August 24, 2022
Amazon is reportedly halting the rollout of more Fresh self-checkout food stores, following disappointing sales and economic headwinds. Planned store openings will proceed if leases have been signed and construction has begun, but new stores and leases are, for the moment at least, on hold. Most existing Fresh stores have fallen short of sales projections, according to sources, while the costs of building the outlets dwarfs those typically associated with traditional convenience stores. Amazon has struggled to open physical stores amid high costs and tension with its Whole Foods chain. Previous reports claimed Amazon is reorganizing its food retail team, with an eye toward correcting some of the internal dysfunction that has characterized it.
In other news, Amazon will reportedly raise seller fees in the fall and early winter, as it prepares to counter inflationary pressures through the holiday season. The Company told third-party sellers in an email last week that those using Fulfillment by Amazon (those who pay Amazon to handle packaging and shipping) would get charged with a “holiday peak fulfillment fee” that will average out to $0.35 per item sold from October 15 through January 14 in the U.S. or Canada. In an email, the Company indicated, “Our selling partners are incredibly important to us, and this is not a decision we made lightly…. The entire industry sees increases in fulfillment and logistics costs during the holiday peak period due to the concentrated volume of shipments.” Amazon further noted that it normally absorbs the cost increases during the holidays, but “seasonal expenses are reaching new heights.”
Kohl’s reported disappointing 2Q22 results and lowered its FY22 outlook, as management blamed the high inflation and weakening economy for disproportionately impacting the discretionary spending of its middle-income customer. In response to the weaker outlook, the Company has increased promotions and is taking more aggressive actions to clear excess inventory, which is eroding margins and profits. 2Q comps fell 7.7%, while EBITDA plummeted 40%.
The Company is putting it strategic emphasis on the rollout of the Sephora shops. 400 were added so far in 2022, and these locations are seeing a mid-single digit sales lift. There were nearly 600 stores with Sephora shops at quarter end with plans for 850 by 2023. However, given the weak operating performance and ongoing investments, the Company burned $1.10 billion of free cash flow during 1H22, while we anticipate free cash flow will remain negative for the full FY22. Meanwhile, management did hint that it was considering sale leaseback transactions. The Company owns 410 stores, 13 distribution and e-commerce fulfillment centers and its headquarters in Menomonee Falls, WI. Click here to request a sample list of future store openings.
SoulCycle, which is owned and operated by parent Equinox, announced it will shutter around 20 of its 83 studios amidst weak demand and "over saturation" in certain markets (see SoulCycle’s store concentration in the adjacent map). Eveyln Webster, SoulCycle’s CEO, commented, "The timing was appropriate to look at our studio footprint by market to understand whether we continue to believe that we had indeed oversaturated some markets, and the conclusion is that after much work and analysis, that perhaps we have.” In total, SoulCycle will close: six locations in the New York City area, five in California and others in Washington, DC, Massachusetts, Illinois, Florida and Georgia. It will also close down in Toronto, which means a complete exit from Canada. Though the fitness industry has generally seen a rebound since the pandemic lows, Equinox, as well as its subsidiaries, which were trying to IPO as recently as early 2021, have continued to face challenges. As recently as May 2022, Equinox was sued for more than $5 million of unpaid rent, not the first lawsuit of its type. Liquidity is likely still a concern with about $150 million of secured debt maturing over the coming two-years. Click here to request a list of future SoulCycle closings.
Alimentation Couche Tard’s Circle K chain is looking to expand in Chicago, IL and is reportedly leasing space for smaller-format convenience stores in and around Chicago’s Loop. The Company plans to open 10 sites in the market in the near future, the first of which is expected to open by the end of August.
TJX’s 2Q23 revenue dipped 2%, while U.S. comparable store sales fell 5% from the prior-year period. During the quarter, inflation ate into home spending, driving comps at HomeGoods down 13%, compared to Marmaxx (Marshalls and T.J. Maxx) comps, which fell just 2%; 2Q23 EBITDA was up 0.7%. Management revised down FY23 guidance and now expects comps to be down 2% to 3%, from previous guidance of up 1% to 2%. The Company opened 21 new locations during the quarter, including 13 in the U.S., four in Canada, three in Europe and one in Australia. It plans to aggressively return to its remodeling program, specifically with its new Marshalls prototype. Click here to request a list of recent and future store openings.
