December 11, 2019
At a recent investor conference, Dick’s Sporting Goods’ management commented that it plans to open 10 to 20 stores and close five to 10 stores annually (click here to request the latest list). Management also confirmed that it will continue to prioritize investment in stores, including inventory, employee training and supporting e-commerce fulfillment.
Lord & Taylor, which was acquired by Le Tote from Hudson’s Bay Company last month, will open a pop-up shop in the SoHo neighborhood of Manhattan, NY today. The 2,500 square-foot store will remain open until Christmas Eve and sell an assortment of merchandise developed in-house, as well as Le Tote’s clothing rental subscription service. Le Tote assumed the operations of 38 Lord & Taylor stores, as well as the brand’s digital channels and inventory. Following the completion of the pop-up shop, Le Tote CEO Rakesh Tondon said the Company may open several 25,000 square-foot Lord & Taylor locations in Manhattan, including Midtown, the Upper East Side, and the Upper West Side. The stores will be vastly smaller than the 600,000 square-foot flagship Manhattan location that was shuttered at the beginning of 2019.
Amazon said on Friday it would open a new office in Manhattan’s Hudson Yards to house its consumer and advertising teams. The office will open in 2021 and accommodate more than 1,500 employees. The new space will not be receiving substantial tax breaks from the city or state. In February, Amazon cancelled its plans for New York headquarters due to local opposition to its proposed campus on Long Island City.
Amazon Founder Jeff Bezos said the Company would support the U.S. Department of Defense, as technology companies vie for more defense contracts and as the Pentagon seeks to modernize itself. Last month, the Company filed a lawsuit in federal court contesting the Defense Department’s September decision to award a cloud computing contract worth up to $10.00 billion to rival bidder Microsoft. Amazon previously said that politics got in the way of a fair bidding process. Mr. Bezos has been an outspoken critic of U.S. President Donald Trump.
In other news, the U.S. Federal Trade Commission (FTC) has broadened scrutiny of Amazon beyond its retail operations to include its cloud unit Amazon Web Services. The FTC’s Technology Enforcement Division was focusing its probes of multi-sided platforms on illegal conduct and mergers that previously won antitrust approval. Amazon is the biggest cloud services provider; the Company is expected to generate $34.90 billion in sales in 2019.
Amazon is also facing a U.K. antitrust decision, expected to be released today, on whether to continue a two-month-old probe that froze Amazon’s bid of around $500.0 million for a minority stake in food-delivery service Deliveroo.
Separately, Amazon paid $5.0 million for about 77 acres of land in Mt. Juliet, TN. The land will serve as a distribution hub, including 3.52 million square feet of distribution space and 80,000 square feet of office space, that will more than double its regional footprint. This year alone, Amazon has secured 4.14 million square feet of new space in Tennessee, including this project, a building in Antioch, and a second outpost near Nashville International Airport.
2019 Holiday Preview Report
AggData has released the 2019 Holiday Preview to its Premium Subscribers. This detailed report outlines:
- Expectations for the holiday shopping season based on changes in consumer preferences
- Black Friday Weekend
- Holiday trends to watch
- Updated retail strategies
On December 9, Neighborhood Goods opened a 4,500 square-foot store in Chelsea Market in Manhattan, NY. Neighborhood Goods was cofounded by Matt Alexander and Mark Masinter to “reimagine” the brick-and-mortar experience by giving both e-commerce startups and established companies a space to introduce their products to customers. It was launched in 2017 with a 14,000 square-foot store in Plano, TX. The Company has raised $27.5 million in funding. The Chelsea Market location will open with more than 40 brands, each of which will have the flexibility to determine how much space is used, how it is used, and how long they stay.
Canada Goose opened a new, multi-sensory concept store in Toronto, ON, Canada that contains no inventory. Instead, shoppers can try on products and order items for same-day home delivery. The store expands the brand’s signature “Cold Room,” where customers can try on jackets under frigid conditions, by adding real snow and floor-to-ceiling Arctic landscapes. Original films about the cold and nature are projected on the walls.
On Black Friday, Yankee Candle, a division of Newell Brands, unveiled a new “World of Home Fragrance” concept store in the Natick Mall outside of Boston, MA. The store is the first of its kind for Yankee Candle, centered around unique sensorial experiences including customers being able to create their own personalized scent collections. Designed by retail design firm FRCH Design Worldwide, the new store has a smaller retail footprint than traditional Yankee Candle stores, at 1,000 square feet. Last month, Newell Brands’ Home Fragrance Division built a $6.5 million, 20,000 square-foot research and development facility in Deerfield, MA.
