August 28, 2019
Today, Hudson's Bay Company and Le Tote, Inc., announced they have entered into an agreement for Le Tote to acquire Lord & Taylor. Under the terms of the agreement, Le Tote will acquire the Lord & Taylor brand and related intellectual property while assuming operations of 38 stores, Lord & Taylor’s digital channels and the associated inventory. HBC will receive C$99.5 million (USD$75.0 million) in cash upon the transaction’s closing and a secured promissory note for C$33.2 million (USD$25.0 million) payable in cash after two years. In addition, HBC will receive an equity stake in Le Tote, two seats on the Company’s Board of Directors and certain rights as a minority shareholder. HBC and HBS Global Properties, HBC’s real estate joint venture, will retain ownership of all owned and ground-leased real estate assets related to Lord & Taylor. For at least the initial three years, HBC has agreed to maintain economic responsibility for the rent payments owed by Lord & Taylor at the locations operated by Le Tote. Net of HBC’s distributions from HBS Global Properties, HBC expects to continue to be liable for approximately C$77.0 million in Lord & Taylor total cash rent on an annual basis.
Sears Hometown and Outlet Stores and Liberty Tax inked a deal whereby Liberty Tax will acquire Sears Hometown’s Outlet business as well as its Buddy’s Home Furnishings Stores, in an all-cash transaction valued at up to $132.9 million. Liberty Tax intends to finance the transaction through a combination of new debt, Liberty’s balance sheet and/or an equity contribution from an affiliate of Vintage Capital Management, LLC. In connection with the purchase agreement, Liberty Tax entered into a debt commitment letter with Guggenheim Credit Services, LLC as administrative agent and lead arranger.
H.E. Butt Grocery operates 400 stores in Texas and northern Mexico with sales of more than $23.00 billion, making it one of the largest grocery retailers in the country. The Company is focusing on e-commerce; it announced the construction of new tech centers in Austin and San Antonio as well as the redevelopment of one of its Houston, TX stores into an e-commerce warehouse to support its home delivery and curbside pickup businesses. It is currently building a new one million square-foot distribution and manufacturing center, its largest thus far, on the east side of San Antonio, TX; the facility is scheduled to become operational in 2020.
Costco filed a plan to open a 139,000 square-foot spinoff concept for business customers in a Sacramento, CA retail center. Costco Business Centers cater to business customers, specifically those in food services, professional offices, and the convenience store industry. The Company currently operates 18 Costco Business Center locations.
PriceSmart acquired approximately 111,000 square feet of land in Bogota, Colombia where it will build its 47th warehouse club. It is expected to open in the fall of 2020. The Company currently has three other clubs under development in Guatemala, Panama, and Costa Rica.
Barneys, DIP is reportedly in talks to sell itself to e-commerce retailer Farfetch, which sells luxury brands including Gucci, Karl Lagerfeld, and Chanel. According to the report, Barney’s Manhattan flagship store landlord, Ashkenazy Acquisition Corporation, tentatively agreed to lower rent by 25% to a blended rate of $75 per square foot, due to the negotiations with Farfetch. Barneys filed Chapter 11 on August 6, citing declining sales from lower foot traffic, exacerbated by high rent (the Madison Avenue building’s rent had doubled this year to $30.0 million). Yesterday, Farfetch released a statement in response to the article, saying, “The story is incorrect – Farfetch is not acquiring Barneys New York.”
Aldi is spending about $18.0 million to renovate 13 Baltimore-area stores, with the focus on offering new ‘On the Go’ food, wider aisles, and discount meat and fish. These renovations are part of a $1.90 billion plan to renovate 1,300 Aldi stores nationwide by the end of 2020. Click here for a list of the Company’s planned new locations.
Herb Philipson’s Army & Navy Stores, DIP filed a motion with the U.S. Bankruptcy Court for the Northern District of New York to close its three remaining stores. The motion stated that there were no bidders in an auction last month, and noted that “absent an expeditious sale, the Debtor’s cash reserves will continue to dwindle, which will likely render the Debtor administratively insolvent in the coming weeks. This continued erosion of the Debtor’s cash position will leave it with no real alternative but to cease operations and liquidate its assets on a piecemeal basis.”
