Retail News

Albertsons

Last Wednesday, Albertsons Cos. announced its plan to acquire meal-kit delivery service DineInFresh (dba Plated). Launched in 2012, NYC-based Plated will operate as a wholly owned subsidiary of Albertsons. Financial terms of the deal were not disclosed. The transaction is expected to close later this month, pending customary approvals. Albertsons said Plated meal kits, which include fresh ingredients and recipes, would be offered at its stores, online, and through a variety of distribution options. Plated will continue to operate its own fulfillment centers throughout the U.S.

Other grocery retailers have been looking to enter the meal kit business to maintain market share and fight back against Amazon. Last week, reports surfaced that Walmart plans to begin offering meal kit services on its website in December, The CEO of Terra’s Kitchen, a meal kit company based in Baltimore, MD, is currently in talks to partner with Walmart. Essentially, Walmart plans to be a portal for different meal kit companies to sell their products as a third-party host in return for a referral fee. The CEO of Green Chef said he was open to accepting offers, and Home Chef hired bankers to explore a possible sale. In Canada, Metro Inc. acquired Montreal-based meal kit company MissFresh last month and plans to expand its operations throughout Quebec by year-end. Last month, Kroger began testing its own kits of premeasured ingredients in four of its Cincinnati stores, and its Ralph’s chain recently rolled out meal kits under the Prep+Pared label to 25 stores across Southern California; it plans to offer them at 100 Ralphs locations by early 2018. Amazon has already been testing food delivery through AmazonFresh and selling meal kits in metropolitan areas. Meanwhile, Gelson’s Markets is partnering with meal kit startup Chef’d to provide in-store options for customers at its Valley Village/North Hollywood, CA store. Plans are in place to expand the partnership to multiple Gelson’s locations in the future.

The popularity of meal kits has flooded the market with offerings, which has not been so kind to Blue Apron. Since going public at $10 per share in June, Blue Apron’s stock has lost nearly half of its value, closing at $5.54 on Monday. Meanwhile, Nestle SA led a $77.0 million investment round in meal kit company Freshly in June, while Unilever’s venture capital arm led a $9.2 million investment in organic meal delivery service Sun Basket in May.

Ahold Delhaize

In a recent interview, Ahold Delhaize’s CEO Dick Boer said the key to surviving Amazon’s grocery push is to make sure traditional supermarkets are still exciting places to visit. Mr. Boer estimates that as much as 15% of grocery purchases will move online by 2025 but believes most customers will still visit stores, especially for fresh items such as meat and produce. He said that to make Ahold’s stores more enticing, they may add restaurants and other gathering spots. “We have to make the store more exciting. The shopping environment needs to be easier, less complex and more entertaining.” Boer added that the Company’s own grocery delivery service, Peapod, has operated for about 25 years (in the early days, customers ordered their food via fax), but the cost of delivering groceries to shoppers’ homes remains a hurdle, and Peapod isn’t profitable yet. The Company has previously stated that in areas where it has operated over a decade, it has shown a profit, but this is quite damning regarding grocery delivery and its impact on a grocer’s margins. However, Ahold sees the service as a necessity for grocers at a time when more customers are shifting to online shopping.

J.C. Penney

J.C. Penney is planning to hire 40,000 workers for the upcoming holiday shopping season, about the same as last year. The hiring process begins October 17, and staff will be added throughout the season. Meanwhile, since Hurricane Harvey, the Company hired an extra 2,500 workers in the Houston area to help families affected by the flooding looking for work and needing the 25% employee discount to replace household items. In addition, the seven Puerto Rico stores that were closed on September 18 in advance of Hurricane Maria remain closed after severe damage left the island without power. These stores are expected to remain closed until power is restored, buildings are inspected, and employees can safely travel to work.

PetSmart/Petco

In what has turned into a tough end of the summer, the major pet retailers PetSmart and Petco faced serious challenges. Intense competition from both online and mass market retailers has put pressure on sales and comps, with PetSmart and Petco’s second quarter comps down an estimated 5% and 2% respectively. The decision by Blue Buffalo to begin distribution through retailers such as Target and Kroger added to the stress.