H.E. Butt plans to invest about $200.0 million for multiple projects in South Austin, TX, including for opening three new stores and a major remodel of an existing location.According to H.E. Butt, the investment will support the growth and increased density across South Austin. While some South Austin projects still are in planning stages, a new 130,000 square-foot store is currently under construction and scheduled to open late March 2020. An H-E-B plus! is also in the midst of undergoing a major remodel that will add more than 7,000 square feet to the store and is expected to open in early 2020. The Company also plans to close one of its smaller, 31,000 square-foot stores in Austin on April 2, 2020. H.E. Butt has more than 50 stores in Austin and the surrounding area. Click here to request a list of future openings.
Meanwhile, on December 4, H.E. Butt opened a 102,000 square-foot store in Houston, which offers curbside pickup as well as delivery through partnerships with Favor, Shipt and Instacart.
Last week, Publix opened its fourth GreenWise Market, in Lexington, SC. The 21,400 square-foot store is its second under the format in South Carolina. So far, Publix has announced 12 GreenWise stores, which focus on specialty, natural and organic foods as well as local offerings. The Company noted that it does not expect GreenWise to be a primary grocery store for the majority of its customers but rather a source for specialty items. On December 12, the Company will open GreenWise Markets in Lakeland (25,483 square feet) and Boca Raton (27,750 square feet), FL. Also in Florida, a store in Ponte Vedra Beach is expected to open in 2020, and a store in Tampa is slated to open in 2021. Opening dates for another four GreenWise stores in the state have not been set. Click here to request a list of future openings.
Lidl will open its first Philadelphia store on December 11. The Company opened its first store in the state last year in Ridley Township and currently has five locations in Pennsylvania. Another store in Northeast Philadelphia is scheduled to open before the end of the year. Lidl has also agreed to buy six of the 13 Shoppers Food & Pharmacy stores for sale by United Natural Foods. Click here to request a list of future openings.
Restaurant Brands International announced December 5 that Burger King is planning to open more than 100 restaurants in Ontario and Manitoba over the next five years. Burger King Canada has inked a new five-year expansion deal with long-time partner, Redberry Restaurants, to grow the number of Burger King restaurants in Canada by 25%. Click here to request a sample list of future openings.
Del Taco Restaurants announced the refranchising of all eight Company-operated restaurants in the Reno, NV market to existing franchisee Mark Miller of 3 Brothers Restaurants. Related to that agreement, Mr. Miller has also committed to developing 10 additional Del Taco restaurants over the next seven years, including six in the Yakima and Spokane, WA markets and four across his current geographic operating area.
Strategic Sales Inights Report
As the nation's largest membership warehouse club chain based on sales, Costco Wholesale Corporation sets the benchmark for the industry. Costco’s membership-based business model consists of selling items in bulk at low prices; this has helped the Company maintain growth during slow economic times, drawing in price-conscious consumers. Costco’s continued growth is evidence of its resiliency, especially in the face of Amazon’s emergence and the trend toward online shopping. Costco members pay a yearly fee, allowing the retailer to hold its own against competitors Amazon and Walmart. Our report takes a close 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 store and sales per square foot.
On December 4, K-VA-T Food Stores opened a new 49,700 square-foot Food City store in Calhoun, GA. The Company also recently began construction on two Tennessee stores, in Pigeon Forge (53,900 square feet) and Knoxville (50,000 square feet). K-VA-T operates 131 retail outlets throughout southeast Kentucky, southwest Virginia, eastern Tennessee, Chattanooga, and northern Georgia.
Target announced it will open a new small-format store in Manhattan located in Times Square. The 33,000 square-foot unit is expected to open by 2022. It will be Target’s tenth opened or planned small-format store in Manhattan. Click here to request a list of future openings.
Meijer will open its second smaller-format store in Royal Oak, MI on January 29 under the Woodward Corner Market banner. Its first, Bridge Street Market in Grand Rapids, opened in August 2018. The Royal Oak store stands at 41,000 square feet compared to a typical Meijer supercenter at 156,000 square feet. The new concept will highlight more than 2,000 local items and have a Great Lakes Coffee shop along with an extensive beer, wine and liquor counter.