Retail Bankruptcies
600+ retailers have filed for bankruptcy year to date, including several major national chains. To request the full list of bankruptcies or to sign up for our daily listing of Chapter 11 filings (all industries), click here.
Boot Barn acquired certain assets of G. & L. Clothing, Inc., an individually owned retailer operating one store in Des Moines, IA. As part of the transaction, Boot Barn purchased inventory, entered into a new lease with the store’s landlord, and offered employment to its workers. The Company funded the acquisition from cash on hand. Terms of the deal were not disclosed. Boot Barn operates 242 stores in 33 states. Click here to request a list of the Company's future openings.
Boll & Branch received a $100.0 million strategic investment from the flagship buyout fund of L Catterton. The investment will be used to fuel Boll & Branch’s growth, accelerate the expansion of its retail and wholesale businesses, and support its direct-to-consumer business. Boll & Branch was founded in 2014 by Scott and Missy Tannen to sell luxury, sustainably sourced sheets, pillows, mattresses and towels. The Company says it has been profitable since 2016, and in October 2018 opened its first and only retail store in Short Hill, NJ. L Catterton has also invested in The Honest Company, Peloton, Restoration Hardware, Third Love, and others.
Trader Joe’s plans to open a new store in Bridgewater, NJ this fall. The 13,000 square-foot store is located in a former Golfsmith. Trader Joe’s has two nearby locations (about 30 minutes away) in Westfield and North Brunswick.
Stater Bros.’ top line increased about 4% in fiscal 2018 due to one new store, modest inflation, and an extra week in the reporting year. The most recent year marked some key changes for the Company; it sold its pharmacy script business to CVS in September 2018, commenting that the move would enable it to more exclusively focus on food. Additionally, in August the Company announced that George Frahm, its president, would be retiring, to be succeeded by Greg McNiff, who previously served as the Portland division president for Albertsons.
The Home Depot, in partnership with developer Florida East Coast Industries, is looking to build a one million square-foot distribution center on 72 acres in Hialeah, FL. The Hialeah City Commission is currently considering several variances for the project, including parking and loading zone placements. The facility is part of Home Depot’s strategic investment plans announced last year to speed up delivery and eventually reach 90% of customers with same day/next day delivery. That announcement included plans to add 170 distribution facilities across the U.S.
Ahold Delhaize’s Giant Food opened a new store in Owings Mills, MD on August 23. It is the first store built with Giant’s new in-store format and design, which includes expanded hot and prepared foods selections, fresh sushi, and an extensive organic section. It will also offer the Company’s new Giant Pickup service and full-service pharmacy. The Company closed two nearby locations upon the new store’s opening. Meanwhile, Giant Food is launching a new pharmacy app, which will allow consumers to request refills, transfer prescriptions and view prescription history. The same app is available for its Martin’s Food Market pharmacy customers.
O’Reilly Automotive entered into a definitive stock purchase agreement with the shareholders of Mayoreo de Autopartes y Aceites, S.A. de C.V. (Mayasa), headquartered in Guadalajara, Mexico, under which O’Reilly will acquire all of the outstanding shares of Mayasa and affiliated entities. The stock purchase is expected to be completed in the fourth quarter, subject to customary closing conditions and regulatory approvals. Mayasa operates five distribution centers that support 20 Company-owned stores and more than 2,000 independent jobber locations throughout Mexico. As of June 30, O’Reilly operated 5,344 stores in 47 U.S. states. entered into a definitive stock purchase agreement with the shareholders of Mayoreo de Autopartes y Aceites, S.A. de C.V. (Mayasa), headquartered in Guadalajara, Mexico, under which O’Reilly will acquire all of the outstanding shares of Mayasa and affiliated entities. The stock purchase is expected to be completed in the fourth quarter, subject to customary closing conditions and regulatory approvals. Mayasa operates five distribution centers that support 20 Company-owned stores and more than 2,000 independent jobber locations throughout Mexico. As of June 30, O’Reilly operated 5,344 stores in 47 U.S. states. Click here to request a list of O'Reilly Automotive's future openings.
According to published reports, WinCo Foods is hoping to open stores in Wenatchee, WA and Eugene, OR in shuttered Shopko stores. The Company has proposed remodeling plans to both cities for the 90,000 square-foot and 100,000 square-foot buildings.
