August 3, 2022
Amazon’s 2Q22 top line advanced at the high end of guidance, increasing 10% when excluding the unfavorable impact of foreign exchange rates. Growth continued to be led by Amazon Web Services (AWS), which increased 33%. Physical store sales, primarily Whole Foods and Amazon Fresh, increased a solid 12%, as the Company opened 12 more Amazon Fresh stores in the period; however, online stores, Amazon’s largest segment representing 44% of the consolidated business, declined 4% (online sales were down 3% in 1Q22). The sales slowdown this quarter was primarily due to lapping significant gains over the last few years; the top line is now up 91% from 2Q19. Looking forward, sales are expected to accelerate in 3Q, with sales gains of around 15%, while the trend with operating income is expected to continue, as cost pressures weigh on profits.
Amazon recently won local approval for a $550 million, five-story, 3.1 million square-foot distribution center in western Niagara, NY. It makes the site one of the first new Amazon distribution projects to move forward since the Company said it was rethinking its logistics network. The sortable fulfillment center will act as a “first mile” facility, where goods are transported in bulk to middle-mile and last-mile locations for final deliveries to customers. The Company is also moving forward with a 4.1 million square-foot, five-story facility under construction in Ontario, CA, and a 3.9 million square-foot, five-story project in Loveland, CO. Both of those would be among the Company’s largest warehouses ever.
Amazon will begin offering same-day delivery for a number of retail brands, including PacSun, Diesel and Superdry, in 10 cities across the U.S. The service is free for Prime members when they spend $25 or more, or $2.99 if they spend less. Some of the participating retailers also give shoppers the option to order items online and pick them up at the stores. With the new partnership, retailers will fulfill orders from inventory in their stores, and a Flex delivery driver will pick them up from the retailer. Doing so allows Amazon to get online purchases to shoppers’ doorsteps even faster. Amazon is also testing a similar model with its Flex delivery drivers, in which they fetch packages from mall-based retailers and drop them off at customers’ doorsteps.
In addition to a forward-looking analysis of specific retailers at risk by our team of industry experts, the report also includes a breakout of high yield retail bonds, upcoming debt maturities and future store closings.Click here to request a copy of this report.
Walmart upset the apple cart this week when it revised its 2Q and FY23 guidance. After disappointing earnings in 1Q, the Company was left with excess inventory, as inflation-weary consumers pulled back on discretionary spending. Management indicated it is making good progress reducing this inventory; however, apparel remains slow, and additional markdowns will be necessary. Walmart raised its sales and comps projections for 2Q23, with sales revised upward to 7.5% from 5%, and comps to 6% from the previous range of 4% to 5%. It was the projected decline in operating income that shocked the market, with an expected decline of 13.5% - 14%. Full-year sales were bumped up to 4.5% growth from 4%, while comps were lowered slightly to 3% from 3.5%. Full-year operating income was again revised sharply lower to a decline of 11% to 13%, from just a 1% fall off previously.
Inflation was running higher in 2Q than 1Q, especially for food. One bright spot was back-to-school supplies, which management indicated was off to a good start.
In other news, Walmart is partnering with health-and-wellness hospitality company Getaway to open mini-retail “experiences” at select Getaway destinations. Getaway offers guests Wi-Fi-free stays in nature at its camp site-styled Outposts, which are located less than a two-hour drive from major cities across the country. “The General Store by Walmart” will make its debut in August, at Getaway Hill Country in Wimberly, TX, with an additional four locations to open by the end of the year. The General Store will include seasonal products that are sourced from Walmart and curated by Getaway that may include hiking gear, and leisure activities and equipment.
Our report takes a closer look at the Company’s operational and competitive status, including market position, real estate and sales trends, and provides visual competitive analyses as well as key real estate metrics like store count, average sales per square foot, and the new Real Estate Intelligence analytics solution. Click hereto request a copy of the full report.
Antero Brands confirmed the closure of all its remaining Olympia Sports stores. Meanwhile, Fleet Feet, which acquired JackRabbit in December 2021, has sued the Company, claiming it is due about $6 million of the $48 million acquisition cost, based on post-closing price adjustments. Click here to request a list of closures.