According to sources, A.C. Moore is working to complete a consensual out-of-court resolution. On November 25, A.C. Moore announced plans to exit its retail operations, saying it retained the services of Gordon Brothers to close the chain(Click here to request a list of future closings). In connection with the move, the Company entered into an asset purchase agreement with The Michaels Companies, with Michaels acquiring the intellectual property and the right to lease up to 40 store locations (only a small portion of A.C. Moore’s estimated 140 stores currently in operation) for $58.0 million. Matthew Pascucci of Mackinac Partners was appointed chief restructuring officer of the Company. Click here to request more information.
On December 9, Destination Maternity, DIP notified the Court that the auction scheduled for yesterday was cancelled, and the stalking horse bidder, Marquee Brands, LLC, was declared the winning bidder (it submitted the only qualified bid). Marquee Brands is owned by investor funds managed by the private-equity arm of Neuberger Berman, an employee-owned investment manager. Marquee will purchase the Company’s e-commerce business, intellectual property, store-in-store operations, and related assets for $50.0 million in cash. As part of the agreement, the Company will close its remaining 235 retail stores where liquidation sales are not already in process (click here to request a list). Following the bankruptcy filing on October 21, the Company initiated store-closing sales at about 200 units. Hilco Merchant Resources, LLC and Gordon Brothers Retail Partners, LLC will sell inventory, fixtures, and equipment through store-closing sales at the 235 units and will wind down the Company’s leased department-store business (420 leased locations within department stores and baby specialty stores). A sale hearing will occur on December 12, with closing anticipated by December 30.
On December 6, United Natural Foods announced that it has agreed to sell the assets and lease interests of 13 of its 43 Shoppers Food & Pharmacy stores to three separate grocery operators. Lidl has agreed to buy six stores, Compare Foods will acquire five and McKay’s will buy two of the 13. The transactions are expected to close between mid-December and the end of February 2020; Shoppers intends to wind down operations at these locations, including the sale of any remaining inventory and closure of the stores prior to reopening under other banners. Two of the buyers will enter into long-term agreements for UNFI to serve as the primary supplier of their acquired locations. The Company also announced it will close four additional Shoppers stores, which are expected to cease operations by the end of January. UNFI made the decision to not renew the leases at three of these locations, and the fourth is being cancelled pursuant to agreement with the landlord. The Company announced that the remaining Shoppers locations will remain open while UNFI continues to market those assets.
At this time, the Company expects to incur approximately $32.0 million – $42.0 million in pre-tax aggregate costs and charges related to these transactions, consisting of an estimated $13.0 million – $16.0 million for severance and employee-related costs, $11.0 million – $14.0 million for estimated operating losses during the period of wind-down, primarily related to inventory, $2.0 million – $3.0 million for estimated transaction costs, and $6.0 million – $9.0 million for estimated non-cash asset impairment charges, primarily associated with real estate assets and leasehold improvements.
The announcements are in line with management’s previously stated goal of “completing the Shoppers sales early in calendar 2020.” The news also follows UNFI selling the pharmacy scripts associated with the Shoppers banner to CVS and Walgreens in the fourth quarter of fiscal 2019. For the list of Shoppers stores being sold or closed, please click here.
Kroger announced the results of its third quarter and nine months ended November 9. During the quarter, the Company’s identical store (ID) sales remained positive, as Kroger posted a 2.5% ID sales increase, excluding fuel. Total sales rose 0.5% to $27.97 billion. Excluding fuel and business dispositions, total sales were up 2.7%. SG&A margin deteriorated 70 basis points, mainly due to investments in Restock Kroger initiatives with the goal of driving administrative efficiencies, store productivity and future cost reductions. As a result, EBITDA slipped 7.5% to $1.17 billion.
Kroger also said that following a portfolio review it has decided to divest its stake in natural food retailer Lucky’s Market, for which it recognized a non-cash impairment charge of $238.0 million in the third quarter. Kroger CEO Rodney McMullen noted that given what it would take for Lucky’s to be a meaningful contributor to Kroger overall, “we just didn’t think it created a good return for the investments that were needed to be made.” Kroger took an undisclosed equity stake in Lucky’s in April 2016.