Brookshire Brothers has begun construction on a store adjacent to the campus of Texas A&M University in College Station. The 40,000 square-foot store will offer expanded fresh and prepared food offerings, online shopping with curbside pickup and delivery, and fuel.
Hot Market Report - Atlanta, GA
The Atlanta Metro Area consists of 29 counties, which are individually governed by boards of commissioners, city councils, and mayors. It is the ninth largest metropolitan area in the U.S. and had the lowest relative cost of doing business among the nation’s ten largest metro areas according to KPMG in 2017. The market is home to 5.9 million residents (2018), more than 150,000 business establishments, and its population has grown over 12% since 2010. Metro Atlanta is considered a top business city and a primary transportation hub of the southeastern U.S. and is home to 26 of the country’s largest Fortune 1000 corporations. The region ranked tenth in total GDP for fiscal 2016 (the most recent year available) at $276.00 billion. In addition, the metro area’s median household income is higher than the national average ($65,381 in Atlanta compared to $57,652 in the U.S. overall, in 2017). Our report takes a closer look at the Atlanta real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, and demographics.
Sendik’s Food Market is near completion of a $5.0 million expansion project, which included upgrading its store format with new innovations and an enhanced customer experience. Sendik’s operates 17 stores in Wisconsin.
Casey’s General Stores is opening a new prototype store in Belton, MO. It will feature a bigger full-service kitchen, expanded menu, and more seating. The store will be 6,000 square feet, which is larger than its average store size of 4,300 square feet.
Amazon announced that 150 tools and services have been launched since the beginning of the year to help independent small and medium-sized businesses grow their sales in Amazon’s stores. The Company is investing $15.0 million this year on services, which help manage pricing, fulfillment, and inventory. Independent third-party sellers – primarily small and medium-sized businesses – made up 58% of all physical gross merchandise sold in Amazon’s stores in 2018. This could be seen as a way to improve image and public perception in this area.
On August 21, Amazon announced an expansion of its Portland Tech Hub and plans to create 400 new high tech jobs in fields including software development, operations, IT, support engineering, solutions architects, and product management. With a new 84,000 square-foot office in downtown Portland, Amazon expects to double its tech workforce in the area. The Company has 18 North American Tech Hubs.
Amazon is set to acquire a 3.58% minority stake in India’s Future Retail, which operates more than 1,500 stores in India and owns several supermarket brands, including budget department and grocery store chain, Big Bazaar. Future Retail said in a regulatory filing that Amazon has agreed to acquire a 49% stake in Future Coupons Ltd. That entity owns a 7.3% interest in Future Retail. The companies did not disclose the value of the deal. The Future Retail transaction marks Amazon’s second such move to acquire a stake in an Indian supermarket store operator. Last year, Amazon and Indian private equity firm Samara Capital announced a joint investment in an entity that would give Amazon a stake in the Indian supermarket chain More. It also owns a stake in the Indian department store chain Shopper’s Stop. Additionally, last week Amazon announced plans to launch its Amazon Fresh service to select areas in India’s tech hub of Bengaluru, the Company’s first such foray into delivering fresh produce in India.
In other news, Amazon will acquire a minority equity stake in Canadian cargo airline Cargojet Inc., its air carrier partner in Canada. Under the agreement, Cargojet will issue warrants allowing Amazon to acquire up to 9.9% of Cargojet’s voting shares for $91.78 a share. The warrants will vest over six and a half years and be conditional to Amazon providing Cargojet with C$400.0 million in volume over the same period. In a separate transaction but with similar terms, Amazon will receive warrants to buy up to an additional 5% of Cargojet’s variable voting shares for C$200.0 million. The vesting period for the second set of warrants will be seven years. Cargojet currently operates 21 freighters and plans to add nonstop flights in its 15-city Canadian network, as well as bring new markets online. Amazon has similar financial relationships in the U.S. with air carrier partners Atlas Air Worldwide Holdings Inc. and Air Transport Services Group Inc. that operate 21 freighters.