On September 21, S&P downgraded PetSmart’s corporate rating to “B” from “B+” and then, a day later, S&P revised Petco’s outlook to “negative” from “stable” and affirmed its “B” corporate rating. Both companies remain highly leveraged from their acquisition financing.

Amazon/Whole Foods

Amazon plans to open a new office center in Manhattan which is expected to create 2,000 finance, sales, marketing and IT positions. The Company was offered up to $20.0 million in performance-based tax credits to get the Company into the 359,000 square-foot space in the far west side in the Hudson Yards. The announcement follows the September 6 news that Amazon will build a new $100.0 million Amazon fulfillment center on the West Shore of Staten Island. As Amazon’s first fulfillment center in New York State, the 855,000 square-foot facility is expected to utilize the Company’s advanced robotics fulfillment technology.

In other news, Amazon announced a partnership with New York-based food delivery service Olo, under which Amazon will list Olo’s clients on the Amazon Restaurants food delivery section of its website. Olo says 200 restaurant chains use its platform, including Chipotle Mexican Grill, Denny’s and Shake Shack.

An affiliate of Amazon has agreed to buy a 1.79 billion-rupee (US$27.6 million) stake in Indian retailer Shoppers Stop Ltd. Amazon will buy about 4.4 million shares of the Company, or a 5% stake.

Reports surfaced last week suggesting Amazon is in discussions to partner with PBM managers. Amazon would need at least 18 – 24 months to get official drug licenses in 50 states. The Company could seek a mail-order pharmacy that would first target uninsured consumers or those with deductibles who pay cash for a majority of their prescribed medications.

According to published reports, Whole Foods is expected to change the way companies can sell and market their products in Whole Foods’ stores. Under the changes planned to begin in April, Whole Foods’ 470 locations will no longer allow brand representatives to promote their products or check to make sure they are stocked and displayed correctly. Whole Foods also is centralizing much of its decision making regarding the assortment of products across the country. Instead of allowing brands to frequently pitch their products to individual stores or regions, Whole Foods executives will choose a higher percentage of the items stores carry. This sort of centralization and focus on the bottom line is risky and has been blamed for ruining many previous local, prestigious chains that were subsequently acquired by large national players; one of the biggest examples was Safeway’s acquisition of Genuardi’s back in 2000. Safeway eventually exited the Philly area in 2012, selling the remaining Genuardi’s locations to Ahold’s Giant Food business. There are many other examples; however, some have succeeded, as Kroger has reportedly done well thus far with its 2014 Harris Teeter acquisition.

There are reports suggesting that one of the benefits of Amazon’s acquisition of Whole Foods may be an improved ability to sell alcohol. The ability to use Whole Foods as mini-warehouses in a number of local markets could allow Amazon to both deliver alcohol and offer click-and-collect services to consumers, without having to deal with complicated shipping logistics. Meanwhile, Amazon has expanded the cities included in the alcohol delivery service through Prime Now. It also is enabling its Alexa-powered smart speaker system to take beer orders in some markets, and Miller Coors recently launched a Dash button to simplify reorders.

Nordstrom

Nordstrom is launching an in-store pop-up shop, called Pop-In@Nordstrom, at eight Nordstrom stores on Friday. The in-store shop will be dedicated to a collection of products from Everlane, carrying a wide range of categories including denim, cashmere, shoes, and leather goods for both men and women. This is Everlane’s first in-store retail partnership; the Company launched online in 2011 selling ethically made fashion basics and promising “radical transparency” (it discloses the costs for each item, including materials, labor, duties and transport, and reveals its markup). Everlane plans to open its first brick-and-mortar location in its hometown of San Francisco, CA, though no opening date has been set yet.

Hy-Vee

Hy-Vee plans to build its first distribution center outside of Iowa located in southern Minnesota. The Company is currently negotiating for the land but anticipates construction on the one million square-foot facility could begin in 2019. Hy-Vee has expanded significantly in the Twin Cities region since entering the market in 2015. In August, the Company opened a store in Cottage Grove, its seventh in the Minneapolis metro area, and has six more in various stages of planning. Overall, Hy-Vee operates 24 locations in the state. Hy-Vee currently has two distribution centers in Iowa located in Cherokee (650,000 square feet) and Chariton (one million square feet).