Casey’s second quarter sales declined 2%, on lower overall fuel revenues, to $2.49 billion. Quarterly comps were up 3.2% for Grocery and Other Merchandise and increased 1.9% for Prepared and Fountain; same-store fuel gallons sold were down 1%. Sales for the first half of the year were down 0.2% to $5.11 billion, while profit jumped 22.6% to $167.8 million.
The Company has 12 stores under agreement to purchase and a new store pipeline of 97 sites, including 31 under construction as of October 31. Casey’s also recently announced its third distribution center in Joplin, MO, which will open up new territory to expand its business. Click here to request a list of future openings.
Big Lots reported third quarter sales growth of 1.6% to $1.17 billion, driven by sales growth in high-volume new and relocated stores, and six more stores year-over-year. Comps fell 0.1%. Net income was $127.0 million, compared to a loss of $6.6 million last year, and includes an after-tax gain of $136.6 million associated with the sale of the Company’s distribution center in Rancho Cucamonga, CA, as well as an expense of $2.6 million associated with the implementation of the Company’s strategic business transformation. President and CEO Bruce Thorn commented, “After a year of restructuring and transition in 2019, and despite the ongoing impact of tariffs, we expect to return to EBIT and EPS growth in 2020, including significant improvement in normalized free cash flow.”
Looking ahead at the fourth quarter, the Company expects EPS of $2.40 – $2.55, compared to $2.68 for the same period last year. This guidance is based on comparable store sales being up slightly.
During an earnings call with analysts, Mr. Thorn said that the Company plans to devote more space to higher-margin consumables such as snacks and cleaning supplies, and less space to lower-margin food pantry staples. Click here to request a list of future openings and closings.
Dollarama’s third quarter sales increased 9.6% to $947.6 million, driven by comp growth of 5.3% and 79 net new store openings. As of November 3, the Company operated 1,271 stores. Comp growth reflects a 2.8% increase in average transaction size, driven in part by an increase in the number of units per basket, and a 2.4% increase in the number of transactions. Net earnings rose 4.9% to $138.6 million, mainly the result of sales growth, the inclusion of Dollarcity’s net earnings, and the one-time gain on the call option, partially offset by lower margins and higher SG&A as a percentage of sales. On August 14, Dollarama made an upfront payment of $40.0 million as a result of its acquisition of a 50.1% interest in Latin American value retailer Dollarcity. The total estimated purchase price is $92.7 million.
The expansion of the Dollarama’s Montreal-area distribution center, underway since March 2018, is now operational and will be completed as planned before the end of calendar 2019. The distribution center will support Dollarama’s long-term growth plans of 1,700 stores across Canada by 2027.
Dollar General’s third quarter sales increased 9% to $6.99 billion, driven by new stores, and comp growth of 4.6%, modestly offset by the impact of store closures. Comp growth was driven by increases in both average transaction amount and customer traffic; it included growth in the consumables, seasonal, home, and apparel categories. Operating income increased 11.1% to $491.4 million. During the year-to-date period, the Company opened 769 new stores, remodeled 928 stores, and relocated 75 stores.
Looking ahead at fiscal 2019, the Company expects sales growth in the low 8% range, comp growth in the mid-to-high 3% range, operating profit growth of 6% – 8%, and EPS of $6.46 – $6.56. The Company continues to expect capital expenditures of $775.0 million to $825.0 million. The Company also reiterated plans to execute approximately 2,075 real estate projects in fiscal 2019, including 975 new store openings, 1,000 mature store remodels, and 100 store relocations. For fiscal 2020, it plans to execute nearly 2,600 real estate projects, including 1,000 new store openings, 1,500 mature store remodels, and 80 store relocations.
Costco’s November sales increased 6.7% to $13.62 billion. November comps, excluding the impact from changes in fuel prices and currency exchange, rose 4.8%, consisting of 4.3% growth in the U.S., 5.8% in Canada, and 6.8% in Other International. E-commerce sales fell 3.7%, negatively impacted by an estimated 20%, primarily due to Thanksgiving/Black Friday/Cyber Monday occurring a week later this year versus last year, and website performance issues experienced on the Company’s U.S. and Canadian e-commerce websites on Thanksgiving Day and Black Friday. Total and comparable sales were negatively impacted by approximately 1.5%. For the first quarter ended November 24, sales rose 5.6% to $36.24 billion. Total comps rose 5% and included growth of 5% in the U.S., 5.1% in Canada, and 4.5% in Other International. E-commerce sales rose 5.7%.