The Wall Street Journal reported that through its own internal investigation of the Company’s products sold online, there were more than 4,100 items (46% shipped from warehouses) that are declared unsafe by federal agencies. Of those items, there were at least 2,000 toys and medications without warning labels for children. The source also noted that 157 items that Amazon announced were previously banned were still listed on the Company’s website. As the Company generates nearly two-thirds of its online business from third-party sellers, it risks quality control of its inventory. This event similarly transpired with Alibaba, which is 100% third party, as the Company faced 130,000 counterfeit products in 2014. Then in 2015 following its IPO, Alibaba banned sales of toys and other items to the U.S. due to hazardous rulings by U.S. Consumer Product Safety Control.
Meijer is opening a smaller-format neighborhood market store called Woodward Corner Market, located in Royal Oak, MI. The 41,000 square-foot store is the Company’s second location that is solely a grocery store. The first opened under the Bridge Street Market name in August 2018 in Grand Rapids, MI. Meijer plans to open a total of six smaller-format urban stores by 2021. Click here to request a list of the Company's future openings.
Captain D’s plans to continue to expand in Florida. The Company is targeting several markets throughout the Tampa Bay and Central Florida areas for franchise development, including Tampa, St. Petersburg, Sarasota, Bradenton and Orlando. Captain D’s opened its first South Florida location in Belle Glade earlier this month, marking its 30th in the state, and has two additional restaurants slated to open later this year in Palatka and Union Park. The Company has opened nine new restaurants, year to date and signed four franchise development agreements to open more than 25 new units in markets including Arkansas, North Carolina, South Carolina, Mississippi, Louisiana and Georgia over the next several years. Captain D’s operates about 530 restaurants in 22 states.
Earning Reports
BJ’s Wholesale Club Holdings announced results for its second quarter and 26 weeks ended August 3. Excluding the impact of gasoline sales, merchandise comps for the second quarter and YTD fiscal 2019 increased 1.6% and 1.7%, respectively. Total comps rose 0.6% and 1.3%, respectively. Excluding charges associated with stock-based compensation related to the Company’s initial public offering, costs related to last year’s IPO and the registered offerings by selling stockholders and club asset impairment, operating income was 3% of total revenues in 2Q19, compared to 2.7% in the prior-year period and 2.6% of total revenues in the first half of fiscal 2019, compared to 2.5% in last year’s first half.
In other news, BJ’s Wholesale Club said it will continue its expansion with the opening of two new stores next year. One will be located in Chesterfield, MI (following two store openings in the state this fall). The other will be in Pensacola, FL, marking the Company’s 33rd store in Florida.
Hibbett Sports reported second quarter sales increased 19.6% to $252.4 million, of which City Gear (acquired in November 2018) contributed $42.0 million. Comps were up 0.3%, and will not include City Gear sales until 4Q20. E-commerce sales represented 8.6% of total sales. Gross margin was 30.3%, down 110 basis points due to the closure of 37 stores, which included full inventory liquidations of 32 stores and limited markdown activity. SG&A margin eroded 240 basis points to 31.8%, due in part to City Gear acquisition costs. As a result, operating loss widened 517.6% to $11.6 million. The Company opened two new stores, rebranded two Hibbett stores to City Gear stores, and closed 40 underperforming locations during the quarter, ending with 1,108 stores operating in 35 states. Hibbett plans to close 95 Hibbett stores in fiscal 2020, of which 64 were closed during the first half.
Foot Locker’s second quarter sales decreased 0.4% to $1.77 billion, and comps were up 0.8%. Gross margin decreased to 30.1% from 30.2%, and SG&A margin increased to 22.2% from 21.3%, largely reflecting ongoing investments in digital and infrastructure. Operating income declined 27.7% to $81.0 million; results include a $13.0 million charge related to the lease termination costs incurred in connection with the closure of certain SIX:02 locations, and $3.0 million in charges related to pensions and tax reform. CEO Richard Johnson said, “While our results in the second quarter did come in at the low end of our expectations, we saw improvement in our performance as we moved through each month of the quarter. We remain deeply connected with sneaker and youth culture, and believe this positive momentum exiting the quarter has us well positioned for the back-to-school period and beyond. Further, our team continues to make meaningful progress against our long-term strategic imperatives.” During the second quarter, the Company opened 10 new stores, remodeled or relocated 35 stores, and closed 37 underperforming locations. As of August 3, the Company operated 3,174 stores in 27 countries, with 123 franchised stores in the Middle East and 10 franchised stores in Germany.