In other news, Hy-Vee raised its prices for Des Moines-area customers for online grocery pickup and delivery. As of last week, orders over $100 delivered within a four-hour time period get free delivery; within a two-hour window, $7.99; and within an hour window, $9.99. Orders less than $100 are charged a $5.99 fee for a four-hour window, $9.99 for a two-hour window and $12.99 for an hour window. Hy-Vee launched its Aisles Online program in 2015. Until last week, the Company charged $4.95 for delivery and $2.95 for store pickup for online orders under $100. Orders over $100 did not have the extra fees. The Company said because the service was so popular it needed to increase the scheduled times it delivered groceries to be able to better plan delivery routes. Walmart and Target both offer online grocery shopping in the Des Moines area, but neither offer delivery.

Bass Pro Shops/Cabela's

Yesterday, Bass Pro Shops announced the completion of its acquisition of Cabela’s for $61.50 per share in cash, representing a transaction value of $5.00 billion. As a result, Cabela’s common stock will no longer be listed on the New York Stock Exchange. In connection with the deal, Synovus Bank completed its acquisition of certain assets and liabilities of World’s Foremost Bank (WFB), Cabela’s credit card unit, for $1.20 billion. Synovous acted as a middleman by completing this sale of Cabela's credit card business to Capital One Bank. Capital One will be the exclusive issuing partner of Cabela’s-branded CLUB Visa program pursuant to a 10-year program agreement. The surviving entity will be more highly leveraged, as the transaction was funded with a significant amount of new debt, including a new $3.37 billion term loan, a $500.0 million asset sale facility, and revolvers totaling $575.0 million. The funding also includes preferred stock and proceeds from outsourcing Cabela's credit card program. Bass Pro’s balance sheet is moderately leveraged, reflecting debt to finance dividend distributions dating back to 2011. It further leveraged its balance sheet with the debt-funded acquisition of Fishing Holdings LLC in February 2015. In May 2015 a refinancing left the Company with a $1.74 billion term loan, which essentially rolls up the debt incurred in the previous transactions.

Dick's Sporting Goods

Dick’s Sporting Goods opened four new stores over the last week. The Company opened a Dick’s in Lincoln, NE, and both a Dick’s and a Field & Stream in Fayetteville, NC over the weekend; a fourth location, in Camp Hill, PA, is slated to open this coming weekend. The Company operates 713 Dick’s Sporting Goods and 35 Field & Stream stores across the U.S.

Tops Markets

Tops Markets recently announced that it will shutter its grocery stores in Jordan, NY and Sayre, PA by October 14. Commenting on the NY store closure, the Company said the move was a business decision to consolidate the Jordan store and the Elbridge stores. The Elbridge building, which is about two miles away from the Jordan store, is larger and more up to date than the closing location, which is less than 8,000 square feet, so it didn’t make sense to keep operating both buildings.

Sportsman's Warehouse

Sportsman’s Warehouse opened a store in Visalia, CA on September 21. This is the Company’s 10th location in California and brings the total store base to 86 stores in 22 states.

Roche Bros.

Roche Bros. has unveiled plans for a third Brothers Marketplace located in Waltham, MA. It is expected to open in spring 2018. The 12,000 square-foot Brothers Marketplace will be located on the ground floor space of a 269-unit development. According to the Company, the store will offer a one-stop grocery shopping and dining experience with fresh foods, local and specialty products, prepared meals and grocery essentials. The Roche brothers have opened two other Marketplaces located in Weston and Medfield, which are smaller versions of their grocery stores and more specialty focused.

