Good Afternoon,
As a reminder, the AggData weekly industry newsletter is currently only available to existing subscribers. As a courtesy, I have included this week’s edition below since it covers several high-profile stories, including three major retail bankruptcies and recently announced store closing plans from Sears and Walgreens.
Please let me know if you are interested in subscribing to the newsletter moving forward.
Best,
Ryan Malone
Client Relations Coordinator
800.789.0123 | ext:180
August 7, 2019
Yesterday, Barneys New York, DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the Southern District of New York. The Honorable Cecelia G. Morris was assigned to the proceedings, which were designated as case number 19-36300. The Company will close 15 of its 22 stores within 30 days (click here to request a list of closures); the seven stores that will remain open include the flagship store in Manhattan.
On Monday, Perkins & Marie Callender’s LLCfiled for Chapter 11 Bankruptcy Protection. As part of a restructuring, 21 Marie Callender's and 11 Perkins closed Sunday(click here to request a list of closures).
As part of the Walgreen's initiative to cut $1.50 billion of costs by 2022, the Company earlier this year announced that it will close 200 locations in the U.K. Yesterday, the Company announced that it also plans to shutter approximately 200 locations in the U.S., representing 2.1% of the Company's 9,390 U.S. locations as of the third quarter ended May 31, 2019 (click here to request updates on these closures).
On August 15, Grocery Outlet will open a Bargain Market store in Port Orchard, WA, in a space previously occupied by Save-A-Lot that closed in 2012. Grocery Outlet has nearby stores in East Bremerton and Silverdale, which opened in 2011. Click here to request a list of Grocery Outlet Future Openings.
Yesterday, TransformCo announced plans to close an additional 26 large-format Sears and Kmart stores in late October (click here to request a list of future closings). The closures include five Kmart stores and 19 Sears locations.
On August 5, IPic Entertainment Inc., DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The Honorable Laurie Selber Silverstein has been assigned to the proceedings, which have been designated as case number 19-11737. Management said it will “seek approval of either a sale or a reorganization plan and emerge with a healthy balance sheet and new capital structure.” The Company said it has a DIP Facility to fund operations during the bankruptcy proceedings, and it “expects the restructuring process to last 90 to 120 days.”
On August 1, published reports stated that Avenue Stores, LLC (dba The Avenue) is attempting to sell the Company; however, if it is unable to find a buyer within the next 60 days, it will liquidate all 260 locations. The Company is owned by Versa Capital, which owned Bob’s Sports and Eastern Mountain Sports prior to their bankruptcies and subsequent sale to Sports Direct. Versa acquired The Avenue in a bankruptcy auction in 2012, when the retailer operated 433 stores. A year ago, Avenue named Mark Walsh, a board member who had been advising the Company since 2017, as its CEO. Click here for more information.
The special committee of Hudson’s Bay Company’s board issued a response to an unsolicited offer made to shareholders by the Catalyst Capital Group to acquire up to 14.8 million common shares of the Company (about 8% of outstanding shares) for $10.11 per common share in cash. The Catalyst offer is not a formal takeover bid for purposes of Canadian provincial securities laws, it does not provide shareholders with certain of the protections that such laws require in a takeover bid. The current expiration date is August 16. The Company is not in a position to make a recommendation with respect to the Catalyst offer.
Meanwhile, the special committee also provided an update on its ongoing review of the June 20 proposal from a group of HBC shareholders to take the Company private for $9.45 per common share in cash. Based on its initial analysis, the committee communicated to the shareholder group that the $9.45 per-share price is inadequate. As previously reported, the committee retained TD Securities to prepare an independent, formal valuation of the Company’s common shares. It also retained J.P. Morgan Securities as financial advisor, Centerview Partners LLC as special advisor, and Blake, Cassels & Graydon LLP as legal counsel to assist in the process of evaluating the proposal, along with other alternatives. The special committee plans to meet with representatives of various shareholders this week to discuss both proposals. The Company’s share price closed Friday at $9.80, up 31% from $7.48 at the beginning of the year but down 3% from $10.10 a year ago.