Stage Stores reported second quarter sales decreased 0.4% to $367.9 million, the result of having 31 fewer stores in operation since 2Q18, partially offset by a 1.8% comp increase. Management commented that comps were flat or positive in each month of the quarter, driven by strong sales in home, and improvement in the women’s business. Management also noted that sales momentum continued into the third quarter, with comps up by mid-single digits in the first two weeks of the quarter. Gross margin eroded 260 basis points due to higher off-price distribution costs. As a result, quarterly EBITDA was negative $100,000 compared to EBITDA of $1.9 million last year. TTM EBITDA, margin, and interest coverage remain in negative territory. For the latest list of the Company’s future openings and closings, please click here.
On August 22, sources said Stage Stores hired Berkeley Research Group to advise it on declining traffic and profits. The Company has reported net losses for the past two and a half fiscal years. CFO Jason Curtis said, “We routinely work with consultants, including some who provide analytical support on our strategic pivot to the off-price segment.” He confirmed that the Company is not considering a restructuring or bankruptcy.
Red Robin reported second quarter sales fell 2.3% to $308.0 million. Comps were down 1.5%, mainly due to a 6.4% drop in guest traffic, partially offset by higher average check. The traffic trend is worsening sequentially, compared to a 5.5% decline in 1Q19 and 4.4% in 4Q18. In the meantime, franchisees opened one restaurant and are expected to open only one more in the second half of 2019. Of note, the Company’s lease-adjusted leverage ratio was 4.3x at July 14; its credit facility required it to remain below 4.75x, but on August 19 management amended the facility to increase the required ratio to 5x through the end of 2019, giving it more breathing room.
Stein Mart’s second quarter sales fell 6% to $292.4 million, from the closure of six stores since 2Q18 and a 3.6% decrease in comps. The comp decline was due to lower store traffic and the movement of a major sales event into the first quarter. Management noted that it has several sales initiatives taking place in the second half and expects comps to improve. Gross margin was flat, and SG&A expenses deleveraged by 100 basis points. As a result, EBITDA fell 28.6% to $6.9 million, and margin deteriorated 70 basis points to 2.7%, well below our monitored industry average of 7.1%. TTM interest coverage was 3.2x, just above our warning level of 3x. The Company operated 283 stores at the end of 1Q19, compared to 289 last year. Four stores were closed during the first quarter, which completed management’s announced store plans for the year.
Nordstrom’s second quarter sales fell 4.8% to $3.87 billion, with full-price sales decreasing 6.5% and off-price sales down 1.9%. Digital sales grew 4% and represented 30% of total sales. Gross margin decreased 50 basis points to 34.5%, primarily due to deleverage on occupancy expenses. Merchandise margin sequentially improved from the prior quarter despite the continued promotional environment. SG&A margin increased 26 basis points to 31.2% due to fixed expense deleverage on lower sales volume, partially offset by expense savings related to ongoing efficiency initiatives. As a result of the lower sales volume, earnings before interest and taxes fell 12.2% to $216.0 million. The Company opened one off-price location in Staten Island, NY on July 4 and ended the quarter with 381 stores, including 242 Nordstrom Rack stores and two Last Chance clearance stores.
Meanwhile, Nordstrom announced it is launching Sustainable Style, an online shopping category featuring products made from sustainably sourced materials, which are manufactured in factories that meet higher social or environmental standards or that give back. The category features more than 2,000 items from 90 brands. Nordstrom joins a coalition of global retailers, convened at the G7 Summit in France, committed to minimizing the environmental impacts the fashion industry has caused for oceans, climate and biodiversity.
In other news, Nordstrom promoted Teri Bariquit to chief merchandising officer, a newly created role. Most recently, she served as EVP, merchandise planning and solutions at Nordstrom since 2012. For the latest list of Nordstrom’s future openings and closings, please click here.