Inflation continued to drive consumers to membership warehouses in 2Q22. BJ’s 2Q22 sales jumped 22%, and comps (ex-fuel) gained 7.6%. Membership revenue was up almost 12%, indicating that new consumers are seeking out this channel for their shopping needs. The Company was not lapping a particularly tough comparison in 2Q21 (sales up 5.6%, comps down 3.4%). However, 2Q22 results are impressive given recent results of other big-box competitors; Walmart’s 2Q sales were up 6.5%, and comps gained 7%, while Target’s sales rose 3.5%, with comps up 2.6%. BJ’s comp improvement was driven by inflation and higher traffic; grocery and perishables led all categories. As a result of the strong quarter, BJ’s raised its guidance for FY22 and now expects comps to improve 4% to 5%, up from low single-digits previously. The Company also expects continued pressure on merchandise margins. In May 2022, BJ’s completed its previously announced $376 million acquisition of four distributions centers from Burris Logistics. Two months later, BJ’s entered into a new five-year revolver that increased borrowing capacity to $1.20 billion from $1 billion; the facility matures on July 28, 2027. Click here to request a sample list of store openings.
Gap is introducing GPS Platform Services, which provides omnichannel fulfillment capabilities through a nationwide distribution network. It also offers reverse logistics services, including returns initiation, shipping labels, and processing at its fulfillment centers. Gap said it processes 1 billion units annually with a logistics workforce of over 9,000 associates. With this new service launch, Gap is building on other efforts to boost its presence in the supply chain space; it previously acquired Context-Based 4 Casting Ltd (CB4), a New York and Tel Aviv-based retail AI and machine learning platform. CB4’s technology has been implemented by retailers including Levi’s, Urban Outfitters, Lidl, and Kum & Go. Gap also invested $100 million to expand fulfillment centers in Phoenix, AZ and Gallatin, TN to enable online order fulfillment for more of its brands.
Last week, Wendy’s unveiled a prototype for its traditional units, which includes a delivery pickup window, mobile order parking spaces, in-store shelving for digital orders and a redesigned kitchen layout. The design will become the standard for traditional units across markets in the fall. Wendy’s plans to open its first Global Next Gen restaurant in Ohio in the spring. The Company debuted its new store format, optimized for a variety of channels, after recently slashing its projected ghost kitchen openings with Reef Technology from 700 to roughly 150.
In other news, Wendy’s restaurants have been associated with an E. coli outbreak reported in four states, with 37 people infected and 10 hospitalized, the U.S. Centers for Disease Control and Prevention said Friday. According to the CDC, 22 of 26 sick people reported eating sandwiches at Wendy’s restaurants in Michigan, Ohio and Pennsylvania before getting sick. As a precaution, Wendy’s is removing the romaine lettuce being used in sandwiches from restaurants in that region. Click here to request a sample list of future store openings.
On October 26, Wegmans will open its first store in Delaware located in New Castle County. This store, and two other small-format stores opening this year, will be about 84,000 square feet. Click hereto request a sample list of future openings.
Walmart reported top-line growth of 8.4%, as all three units, Walmart U.S., Sam’s Club and International, reported sales gains, but operating income fell 7% due to higher markdowns. Walmart U.S. and Sam’s Club sales were up 7% and 17.5%, respectively, while International was up almost 6%. Inflation drove Walmart U.S. comps, with average ticket expanding 5.5%; however, there was also traffic growth of 1% that contributed to the gain. Sam’s Club was the complete opposite; traffic was the main driver, up almost 10%, while average ticket actually fell 0.2%. Walmart finished 1Q23 with significant excess inventory and indicated it would take aggressive action to normalize inventory levels. Additionally, Walmart is acquiring Delivery Drivers Inc. (DDI), the gig-labor management company it partners with for its Spark Driver platform. Terms of the deal were not disclosed. The acquisition aims to streamline the driver experience with a single point of contact, and all of DDI’s employees will be offered jobs at Walmart.
The acquisition comes at a time when Walmart is building out its Spark Driver offering, which has gig workers fulfill orders for both the retailer and for GoLocal, its white-label delivery service. Click hereto request a sample list of future openings.
Costco will open a new 155,150 square-foot store in Athens, SC in November. The store is one of eight new stores the Company plans to open across the U.S. and in Australia and Canada that month. Costco had initially planned for an earlier opening but experienced problems with the supply chain for building materials. Click hereto request a sample list of future openings.
Ross Stores’ 2Q22 topline results came in below expectations; the Company also lowered its outlook for FY22. 2Q revenue declined 4.6% year-over-year, to $4.58 billion, but remained 15% above pre-pandemic 2Q19. Similarly, comps fell 7% as inflation ate into consumer discretionary spending and the Company lapped its strongest quarter from FY21. The sales deleverage, coupled with higher markdowns and increased freight costs drove EBITDA down 20% and EBITDA margin down 250 bps. During the quarter, the Company opened 21 Ross locations and eight dd's DISCOUNT locations, bringing the total store count to 1,980 (1,669 Ross and 311 dd's). The Company remains on track to open approximately 100 locations in FY22, comprised of 75 Ross and 25 dd's. Click hereto request a sample list of future openings.