According to published reports, Walmart is reportedly looking to sell off Modcloth, a women’s apparel retailer it acquired in March 2017 for an estimated $50.0 million – $75.0 million as a way to modernize Walmart’s brand portfolio. CEO of Modcloth Silvia Mazzucchelli recently stated, “I can confirm that Walmart has received outside interest from buyers for Modcloth. We are in the process of exploring potential opportunities.” Walmart’s e-commerce channel is expected to lose $1.00 billion this year, and selling off the reportedly unprofitable Modcloth is a way to cut losses. Bonobos, another fashion brand it acquired in June 2017 is also reportedly not performing as well as expected.
On August 2, Ahold Delhaize’s Giant Food Stores opened its second of four Giant Heirloom Markets planned for Philadelphia, PA. The 9,950 square-foot location is significantly smaller than a conventional Giant store (45,000 square feet) and is designed to cater to urban markets. The two others are expected to open by the end of the year.
Yesterday, Amazon opened two new Amazon Go stores, including its third in New York City and its fourth in San Francisco. The Company now operates 15 of the checkout free stores, with locations in Seattle, Chicago, San Francisco and New York City. Three additional Go stores are expected to open in Seattle and Chicago (2).
Meanwhile, the Company will disable its entire Dash button network on August 31, ending the technology that it introduced in 2015. Earlier this year it said it would stop issuing new buttons to consumers, and said customers can use the Alexa voice assistant system to replenish items instead.
In other news, Amazon is reportedly in talks with the retail unit of Reliance Industries Ltd. to buy a stake in India’s biggest brick-and-mortar retailer. One source said that Amazon was proposing to purchase up to a 26% stake in the Reliance unit since February. Amazon’s online presence could help bolster Reliance’s consumer and private-label business. The move would help the companies compete against Walmart, which last year invested $16.00 billion in India’s Flipkart.
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.
Wakefern Food Corp.’s Price Rite Marketplace will open the first of 17 stores in Connecticut, Massachusetts, New York and Pennsylvania, under a redesigned store format offering expanded fresh and private-label products as well as more price savings. Five rebranded stores in Connecticut reopened August 2, with the remainder in Massachusetts, Pennsylvania and New York reopening through October. The Company plans to rebrand the rest of its 64 stores during 2020. Price Rite stores are located in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Maryland and Virginia.
ALDI announced plans to open three new stores in Savannah, Statesboro, and Pooler, GA by fall 2019; specific opening dates have not yet been released. See below for Future Store Opening Map - click here to request a sample list of Aldi Future Openings.
Big Y Foods has completed renovations at its New Milford and Guilford, CT World Class Market locations. The 52,700 square-foot New Milford unit features expanded organic, natural and gluten-free products in grocery, health and beauty, dairy and frozen foods, as well as a new salad bar. The 54,600 square-foot Guilford store offers a new Starbucks coffee section, and expanded produce and meat departments. Big Y operates 82 locations in Massachusetts and Connecticut.
On August 1, Roche Bros. opened its fourth store under its Brothers Marketplace banner, in Duxbury, MA. The concept is a one-stop grocery shopping and dining experience. The 20,000 square-foot unit offers expanded fresh and prepared foods. Another Brothers Marketplace is expected to open in Cambridge this fall. The Company currently operates a total of 21 stores.
Tesco plans to eliminate about 4,500 jobs across 153 Metro stores in the U.K. amid a restructuring prompted by changing consumer habits, driven by the rise of online shopping and increased competition from discounters Aldi and Lidl. The Company said the Metro format was originally designed for larger, weekly shops, but now nearly 70% of customers used them as convenience stores, buying food for that day. Changes to the way the stores operated would “serve shoppers better” and help to “run our business more sustainably”. Tesco is also making changes at 134 of its 1,750 Express stores that include “a slight reduction in opening hours during quieter trading periods at the start and end of the day, and simplifying stock routines.”