SpartanNash

Last week, SpartanNash reopened two stores in Rapid City, SD as Family Fare Supermarkets, marking the banner’s initial entry in the state. The stores, which previously operated under SpartanNash’s Family Thrift Center banner, underwent extensive remodels. Tom Swanson, VP of the retail West division, commented, “SpartanNash’s $5.0 million investment in the Rapid City market is part of our continuous evaluation of our retail footprint to right size the market as neighborhoods change and grow. While it is never easy to close a store, the Company decided to consolidate its retail operations in Rapid City from five stores to two.” SpartanNash now operates 85 Family Fare stores in six states and about 160 chain wide.

Ascena Retail Group

Ascena Retail Group’s fourth quarter sales decreased 8.5% to $1.66 billion on a comp decline of 4% and 99 fewer stores in operation compared to the prior year. Sequentially, fourth quarter comps improved from the 8% comp decline of the third quarter, and reflected negative comps at all retail banners with the sole exception of plus fashion concept, Catherines, where comps rose 1%. Gross margin eroded 10 basis points primarily due to pricing challenges at the Value and Kids Fashion segments, and EBITDA declined 23.8% to $131.5 million. Despite efforts to reduce operating costs and overhead, until Ascena halts sales declines, leveraging operating costs will be difficult if not impossible. On its 4Q conference call, management commented that traffic trends improved sequentially but remain challenging, and the Company expects this trend to continue in the foreseeable future. The organization is working to elevate fashion product and eliminate commodity apparel, while applying institutional know-how (sourcing and sizing) from Lane Bryant and Catherines in preparation for the Spring 2018 launch of plus sizes at LOFT. Ascena’s Fleet Optimization Program targeted 667 stores for potential closure in January and, to date, 120 stores were shuttered; the Company is “negotiating aggressively to exit stores, unless specific rent concessions at the individual store level are met. In general, landlord negotiations have been productive and have allowed us to keep many stores open in exchange for occupancy concessions,” President and COO Brian Lynch stated.

Stater Bros.

Stater Bros. announced plans to close its Lincoln, CA store in Orange County. According to the Company, “In conjunction with the opening of our Tustin Ranch supermarket in late October and upcoming expiration of the Lincoln location's lease, the Lincoln store will close October 22.”

Trader Joe's

Trader Joe’s will open its second store in West Michigan by mid-October. The new 13,000 square-foot store will be located in Oshtemo Township. The Company currently operates seven stores in the state.

Rue21

On September 22, Rue21 completed its financial restructuring and emerged from bankruptcy, after its restructuring plan was confirmed on September 11 by the U.S. Bankruptcy Court for the Western Pennsylvania district in Pittsburgh. The Company had filed Chapter 11 on May 15, after it was unsuccessful in its attempts to restructure its nearly $1.00 billion debt load; Wells Fargo was its largest unsecured creditor, with a claim of $239.2 million in Senior Unsecured Notes due 2021. Rue21 currently operates 758 stores in 45 states, after closing 421 underperforming locations during the bankruptcy process.

Chick-fil-A

Chick-fil-A is opening its largest location in New York City in 2018. The 12,000 square-foot restaurant will be its third in Manhattan, located in the Financial District. It will have five levels, including a rooftop terrace and new design features for the chain.

Uniqlo

Uniqlo plans to open a specialty store dedicated to denim in Los Angeles, CA this fall/winter. The “denim concept” store will be Uniqlo’s 47th location in the U.S. and ninth in the Los Angeles region; it follows a Uniqlo that opened in Santa Anita, CA earlier this month. The denim store will take its inspiration from Uniqlo’s Jeans Innovation Center, a research and development facility located in Los Angeles. Uniqlo is a Japanese fast-fashion retailer that operates as a subsidiary of Fast Retailing Group.

Design Within Reach

Upscale furniture retailer Design Within Reach opened a new location in Dallas, TX, a 13,500 square-foot space that is three times the size of the temporary space the Company previously occupied at that location. The location includes an expanded assortment of outdoor furniture and displays of office solutions for home and business, in addition to 40 room vignettes of sofas, loungers, beds, dining tables and chairs, rugs, lamps and accessories.