Discount Drug Mart will open a new 36,000 square-foot store in Norwalk, OH, a relocation of a smaller (21,000 square-foot) nearby store. The larger store, which was previously a Giant Eagle supermarket, will offer expanded pharmacy and beauty sections, as well as a deli and a large wine selection not previously available in the former store.
Wingstop reported 7.5% system-wide sales growth during 2Q22, as contributions from 229 net new franchise restaurant openings over the past year were partially offset by a 3.3% drop in domestic comps. Digital sales accounted for 60.5% of total revenue, and domestic restaurant AUV was flat year-over-year at $1.6 million. Wingstop’s consolidated sales were up 13.2% to $83.8 million. The Company benefited from an 18.8% drop in the cost of bone-in chicken wings, but incurred higher labor expense from a mix of wage increases and training costs, particularly for six new Company-operated stores opened in New York City this past year. Management reiterated its FY22 guidance for low single-digit domestic comps, and narrowed its new store expansion guidance from above 220 to between 220 and 235. Click hereto request a sample list of future openings.
Neiman Marcus is establishing a new “corporate hub” at Cityplace Tower in Dallas, TX. The Company will occupy 85,000 square feet, floors 11 through 13 of the office building. Renovations are expected to take place over the course of this year, with a scheduled opening in early 2023. The “corporate hub” workspace concept, designed to support the Company’s integrated working philosophy (remote and in-person) launched in 2020 and called NMG/Way of Working, is meant to accommodate more flexible work schedules in order to bolster talent acquisition and retention. In May, the Dallas City Council approved a $5.25 million economic development grant agreement with Neiman Marcus for the Dallas hub. Neiman Marcus envisions a network of hubs ranging from stores to distribution centers, to an associate’s home office, based on what drives best results.
Additionally, after closing its Hudson Yards store in July 2020, just 16 months after opening, Neiman Marcus is now planning to open a 7,500 square-foot Manhattan office hub, which will serve as a meeting and collaboration location for associates. The Hudson Yards store was closed due to the pandemic, and the Company filed for bankruptcy protection in May 2020. Neiman Marcus is also exploring other locations for hubs where it has large employee concentrations. Since launching its NMG strategy in 2020, the Company said that retention is up and time-to-hire is down in FY22 compared to FY19.
West Marine benefited operationally from industry-wide trends and demand for boating products in fiscal 2021. This has likely been tempered somewhat in 2022, as consumers shift to other forms of recreation and leisure, and the high cost of boats, gasoline and financing (high interest rates) has reduced demand or has prompted certain consumers to trade down. Despite operational improvement, the capital structure remains leveraged, which is concerning amid a downturn in the economy. The average West Marine location is 15,000 square feet. A typical Waterlife store (created by consolidating smaller traditional units) can range from 11,000 square feet to 25,000 square feet. The Company’s flagship stores range from 18,000 square feet to 50,000 square feet.
Prior to fiscal 2012, the Company operated over 300 stores, but the count has trended downward to under 240 stores recently, as units are consolidated or closed. The largest concentration of stores is in Florida, where 56 locations comprise 23% of the Company’s store base.
Dollar General is set to build three new distribution centers in North Little Rock, AR; Aurora, CO; and Salem, OR. Collectively, the facilities represent an approximate $480 million investment. Each facility is about one million square feet and will support the Company’s growing DG Private Fleet presence. Since its inception in 2016, DG Private Fleet has grown to approximately 950 tractors and drivers and 25 private-fleet sites. The Company currently plans for the DG Private Fleet to represent 40% of its drivers by the end of FY22. While the Aurora facility will provide traditional functionalities, the North Little Rock and Salem distribution centers are expected to add to the Company’s increasing number of dual facilities, which combine the capabilities of ambient and DG Fresh supply chain networks. Dollar General currently operates dual facilities in Ardmore, OK and Zanesville, OH, after the Company recently added DG Fresh capabilities to support supply chain efficiencies. The Company’s first ground-up dual distribution facility is under construction in Blair, NE. Click hereto request a sample list of future openings.