In April, it was reported that Cumberland Farms hired Bank of America to help explore options for a potential sale or merger. Last week, EG Group entered into an agreement to acquire Cumberland Farms; terms were not disclosed. EG Group has committed financing in place to support the transaction from a bank group led by Barclays. The deal is subject to regulatory approval and customary closing conditions. Having had no presence in the U.S. prior to April 2018, when it acquired more than 750 convenience stores from Kroger for $2.15 billion, the Cumberland Farms purchase will increase EG Group’s network to about 1,700 stores across the U.S.; it will operate in 30 states and retail over 2.5 billion gallons of fuel, with annual merchandise sales exceeding $3.00 billion. Founded in 2001 by the Issa family, U.K.-based EG Group is a convenience store operator with a portfolio of about 5,200 locations in Europe, the U.S., and Australia.
Giant Eagle plans to open a 23,000 square-foot tech hub in Lawrenceville, PA by early 2020. The Company’s planned tech annex will focus on supporting its digital offerings. In recent years, Giant Eagle has launched several initiatives, including Curbside Express online ordering, Scan Pay & Go for in-store shopping, and a mobile app.
Meijer will open a new store in Stevens Point, WI during 2021 in a former Lowe’s, which closed in 2017 (see below for Future Opening Map). The store will open near a shopping plaza that currently includes a Walmart Supercenter. Meijer currently has more than 245 stores throughout six states. Click here to request a list of Meijer Future Openings.
Last week, The Cheesecake Factory announced it has agreed to acquire Fox Restaurant Concepts (FRC) and the remaining interest in North Italia in separate transactions, for a total of $353.0 million, of which $308.0 million will be paid at closing and the remaining $45.0 million will be paid over the next four years. The Company first entered into a strategic relationship with FRC in fiscal 2016 and over the past three years has invested a total of $88.0 million to help develop North Italia and Flower Child, another banner under FRC. The partnership gave The Cheesecake Factory the option to purchase the remaining interest in North Italia in 2019 and Flower Child in 2021, but in the course of negotiating the former, the parties agreed to expand the deal. North Italia currently operates 20 restaurants in nine states and Washington D.C.; FRC operates 49 restaurants across seven states and Washington D.C. under the Flower Child, Zinburger, Culinary Dropout, The Henry, Olive and Ivy, Wildflower, Arrogant Butcher, The Green House, and Dough Bird banners. For full details, please see our Special Update issued August 1.
Last week, the Cheesecake Factory reported second quarter total revenues of $602.6 million, up 2.6% from the prior-year period. Net income jumped 25.2% to $35.5 million. Excluding the after-tax impact of the $1.2 million loss on the Company’s minority investments, net income would have been $36.7 million. Comparable restaurant sales increased 1%.
During fiscal 2019, the Company continues to expect to open as many as five restaurants internationally under licensing agreements; this includes the third location in Saudi Arabia, which opened during the second quarter.
Finally, the Company’s board declared a quarterly cash dividend of $0.36 per share of the Company’s common stock, representing a 9% increase, payable August 27 to shareholders of record at the close of business on August 14.
Earning Reports
Publix reported second quarter sales growth of 7% to $9.45 billion, driven by new stores and a 4.8% increase in comps, positively impacted by the Easter holiday shift from 1Q18 to 2Q19 and increased product costs. Operating income was $679.4 million, compared to $642.8 million last year. Net earnings were up 7.3% to $661.1 million, impacted by net unrealized gains and losses on equity securities. During the six months ended June 29, Publix opened 13 supermarkets (including four replacement stores), remodeled 78 and closed three, bringing its total count to 1,221. Effective August 1, Publix’s stock price decreased from $44.75 per share to $44.10 per share, its first decline in two years. Publix stock is not publicly traded and is made available for sale only to current Publix associates and members of its board. Click here to request a list of future Publix locations.
Sprouts Farmers Market reported second quarter net sales increased 7.1% to $1.42 billion, driven by strong performance in new stores opened and a 0.1% increase in comps. Net income fell 15.3% to $35.3 million from the impact of adopting the new lease accounting standard in 2019 and a challenging sales environment. For the 26-week period, net sales rose 8.5% to $2.83 billion, driven by strong performance in new stores opened and a 0.8% increase in comps. Year-to-date net income declined 15.3% to $91.7 million. During the quarter, the Company opened six new stores, including one each in the new states of Louisiana and New Jersey. One lease expired during the quarter and was not renewed, and five additional stores have been opened in the third quarter to date, resulting in a total of 331 stores in 21 states as of August 1.