PriceSmart’s November net merchandise sales increased 7.5% to $278.3 million, negatively impacted by $2.3 million from currency exchange. Comps rose 0.8%. For the year-to-date period, which includes the three months ended November 30, net merchandise sales increased 4.2% to $778.8 million, and comps rose 1%.
Over the past year, the Company opened four new warehouse clubs, bringing its total store count to 45. Most recently, PriceSmart opened a new store in Guatemala City on November 13. It is the first to utilize the Company’s smaller warehouse club format in that country. Four additional clubs previously announced are currently under construction or are slated to open in calendar 2020.
Five Below’s third quarter sales increased 20.7% to $377.4 million, driven by the opening of 61 new stores, which represents a 20% increase in stores since last year, as well as comp growth of 2.9%. Operating income was $12.7 million, down from $15.5 million last year, primarily due to net unmitigated tariff costs and the timing of certain merchandise costs.
Looking ahead at fiscal 2019, the Company expects sales of $1.88 billion – $1.89 billion, based on opening 150 new stores and assuming a 2.5% increase in comps. Net income is expected to be $175.4 million – $179.9 million.
Ascena Retail Group’s first quarter sales decreased 3.1% to $1.30 billion, and comps were flat (excluding Dressbarn’s going-out-of-business sales, comps were down 2%). The Company indicated that the wind down of Dressbarn remains on track, and all 544 remaining store closures are expected to be completed this month. Premium segment comps (45.1% of total sales) fell 2%, and kids segment comps (19.6% of total sales) fell 6%. Plus segment comps (21.6% of total sales) were up 1%, and value segment comps (13.7% of total sales) jumped 10%. Gross margin declined 30 basis points to 59.6% due to higher promotional activity in the kids and premium segments, partially offset by increased margins in the plus and value segments. Adjusted EBITDA rose 42.4% to $119.2 million. The Company opened three stores during the quarter (two Justice stores and one LOFT store) and shuttered 85 underperforming locations (72 Dressbarns, seven Catherines, and six Lane Bryant stores).
Hudson’s Bay Company’s third quarter sales decreased 2.3% to C$1.84 billion, and comps were down 1.7%. Comps decreased 2.3% at Saks Fifth Avenue (44% of total sales) and 3.9% at Hudson’s Bay (36% of total sales), while online sales helped Saks OFF 5th (18% of total sales) deliver a 4.9% comp increase. Gross margin fell 120 basis points to 38.3%. Adjusted EBITDA declined 32.3% to C$84.0 million. CEO Helena Foulkes stated, “In the third quarter, we faced our toughest comp, soft industry-wide luxury sales and the challenge of winning back market share in Canada. Strong digital growth, continued cost containment and inventory control were not enough to deliver the financial performance we wanted. We must quicken the pace of improvement while bearing the ongoing costs of our strategic portfolio reset and the headwinds impacting our industry. I’m confident that we are on the right journey with each of our businesses as we sharpen our focus to deliver on the potential of HBC.”
The Special Committee of HBC’s board commented on the report from shareholder advisory firm Institutional Shareholder Services (ISS), which came out against the $10.30 per-share cash deal to take the Company private. ISS said it saw no clear reason why shareholders should not accept the deal with Catalyst Capital Group, which offered a higher price. Catalyst also commented, saying that the shareholder group taking HBC private had engaged in an “egregious pattern of conflicts, misrepresentations and self-serving games.” David Leath, chair of HBC’s special committee, responded, “We are disappointed by the ISS recommendation and the errors and flawed rationale of ISS. The $10.30 per-share cash offer is in the best interests of HBC and fair to minority shareholders.” There is a special meeting of shareholders scheduled for December 17.
Sportsman’s Warehouse reported third quarter sales increased 8.7% to $242.5 million, and comps were up 4.8%, compared to a 0.5% decline in the prior-year period. The Company reported strong sales in the fishing, clothing, camping and firearms categories; e-commerce sales were also strong, including BOPIS sales up 80%. Management said it rebranded the eight Field & Stream stores acquired from Dick’s as Sportsman’s Warehouse stores two weeks before the end of the quarter. This acquisition expanded the Company’s footprint into the New York and Pennsylvania markets. Gross margin fell 20 basis points to 34.7%, and SG&A margin increased 1% to 25.8%. As a result, EBITDA decreased 2.7% to $21.7 million, and EBITDA margin was down 100 basis points to 9%. The Company opened one new store, ending with 103 stores in 27 states, or year-over-year square footage growth of 13.6%. Looking ahead, CEO Jon Barker commented, “As we look to the final quarter of the year, we feel very good about our competitive positioning and the underlying strength of our business. That said, multiple competitors are making assortment changes that are creating some short-term sales headwinds. We believe these competitive changes bode well for Sportsman’s Warehouse longer term, and, combined with the investments we have made across our business, we are well positioned to capitalize on the increased market share opportunities moving forward.”
