Sherman served as SVP of omnichannel technology at L Brands.

Francesca's

Francesca’s reported second quarter sales increased 3.9% to $119.7 million due to the addition of a net 40 locations over the past year. Comps were down 3% due to a decrease in store conversion rates. The Company opened 16 new locations and closed three underperforming stores during the quarter, bringing its total store count to 692. Profit fell 31.4% to $7.3 million. CEO Steve Lawrence stated, “Comparable sales came in at the low-end of the expected range and further softened in August. We believe that the recent downturn in business is primarily reflective of merchandising missteps. We are taking decisive actions to efficiently move through our back-to-school product and to get back on track as we turn the corner into the holiday season.” Management also commented on the impact of Hurricane Harvey on its business. “Our corporate headquarters, e-commerce fulfilment, distribution center, approximately 40 boutiques and many team members located in Houston or neighboring areas were directly impacted by the storm. As of Tuesday, September 5, we have fully re-opened our corporate facilities and all but one of our impacted boutiques. The disruption to our supply chain is impacting all of our boutiques, and we expect it to take a couple of weeks before things normalize.” Francesca’s provided third quarter guidance that includes its best estimate of the impact of Hurricane Harvey; the Company expects sales of $105.0 million – $109.0 million (down 8.8% – 12.1% from the prior year), assuming a comp decrease in the mid- to high-teens (compared to a comp increase of 7% last year). It plans to open 32 new stores and close one underperforming location.

rue21

Yesterday morning, rue21, DIP announced that the U.S. Bankruptcy Court for the Western District of Pennsylvania confirmed the Company’s Plan of Reorganization, which clears the way for it to emerge from the bankruptcy process. The Company filed a voluntary Chapter 11 petition on May 15. rue21 expects the Plan of Reorganization to become effective by September 15, once all closing conditions have been met. The Company currently operates 758 stores in 45 states, after closing 421 underperforming locations during the bankruptcy process. rue21 filed bankruptcy after it was unsuccessful in its attempts to restructure its nearly $1.00 billion debt load. Melanie Cox, rue21’s CEO, commented, “We are very pleased to have moved through the restructuring process in a relatively short period. With the support of our lenders, our landlords, all of our business partners and the hard work of our team, the Company has performed consistently well ahead of its liquidity plan, and exceeded its second quarter target for Adjusted EBITDA by over 200%.”

PriceSmart

PriceSmart reported August sales growth of 4% to $238.3 million, and comp growth of 2.5%. For the 12 months ended August 31, sales were up 3.2% to $2.91 billion, and comps rose 1.5%. The Company opened one new warehouse club over the past year, bringing its store count to 39.

Barnes & Noble

Barnes & Noble’s first quarter sales declined 6.6% to $853.3 million, driven by a 4.9% drop in comps (on top of a 6% decline last year) from lower foot traffic and six net store closings. Online sales decreased 11.3% on lower promotional activity and comparisons to the prior-year eBook settlement. Although top-line sales deleveraged gross margin by 70 basis points, the Company continued its cost-cutting measures, particularly in e-commerce, advertising and outsourcing of certain services for the NOOK business, which helped EBITDA improve 2.1% in the quarter and margin expand 10 basis points. NOOK generated EBITDA of $0.6 million, an $8.6 million improvement over the prior year on expense reductions. B&N’s retail EBITDA of $10.6 million decreased $7.0 million primarily due to the comp decline, somewhat mitigated by expense reductions. Going forward, management noted in the earnings call that it has flexibility with its real estate to close underperforming stores as the Company has over 100 leases up for renewal every year for the next few years. Real estate discussions will be managed by James Lampassi, who was hired on July 18, and acts as the VP of Real Estate Development. Mr. Lampassi joins the Company from Petco Animal Supplies Stores, Inc., where he served as VP, Real Estate and Construction.

Restoration Hardware

RH (Restoration Hardware) reported second quarter sales increased 13.2% to $615.3 million, and comps were up 7%. The Company launched its membership program last year, offering a 25% discount on all items for an annual fee of $100. Management attributed the sales increase to the transition from a promotional model to a membership model. The Company recorded a loss of $7.9 million, compared to a profit of $6.9 million in the prior year period. However, adjusted income was $19.7 million, above RH’s guidance of $13.0 million – $15.0 million. CEO Gary Friedman commented, “While 2016 was a year of transformation and transition, 2017 will be a year of execution, architecture, and cash at RH. The transformation of our real estate has the potential to double our retail sales in every market.” The Company’s next three gallery openings are set for Toronto, Canada, New York, NY and Palm Beach, FL. As of July 29, the Company operated 85 galleries, consisting of 50 legacy galleries, six larger format design galleries, eight next generation design galleries, one RH Modern gallery, and five RH Baby & Child galleries throughout the U.S. and Canada; it also operates 15 Waterworks showrooms in the U.S. and the U.K. Looking ahead, RH raised its fiscal 2017 EPS forecast to $2.43 – $2.67, up from its prior forecast of $1.67 – $1.94. On the news of the updated outlook last Thursday (September 7), RH’s stock price rose 44.8% to $71.54, the largest single day increase in the Company’s history.