Looking ahead, Sprouts is expecting fiscal 2019 net sales growth of 7% to 8%, unit growth of about 28 stores, and flat comps.
Last week, in conjunction with the rather soft second quarter results, Sprouts announced that Jim Nielsen, formerly president and COO, who has been on a temporary medical leave of absence, has transitioned to the position of senior advisor, continuing through March 31, 2020, after which his employment with the Company will cease. This news follows Sprouts’ June announcements that it had appointed Jack Sinclair as CEO and that Brad Lukow, interim co-CEO and CFO, had resigned; the board appointed Lawrence (“Chip”) P. Molloy to serve as interim CFO until a permanent successor is named. Mr. Molloy has served as a member of the Company’s board since 2013. Overall, it appears Sprouts is gearing up for a new phase with an all-new leadership team.
Natural Grocers’ third quarter sales increased 5.3% to $224.4 million, driven by new stores and comp growth of 2.4%, partially offset by one store closing during the quarter. Comp growth reflected a 3% increase in transaction size and a 0.6% decrease in daily average transaction count. Operating income increased 2% to $3.8 million. EBITDA decreased 0.5% to $11.0 million.
During the quarter, the Company relocated two stores; it purchased one new store site during the quarter and one subsequent to the end of the quarter. In addition, it has signed leases for six new stores in Colorado, Louisiana, New Mexico, North Dakota, Oregon and Washington, with planned openings during fiscal 2019 and beyond.
For fiscal 2019, the Company expects comp growth of 2.7% – 3.3% and EPS of $0.39 – $0.41. It plans to open a total of seven new stores and relocate five.
Yum! Brands reported second quarter worldwide system sales decreased 4.2% to $1.31 billion, and comps increased 5%. KFC division sales decreased 10% to $584.0 million, and comps were up 6%. Pizza Hut sales increased 6% to $246.0 million, and Taco Bell division sales fell 1% to $480.0 million. The Company opened 312 net units during the quarter. CEO Greg Creed commented, “Second-quarter results maintained early year momentum and helped us to exceed our already high expectations for a strong first half of 2019. I’m especially pleased to report that we delivered 10% system sales growth in the quarter, supported by broad based strength at KFC International and Taco Bell. Our commitment to being a more focused, more franchised, and more efficient growth company positions us well for long-term success. Through the lens of our four growth drivers, we continue to leverage our unprecedented scale and expand our capabilities with the goal of enhancing franchise economics, accelerating growth and maximizing shareholder value.”
During an analyst conference call, President, COO and CFO David Gibbs said that Pizza Hut will likely see domestic locations decrease by nearly 500 stores over the next two years as it closes underperforming units. The chain’s U.S. store count could fall to 7,000 locations. At the end of fiscal 2018, the Company operated about 7,500 domestic Pizza Huts. The Company plans to replace the underperforming stores with “new delivery or fast casual delivery assets.”
Dine Brands Global’s second quarter revenues increased 23.6% to $228.1 million, and net income jumped 68.3% to $21.4 million. IHOP’s sales rose 3.2% to $863.4 million. Applebee’s comps decreased 0.5%, and IHOP’s comps were up 2%, the sixth consecutive quarter of sales growth. For the year-to-date period, Applebee’s comps increased 0.6%, and IHOP’s comps rose 1.7%. CEO Steve Joyce commented, “Our performance reflects the strength and stability of our highly franchised business model. While comparable same-restaurant sales at Applebee’s were lower than expected, these results are not indicative of a shift in Applebee’s fundamentals or brand relevance, both of which remain intact. As we enter the back half of the year, we are executing against our plan with a sharpened focus on operating fundamentals, which will help us continue to grow and create shareholder value.”