Gap’s second quarter sales decreased 2% to $4.01 billion, and comps were down 4%. By brand, Old Navy comps were down 5%, Gap comps dropped 7%, and Banana Republic comps fell 3%. Gross margin was 38.9%, a decrease of 90 basis points. Operating income declined 29.1% to $282.0 million, and operating margin was 7%, down 270 basis points. The Company ended the second quarter with 3,877 store locations in 44 countries, of which 3,356 were Company-operated. Looking ahead, the Company updated its fiscal 2019 EPS guidance to $1.88 – $2.08, down from $2.04 – $2.14. Gap continues to expect to close about 30 Company-operated stores, net of openings and repositions. This guidance also includes about 130 closures related to the Gap brand fleet restructuring, the majority of which are expected to close during the fourth quarter.
Ace Hardware’s second quarter sales increased 6.3% to $1.69 billion. Wholesale revenue increased 4% to $1.53 billion, and retail revenues rose 34.8% to $158.7 million, primarily due to the inclusion of ACO Inc. acquired in March. ACO operates 50 hardware stores under the name Great Lakes Ace Hardware in Michigan and Ohio. Retail comps were up 1.7%. Wholesale gross margin declined 60 basis points to 11.6%, and retail gross margin rose 170 basis points to 43.7%. The inclusion of ACO led to retail operating expenses increasing 35.2%. As a result, operating income fell 5.4% to $54.1 million. Ace added 33 new domestic stores and cancelled 23 stores during the quarter, ending with 4,507 stores, up by 84 units over the prior year.
Urban Outfitters reported second quarter sales decreased 3% to $962.3 million, and comps were down 3%. The comp decline was driven by negative retail store sales, partially offset by growth in the digital channel. By brand, comps increased 6% at Free People and decreased 3% at Anthropologie and 5% at Urban Outfitters. Gross margin decreased 304 basis points, driven by higher markdowns, deleverage in delivery and logistics expenses, and store occupancy deleverage. The higher markdowns were largely driven by underperforming women’s apparel at the Anthropologie and Urban Outfitters brands. Operating income fell 33.2% to $78.1 million. During the first half of 2019, the Company opened seven new locations, including three Anthropologie stores, three Free People stores, and one Urban Outfitters store; it also closed five retail locations, including two Anthropologie stores, one Free People store, and two restaurants. The Company currently has 246 Urban Outfitters stores, 228 Anthropologie stores, 137 Free People stores, and 11 restaurants, as well as six franchised locations.
Target’s second quarter revenue increased 3.6% to $18.42 billion, driven by comp growth of 3.4%. Comps have increased about 10% over the last two years, which is the best performance in more than a decade. Same-day fulfillment services (Order Pick Up, Drive Up, and Shipt) accounted for nearly 1.5% of the Company’s overall comp growth. Target’s investments in digital infrastructure continue to pay off, as comparable digital sales rose 34%, contributing 1.8% to comp growth. Operating income was up 16.9% to $1.32 billion. Operating income margin improved 80 basis points, reflecting improvement in both gross margin and SG&A rates. Looking ahead at fiscal 2019, Target now expects full-year EPS from continuing operations and adjusted EPS of $5.90 – $6.20, compared with the prior range of $5.75 – $6.05.
The Company is on track to remodel 1,000 stores by the end of 2020; it recently remodeled its 500th store. It plans to continue expanding its small format, with 30 openings annually going forward. Target’s store initiative is part of a $7.00 billion investment plan announced in 2017.Click here for a list of the Company’s planned new locations.
In a call with analysts, Target CEO Brian Cornell said that strong consumer confidence, low unemployment, growing wages, and a reduction in fuel prices are driving confidence in the economy. Mr. Cornell acknowledged that the trade dispute between the U.S. and China is causing “heightened volatility” and that “as long as the trade situation remains fluid, it will present an additional layer of uncertainty and complexity as we plan our business."
In other news, Target will open up to 65 in-store Disney stores over the next two years as part of a new partnership between the two companies. The first 25 of the shop-in-shop concepts will launch in October, with the remaining 40 planned by October 2020. The two companies have co-developed and co-designed the store experience, which features music, interactive displays and photo opportunities. A seating area, showcasing Disney movies, is available for families. The Disney stores will offer more than 450 products, including toys, games, clothing and accessories, ranging from $2 – $200. More than 100 of the products were only previously available at Disney retail locations.