Chipotle delivered another strong performance in 2Q, with sales and comps up 17% and 10%, respectively. The Company also managed to improve restaurant-level margins 70 bps despite inflationary pressures, largely through menu price increases. Further price increases are expected in August, which will drive mid to high-single digit comp growth in 3Q. Chipotle’s store expansion has continued unabated, with another 42 stores opened, bringing the YTD total to 93 new stores out of a planned 235 to 250 this year. Notably, Chipotle acquired a 10.3% stake in supplier Tractor Beverages, Inc. for $10 million. Click here to request a sample list of future openings.
Best Buy cut its sales and profit outlook for 2Q23 (ending July 30, 2022) and FY23. The Company expects 2Q23 comparable sales to decline 13% (comps increased 19.6% in 2Q22), with revenue about $10.35 billion, which is 13.5% below 2Q22 but 7.5% higher than pre-pandemic 2Q20.
We note that the disappointing operational trends follow a pull-forward of business last year, due to heightened stimulus-induced demand. Many electronics products need not be replaced annually, which tends to result in lower sales during a period of reduced discretionary spending. On the other hand, large appliances, which tend to be non-discretionary, account for less than 20% of Best Buy’s total annual sales. We also note that flat inventory levels amid a 13% sales decline implies an excess of merchandise during a period of reduced demand. This could intensify the need for promotional pricing to clear the extra inventory. In other news, Best Buy opened its first small-format digitally focused store in Monroe, NC, a pilot for its “digital-first” shopping experience that encourages customers to shop, get advice, and check out digitally. The 5,000 square-foot unit displays home theater and audio, computing, headphones, wearables, fitness, cell phones, cameras, smart home, and small appliances. It will exclude major appliances and other large products, which can be purchased online and picked up in store. Customers can scan a product’s QR code to have it delivered to the checkout counter, and certain grab-and-go items will be available for self-checkout; customers who need advice will have the option to shop live with an expert via call, chat or video.
The Cheesecake Factory’s 2Q revenues rose 8.2%, with comps at its namesake banner up 4.7%. Inflation weighed on margins, however, with gross margin slipping 250 bps. Management revised its store expansion plans and now expects to open up to 15 new restaurants this year, down from 17 to 19 previously. Only four of these will be Cheesecake Factory locations, with the remainder consisting of four North Italia, three Flower Child, and up to four under other concepts, including a new “Fly Bye” Detroit-style pizza and chicken store that opened in July.
Target is expanding its last-mile delivery capabilities, with plans to open three more sortation centers in the Chicago and Denver areas. The Company currently has six sortation facilities overall, with sites in the Minneapolis, Dallas, Houston, Austin, Atlanta and Philadelphia markets. According to Target, the sortation centers are designed to help lower costs and drive operational efficiencies while speeding delivery for customers. Click here to request a sample list of future store openings.
Sleep Number’s 2Q22 sales increased 13.4% to $549.1 million, while demand decreased 12%, reflecting record low consumer sentiment. Retail comps were up 10%, while online sales were up 2%. The Company opened 10 new stores and closed four underperforming locations, ending the quarter with 659 units. Click here to request a sample list of future store openings.
Carter’s 2Q22 sales slowed, as the Company lapped last year’s stimulus and child tax credit spending. Overall sales declined 6%, with the U.S. retail and wholesale segments down 11% and 3%, respectively; international sales were the only bright spot, gaining 7%. U.S. retail comps fell 8%. The Company remains optimistic on its store base, as it still plans on opening about 100 new stores in FY22.
Texas Roadhouse’s 2Q revenue grew 14% to $1.02 billion, driven by 7.6% comp growth at Company-operated restaurants and 6.2% comp growth at domestic franchised restaurants. The steakhouse chain continues to be negatively impacted by commodity inflation, notably not just from beef but across the whole basket, and restaurant margin slipped 116 bps year-over-year to 16.6%. During the quarter, Texas Roadhouse acquired eight restaurants from franchisees for a total price of $33.1 million. FY22 guidance was unchanged, as management expects positive comps and to open about 25 Texas Roadhouse and Bubba’s 33 restaurants this year. Click here to request a sample list of future store openings.
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