Looking ahead, Dine Brands lowered its guidance for fiscal 2019. Applebee’s domestic system-wide comps are anticipated at flat to 1.5%, compared to previous expectations of 2% to 4%. IHOP’s domestic system-wide comps are anticipated at 1% to 3%, compared to previous expectations of 2% to 4%. The Company continues to expect Applebee’s franchisees to close between 20 and 30 restaurants globally, the majority domestic closures, while IHOP franchisees and area licensees are now expected to close 20 to 30 net new restaurants globally, compared to previous expectations for the net development of between 35 and 55 restaurants globally. Total segment profit, excluding Company restaurants, is anticipated to be approximately $370.0 million to $380.0 million, compared to previous expectations for total segment profit of $373.0 million to $394.0 million. Click here to request a list of IHOP and Applebee's Future Openings.
The Habit Restaurants’ second quarter total revenue increased 14.7% to $117.9 million, and Company-operated comps increased 3.9%. Net income decreased 4.1% to $2.0 million. The Company opened four Company-operated restaurants and three franchised/licensed restaurants during the quarter. As of June 25, the Company had 234 Company-operated and 28 franchised/licensed locations (excluding eight licensed locations in Santa Barbara County, CA from which the Company is not entitled to royalties) for a system-wide total of 262 locations.
Looking ahead to fiscal 2019, Habit Restaurants anticipates total revenue between $462.0 million and $465.0 million, Company-operated comp growth of approximately 2.5% to 3.5%, and the opening of approximately 21 to 23 Company-operated restaurants and seven to nine franchised/licensed restaurants.
Separately, last week The Habit Restaurants announced plans to expand to Massachusetts and New Hampshire in a seven-store development agreement with Adam Quinn of Heidi Burgers, LLC. Heidi Burgers will open Habit locations in Middlesex and Essex Counties in Massachusetts with the first location planned for Wilmington, MA. The first Habit Burger Grill restaurant is expected to open in spring 2020.
Big 5 Sporting Goods reported second quarter sales increased 0.4% to $241.0 million, reflecting a 0.7% increase in comps (compared to a 2.1% decrease in the same period last year), partially offset by the closing of an underperforming store.
Management said sales and comps reflect a small negative impact from a calendar shift of the Easter holiday, when the Company’s stores are closed, into the second quarter of fiscal 2019 from the first quarter of fiscal 2018. Quarterly EBITDA and margins fell 12% and 30 basis points, respectively, due to gross margin deterioration (from an unfavorable shift in product mix), partially offset by improved SG&A margin (lower operating costs and the leveraging impact of the higher sales base). Management said the drop in gross margin was due to lower sales of higher-margin warm weather seasonal products and higher sales of lower-margin ammunition products. TTM EBITDA margin was only 2.5%, well below our monitored industry average of 6.4%. TTM interest coverage remained strong at 7.4x. During the second quarter of fiscal 2019, the Company opened one store. For the fiscal 2019 full year, the Company currently anticipates opening four new stores and closing five locations.
Floor & Décor’s second quarter sales increased 19.8% to $520.3 million, and comps were up 3%. The Company opened three new stores and relocated one existing store during the quarter, ending with 106 stores. Adjusted EBITDA rose 31.4% to $66.6 million. CEO Tom Taylor stated, “We delivered EPS that exceeded the high end of our guidance primarily as a result of robust sales growth from our new stores, higher product gross margin, as well as lower operating expenses, which led to strong earnings flow through.” The Company has opened six new stores so far this year, out of the 20 planned for the year (click here to request a list of future openings).
Cinemark’s second quarter sales increased 7.7% to $957.8 million. Admissions revenues increased 2.4% to $521.0 million, and concession revenue was up 13.1% to $345.3 million. Attendance increased 5% to 80.2 million patrons, average ticket price was $6.50, and concession revenue per patron increased 7.7% to $4.31. Adjusted EBITDA jumped 10.4% to $244.7 million. CEO Mark Zoradi commented, “We are extremely pleased with our worldwide second quarter results that were generated by our domestic box office, which surpassed the North American industry in excess of 300 basis points, a significant rebound in international attendance and continued strength in our global food and beverage sales.” As of June 30, the Company’s aggregate screen count was 6,086, and it had commitments to open eight new theatres and 73 screens during the remainder of 2019, and 17 new theatres and 162 screens subsequent to 2019.