Darden Restaurants

Darden reports first quarter sales growth of 12.9% to $1.94 billion, including 11.2% growth from the addition of 141 Cheddar’s Scratch Kitchen restaurants and 21 other new net restaurants. Blended same-restaurant sales from Darden’s legacy brands increased 1.7%. Same-restaurant sales increased 1.9% at Olive Garden, 2% at The Capital Grille, 2.6% at LongHorn Steakhouse, 2.5% at Eddie V’s, 1.2% at Bahama Breeze, and declined 0.4% at Yard House, 2.2% at Seasons 52 and 1.4% at Cheddar’s Scratch Kitchen. Net income increased 8% to $119.0 million.

During the quarter, the Company repurchased approximately 1.2 million shares of its stock for a total of $100.0 million. As of the end of the first quarter, the Company had approximately $370.0 million remaining under the current $500.0 million repurchase authorization.

For fiscal 2018, the Company reaffirmed its outlook for sales growth of 11.5% – 13% and same-restaurant sales growth from legacy Darden brands of 1% – 2%. The Company continues to expect EPS of $4.38 – $4.50. This financial outlook includes the expected full financial impact of Hurricanes Harvey and Irma.

American Eagle Outfitters

American Eagle Outfitters plans to open its first locations in India through a multi-year license agreement with the Aditya Birla Group. The first stores are expected to open in Mumbai and Delhi in Spring 2018. This move comes after the Company pulled out of the U.K. over the summer, where it had previously operated three stores and an e-commerce site. Looking ahead to the remainder of fiscal 2017, the Company plans to open 35 American Eagle Outfitters and aerie stores throughout the U.S., Canada and Mexico; it also plans to close 25 – 40 underperforming locations.

Toys "R" Us, DIP

On September 20, the Bankruptcy Court issued interim orders authorizing Toys “R” Us, DIP to access up to (i) $1.30 billion of the $1.85 billion Revolving DIP Facility, (ii) the entire $450.0 million DIP Term Loan Facility, and (iii) the entire $375.0 million of the True Taj, LLC, DIP Incremental Notes. In addition, the Company is authorized to pay critical vendor claims up to $115.0 million and pay Section 503(b)(9) claims up to $25.0 million. A hearing on final approval of the orders is scheduled for October 10.

On September 20, Toys “R” Us (Canada) Ltd., DIP sought and obtained protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA). This came a day after parent Toys “R” Us, DIP filed Chapter 11 in the U.S., as the Chapter 11 proceedings triggered a default under Toys-Canada’s ABL Credit Facility and cut off all borrowing for the Canadian unit, requiring repayment of the Canadian loans. Pursuant to an order issued by the Ontario Superior Court of Justice, Grant Thornton Limited was appointed as monitor. The Court file number is CV-17- 00582960-00CL. The Company said its 82 stores across Canada, as well as its e-commerce sites, will continue to operate as usual during its restructuring process. Court filings state, “The profitable Toys-Canada operates as a relatively autonomous business unit and achieved strong financial and operational performance in recent years. It is cash-flow positive, has had compounded annual revenue growth of 5% in the past three years and has almost doubled net earnings in that time.” The Court authorized Toys-Canada to borrow under a new US$200.0 million DIP term loan and a US$300.0 million DIP revolving credit facility, portions of which will be used to repay the Company’s obligations under the existing ABL Credit Facility. The new 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.

Genuine Parts

Genuine Parts entered into a definitive agreement to acquire Alliance Automotive Group (AAG) for an all-in cash consideration price of approximately $2.00 billion. Genuine Parts purchased AAG from a private equity fund backed by the co-founders of Blackstone and AAG. The transaction is projected to close in the fourth quarter of 2017 and will be funded with debt, including a new term loan, multi-currency debt and an increased revolver. The additional $2.00 billion of debt will likely increase leverage to approximately 2x from 0.9x. Alliance Auto is the second largest parts distribution platform in Europe, specializing in light vehicle and commercial vehicle replacement parts. AAC generates approximately $1.70 billion in sales, with over 1,800 Company-owned stores across France, the U.K. and Germany. The combined entity will net approximately $17.50 billion in sales, and the Company expects AAG to be accretive to earnings immediately.