The Children's Place’s 2Q22 sales dropped 8% (comps declined 8.7%) as gross margin eroded 1,046 bps to 30.2%, on increased promotional activity, higher supply chain and transportation costs and increased penetration of the Company's wholesale business, which operates at a lower gross margin. Since the Company’s fleet optimization initiative was announced in 2013, it has permanently closed 541 stores. Looking ahead, given significant headwinds and uncertainty in FY22, including high cotton prices, record inflation, lapping stimulus payments from last year, increased competitive pressures and ongoing freight disruptions, the Company now expects a low-double digit sales decline for FY22, with a low double-digit decrease in comparable sales. Operating income is expected to be approximately 7.5% of sales, down 55% for the year. 3Q22 sales are expected to fall 10%, with a low double-digit decline in comps. Operating income is projected to fall 40% from 3Q21.
Dick’s Sporting Goods reported 2Q22 sales decreased 5% to $3.11 billion, and comps were down 5.1%. However, compared to 2Q19, sales were up 38%. Operating income fell 30.6% year-over-year to $460.2 million, but was up from $167.7 million in 2Q19. The Company narrowed its FY22 comp guidance to (2%) – (6%), up from (2%) – (8%) previously. FY22 EPS is now projected to be $8.85 – $10.55, up from $7.95– $10.15 previously.
In other news, Dick’s plans to open a two-level, 140,000 square-foot Dick’s House of Sports in Johnson City, TN in 2023. It will feature an indoor climbing wall, batting cage, and footwear department, as well as a 17,000 square-foot turf field with a track for customers to test products. This is the Company’s largest store to-date, and replaces a former Macy’s. House of Sports has three locations currently, one each in Minnetonka, MN, Rochester, NY, and Knoxville, TN.
The Buckle’s 2Q22 sales increased 2.3% to $302 million, on comp growth of 1.6%. Online sales increased 6.5% to $46.2 million and represented 15.3% of total sales, up from 14.7% last year. Gross margin remained flat but SG&A margin increased 130 bps to 26.4%, leading operating income to decline 3.2% to $65.7 million. The Company ended the quarter with 441 stores in 42 states, but it opened a new store subsequent to quarter end.
Bath & Body Works' 2Q22 sales dipped 5.1% driven by a decrease in transactions and lower average dollar sale as inflation curbed consumer spending, particularly in the home category. E-commerce sales fell 10% and represented 23% of sales. As expected, 2Q22 margins were impacted by inflationary pressures and the deleveraging of buying and occupancy expenses; gross margin declined 780 bps to 41% and operating margin contracted 760 bps to 15%. The Company noted that FY22 results will be impacted by incremental costs related to inflationary pressures, its IT separation from Victoria’s Secret, and CEO transition expenses. As a result, the Company is pursuing cost control actions, including the elimination of about 130 employees, most of which were leadership roles. During 2Q22, the Company opened 23 stores and closed nine, ending the quarter with 1,773 locations; it remains on track to open 100 new locations, offset by 40 to 50 mall-based closures. The Company sharply revised down its FY22 outlook and now expects sales to decline mid- to high-single digits, versus previous guidance of up low-single digits. Click here to request a sample list of future store openings and closings.
Last week, a U.S. federal court ordered Starbucks to reinstate seven employees at a Memphis, TN cafe that were allegedly fired for supporting a union-organizing campaign, as the Company seeks to halt pending nationwide union elections. U.S. District Judge Sheryl Lipman in Memphis said the U.S. National Labor Relations Board had provided enough evidence that the firings earlier this year were motivated by anti-union animus. Starbucks said in a statement last week it disagreed with the ruling and planned to appeal. The Company said the workers were fired for violating safety policies and that it respected the unionization process. Click here to request a sample list of future store openings.
Ahold Delhaize’s Stop & Shop has refreshed a Boston store to include a new community wellness space. The store reopened on August 19 and now offers free nutrition programming and an array of fresh, good-for-you products. The store was reportedly selected for the wellness space based on the needs of the surrounding community, which has struggled with high rates of nutrition-related chronic conditions, food insecurity and residents who live below the poverty line.
RoNetco Supermarkets, an operator of ShopRite grocery stores in northwest New Jersey, recently debuted Fresh to Table, an innovative store-within-a-store concept, enabling customers to find fresh on-trend foods, easy-to-prepare ingredients and meal solutions in a variety of grab-and-go formats. The new format can be found in five RoNetco ShopRite stores in Sussex, Warren and Morris counties. RoNetco has been part of Wakefern Food Corp. since 1956.
Meanwhile, Village Supermarkets has added to its footprint with a new ShopRite location in Pelham, NY, which is being converted from a Fairway Market and undergoing a renovation to update its offerings and services. The 75,000 square-foot store should open by late fall.