RTW Retailwinds reported third quarter sales decreased 5% to $200.1 million, reflecting a 4% comp decline and a net reduction in store count of 14 stores. Gross margin fell 460 basis points to 27.8% on increased promotional activity. SG&A margin eroded 210 basis points to 33.8% on higher incremental spending from new businesses and the exit of Uncommon Sense.
The Company recorded an operating loss of $12.1 million, compared to a profit of $1.6 million last year; the Company incurred a $4.2 million charge related to its exit of Uncommon Sense. RTW opened two New York & Company stores, closed one underperforming New York & Company store, and remodeled one New York & Company store. It ended the quarter with 414 stores in operation, including 120 Outlet stores. The Company maintains a highly flexible lease portfolio with about 70% of its leases expiring in two years or less. In the coming weeks, RTW plans to open one new New York & Company store and close 27 underperforming locations (19 New York & Company, four Fashion to Figure, and four outlets). For the year, the Company expects to have opened nine stores and closed 31 locations.
Christopher & Banks reported third quarter sales increased 3% to $94.1 million, despite operating six fewer stores than last year. Comps were up 4.5%, compared to a 7.5% decrease last year. Gross margin expanded 415 basis points to 33.9%, due primarily to a 200 basis point increase in merchandise margin and reduced occupancy costs. SG&A margin improved 230 basis points to 31.1%. Adjusted EBITDA was positive $2.7 million, compared to negative $3.0 million in the prior-year period
Francesca’s third quarter sales inched up 0.1% to $95.5 million, and comps were up 1% due to a higher store conversion rate and an increase in average units sold per transaction. The Company opened one new store and closed five underperforming locations during the quarter, bringing its total store count to 714. Gross margin improved 400 basis points to 39.3% due to higher merchandise margins as a result of lower inventory reserve and fewer out-of-stock charges. Operating loss narrowed 81.6% to $4.2 million.
Cato Corporation’s November sales dropped 0.7% to $59.0 million, while comps were up 2%, compared to a 6% decline in the prior-year period. For the year-to-date period ended November 30, sales were flat at $686.8 million, and comps were up 2%. CEO John Cato stated, “November same-store sales continue our current trend. We remain cautiously optimistic about the rest of the year as we consider the impact of current and future tariffs.”
During the month, the Company opened two stores in North Carolina, one in South Carolina, and one in Florida. As of November 30, the Company operated 1,302 stores in 31 states, down from 1,329 stores in 33 states a year ago.
The Michaels Companies reported third quarter sales fell 4.1% to $1.22 billion, primarily due to a 2.2% comp decrease, the closure of its Pat Catan’s stores during 4Q18, and a decrease in wholesale revenue. The decrease was partially offset by sales related to the net addition of 18 Michaels stores over the past year. Click here to request a list of future openings and closings.
Gross margin fell 150 basis points to 36.1%, primarily due to a decrease in merchandise margin and the deleveraging of occupancy and distribution-related costs, partially offset by a decrease in inventory reserves. The decrease in merchandise margin reflects the impacts of higher promotional activity, higher tariffs on inventory purchased from China, and a change in sales mix, partially offset by benefits from ongoing pricing and sourcing initiatives. SG&A margin improved 50 basis points to 23% primarily due to lower payroll related costs, including performance-based compensation, and expenses associated with the closure of the Pat Catan’s stores.
Ulta Beauty’s third quarter sales increased 7.9% to $1.68 billion, and comps were up 3.2%, driven by 2.3% transaction growth and 0.9% growth in average ticket. Gross margin increased 40 basis points to 37.1%, primarily due to improvement in merchandise margins driven by marketing and merchandising strategies and leveraged fixed store costs, partially offset by investments in salon services. SG&A margin eroded 140 basis points to 26.7%, primarily due to deleveraging of corporate overhead related to investments in growth initiatives and store labor, partially offset by lower incentive compensation expense and leverage in marketing expense. As a result, operating income slipped 0.8% to $167.8 million. During the quarter, the Company opened 31 stores and closed three underperforming locations, ending with 1,241 stores in operation, a 6.9% increase in square footage from last year. Click here to request a list of future openings and closings.