Tuesday Morning’s fourth quarter revenues of $230.5 million were flat, reflecting a 0.7% increase in comps (up 2.4% in the prior-year period), and a net reduction of 12 stores. The comp increase was driven by transaction growth of 3.1% partially offset by lower average ticket, partly due to management’s strategic decision to reduce traditional promotional events coupled with an unfavorable merchandise mix. Sales at relocated stores during the past year increased about 48% during the quarter, driven by improved locations and larger average store footprint. Gross margin fell 18 basis points on transportation cost headwinds, partially offset by a continued improvement in merchandise mark-ups. SG&A margin increased 74 basis points from greater incentive compensation and retention costs, and higher advertising during the quarter, partially offset by lower workers’ compensation and insurance expenses. Ultimately, EBITDA loss doubled to $4.0 million, with TTM EBITDA margin remaining thin, at 2% of sales. Management indicated on its quarterly conference call that it was able to reduce its $10.0 million average rent expense increase over the past years to $3.2 million as a result of successful negotiations with its landlords as well as lower real estate activity. The Company added that it expects the incremental increase “to be even less” in fiscal 2020.
Lowe’s Companies reported second quarter sales increased 0.5% to $20.99 billion, and comps were up 2.3%; U.S. comps increased 3.2%. Sales results exceeded expectations and suggested that changes made by new CEO Marvin Ellison may be working. Earlier this month, Lowe’s announced “thousands” of layoffs and the move of maintenance and assembly jobs to third-party companies. In November 2018, Lowe’s shuttered 51 underperforming locations in the U.S. and Canada, on top of the 99 Orchard Supply stores also closed in 2018. In June, Lowe’s announced plans to open a tech hub in Charlotte, NC in late 2021, where it will build out its logistic capabilities and supply chain. Gross margin declined 85 basis points to 32.1%, in part due to deflation in the price of lumber. However, SG&A margin improved to 19.3% from 21%. As a result, operating income rose 10.1% to $2.38 billion. CEO Marvin Ellison stated, “We capitalized on spring demand, strong holiday event execution and growth in paint and our pro business to deliver strong second quarter results. Despite lumber deflation and difficult weather, we are pleased that we delivered positive comps in all 15 geographic regions of the U.S. This is a reflection of a solid macroeconomic backdrop and continued momentum executing our retail fundamentals framework.” As of August 2, Lowe’s operated 2,003 stores in the U.S. and Canada.
Dick’s Sporting Goods reported second quarter sales increased 3.8% to $2.26 billion, due to a 3.2% increase in comps (which followed a 4% decrease in the same period last year), despite the net closing of one store during the year. Higher comps were driven by increases in both average ticket and transactions, and represent the Company’s strongest quarterly comp sales improvement since 2016. E-commerce sales for the second quarter of 2019 increased 21%, and represented 12% of total net sales, compared to 11% during the second quarter of 2018. EBITDA and margins fell 3.6% and 80 basis points during the quarter; TTM EBITDA margin of 8.5% exceeded our monitored industry average of 6.4%. Year-to-date free cash flow was negative $138.2 million compared to positive $219.4 million in the same period last year. The change was due to an increase in inventory and higher capital expenditures. TTM free cash flow was positive $156.9 million.
Regis Corporation’s fourth quarter consolidated sales declined 17.4% to $248.2 million, driven primarily by the closure of a net 214 salons, the conversion of 767 Company-owned salons to franchised locations over the past 12 months, and a reduction in product sales to its banner, The Beauty Group (TBG). System-wide comps fell 0.7%, with Company-owned comps down 0.1% and franchise comps down 1.3%. The negative Company-owned comp performance was the result of a 4.3% decline in year-over-year transactions, partially offset by a 4.2% increase in ticket. Adjusted EBITDA rose 34.3% to $39.4 million, due primarily to a $26.1 million gain from the previously mentioned conversion of Company-owned salons.
Along with its earnings release, Regis announced plans to convert to a fully franchised model, following its success to date in selling and converting Company-owned salons to its franchise portfolio. The Company anticipates that it may require 18 to 24 months to complete its conversion. It also noted that as of the end of fiscal 2019, approximately 1,300 Company-owned salons, or approximately 48% of the remaining Company-owned portfolio, are in various stages of negotiation to be purchased by new or existing franchisees.