According to published reports, the UFCW is claiming the sudden decision by Trader Joe’s earlier this month to close a wine shop in Manhattan was driven by discussions workers at the location had about potentially unionizing. The UFCW’s accusation against Trader Joe’s came days after workers at a Trader Joe’s store in Minneapolis last week voted to join the Trader Joe’s United union. That election followed a July vote by workers at a Trader Joe’s in Hadley, MA to become the first Trader Joe’s associates to join the newly formed union. Click here to request a sample list of future store openings.
Inflationary pressures and the shift in consumer buying habits continued to affect Target’s 2Q22 results. Sales and comps were up a modest 3.5% and 2.6%, respectively. Traffic continues to drive the growth in Target’s comps, rising 2.7%, while average ticket declined 0.1%. The comp increase was propelled by food and beverage, health and beauty, and household items, reflecting the continued shift away from discretionary purchases. The shift in consumer behavior led to a gross margin decline of almost 900 bps on mark-downs to reduce inventory levels, especially in the discretionary categories. Click here to request a sample list of future store openings.
Fareway Stores recently broke ground on a new location in Kansas City, MO, expected to open in early spring 2023. The unit will feature an 8,700 square-foot Fareway Meat Market with a full-service butcher counter. The Company entered its seventh state this summer with a new Meat Market in Olathe, KS.
Fareway is also expanding its footprint in Iowa by taking over an independent store operating under The Brick Street Market and Café name. The 20,000 square-foot store will officially change hands in early 2023. The Company will do some remodeling over the next few months and keep the café open during renovations. Click here to request a sample list of future store openings.
Buc-ee’s broke ground on its new travel center in Springfield, MO, its first in the state. Since expanding outside of Texas in 2019, the Company has opened travel centers in Alabama, Florida, Georgia, Kentucky, South Carolina and Tennessee. Beyond its new site in Missouri, the Company will also expand west in 2024, with a location in Colorado.
Regis Corporation’s 4Q22 sales decreased 32.3%, driven primarily by exiting Company-owned salons that produced significant revenue, but were loss generating. The sales decline was partially offset by an increase in royalty revenue due to higher franchise system sales. There were 5,395 franchise salons (98.1% of total locations), down by 168 locations over the past year. Company-owned salon sales fell 21.7%, and comps were down 0.8%; EBITDA margin fell to 44.4% from 52.6% last year. There were 105 Company-owned salons (1.9% of total salons), down 171 from last year.
Last week, London Drugs opened a new 29,600 square-foot store in Edmonton, Alberta. The new store boasts an open concept design, including updated beauty and tech departments.
According to our sources, Bed Bath & Beyond (BBBY) has tapped restructuring experts Kirkland & Ellis for legal assistance, with a focus on addressing the Company's debt load. The firm will advise the retailer on options for raising new money and/or refinancing its debt. The Company is reportedly seeking a new $375 million FILO loan that would likely be added to its existing $1 billion asset-based debt facility and could potentially be secured by equity in the Company’s Buy Buy Baby business. The Company recently stated, “We are continuing to execute on our priorities to enhance liquidity. Specifically, we have been working expeditiously over the past several weeks with external financial advisors and lenders on strengthening our balance sheet, and the Company will provide more information in an update at the end of this month.” Click here to request more info.
Tractor Supply Company is rebranding its Petsense brand to Petsense by Tractor Supply, with updated external signage and internal décor unveiled at its Murfreesboro, TN location. The remaining 177 locations are scheduled to be completed by the end of this year. Click here to request a sample list of future store openings.
Jack in the Box is offering a discounted royalty rate in the first five years of franchise agreements with new operators who agree to develop at least three stores. The Company is offering a 1% royalty rate in the first year, rising by 1% each year until the fifth year of the agreement. Then, the rate will remain at 5% for the duration of the franchise agreement. This discount, which Jack in the Box claims could save the average operator $180,000 per store, is intended to support the Company’s franchise-heavy expansion strategy.
Cato’s 2Q comps and sales were down 5% while gross margin narrowed 11% pulling EBITDA down 80% to just $4 million; EBITDA margin declined 800 bps. Cato's balance sheet remains strong, although cash was down almost 30%, most of it invested in inventory. Like many retailers, Cato is carrying elevated inventory levels, up 127%, to mitigate supply chain disruptions. Management plans to normalize inventories by FYE22. As of July 30, 2022, Cato had no debt, $158 million in cash, and an estimated $35 million in untapped revolver availability. The Company opened four new stores, closed two, relocated two, and ended the quarter with 1,312 locations in 32 states.
The below retailers recently released their earnings reports. To request more information on these companies, or to discuss the financial performance with a retail industry expert, please click here.
For more information on AggData contact Josh Suffin@ (800) 789-0123 x172