At Home Group’s third quarter sales increased 19.3% to $318.7 million, but comps were down 2%. Gross margin dropped 540 basis points to 26.8%, and SG&A margin improved 30 basis points to 18.6%. As a result, EBITDA fell 26% to $26.2 million. At Home’s quarterly results are likely just the beginning of what could be an extended trend of soft sales and margin deterioration. Customer resistance to price increases, competition, and the lack of the right holiday assortment cut into third quarter comps, though sales growth was buoyed by nine net new store openings. The benefit of new stores will lessen in fiscal 2021 as the Company moderates its unit growth, subsequently highlighting the ongoing weakness in existing stores, suggesting the locations or appeal of its product assortments was masked in prior quarters by new store openings. The Company’s failure to pass tariff-related costs through to consumers was exacerbated by the necessity of discounting to convert traffic, which cut into gross margin and will offset any benefit from lower transportation costs related to its new distribution center.
RH reported third quarter sales increased 6.4% to $677.5 million. Adjusted EBITDA rose 32.5% to $116.3 million. For fiscal 2019, RH increased its adjusted EPS to $11.58 – $11.70, up from $10.78 – $11.01. The Company also plans to launch RH International in 2021 and 2022, calling it “their largest growth opportunity” toward a potential valuation of $20.00 billion. RH currently has a market capitalization of $3.80 billion. So far, RH said it is close to completing real estate transactions for five to seven initial locations in Europe. On the domestic front, RH expects to open five new galleries and one guesthouse in fiscal 2020, with RH Marin, RH Charlotte, and RH San Francisco opening in the first half, and RH Dallas, RH Jacksonville, and RH Guesthouse New York opening in the second half of the year. RH Minneapolis and RH Columbus are opening late in fiscal 2019, and the Company plans to open at least seven new galleries in fiscal 2021.
Build-A-Bear Workshop reported third quarter sales increased 2.5% to $70.4 million, which includes a 2% increase in retail sales (94.6% of total sales), a 17.9% increase in commercial revenue (3.6% of total sales), and a 2% increase in international franchising sales (1.8% of total sales). Gross margin expanded 400 basis points to 39.5%, and SG&A margin improved 80 basis points. The Company recorded a $5.9 million loss, a 3.1% improvement from a $6.1 million loss last year.
Build-A-Bear maintains a high level of lease options, with nearly 70% of corporately managed stores having a lease option within the next three years; accordingly, the Company continues to expect to selectively close up to 30 locations over the next two years, partially offset by selective openings. As of November 2, Build-A-Bear operated 371 corporately managed locations and 54 stores through relationships with Carnival Cruise Line, Great Wolf Lodge Resorts, Landry’s Inc., and Beaches Family Resorts. The Company’s international franchisees ended the quarter with 104 stores in 13 countries.
Signet Jewelers’ third quarter sales decreased 0.3% to $1.19 billion, while comps rose 2.1%. E-commerce sales jumped 11.4% to $139.3 million and accounted for 11.7% of total sales, up from 10.5% last year. North America comps grew 2.9%, with average transaction value up 0.5% and number of transactions up 2.8%. International comps decreased 5.2%, with average transaction value down 1.4% and number of transactions down 4.3%. Gross margin was down 20 basis points to 31%, while operating loss improved 18.2% to $39.9 million. The Company expects cost savings of $70.0 million – $80.0 million in fiscal 2020, as part of its “path to brilliance” plan to deliver $200.0 million – $225.0 million in cost savings in fiscal years 2019 to 2021 (the Company generated $85.0 million in cost savings in fiscal 2019). Signet expects to close 150 stores in fiscal 2020, including 86 closures completed to date.
AutoZone’s first quarter sales increased 5.7% to $2.79 billion, and comps were up 3.4%. Gross margin remained relatively flat at 53.7%. EBIT rose 2.5% to $500.0 million. The Company’s inventory increased 9.1% over last year, driven by new stores and increased product placement. The Company opened 18 new stores in the U.S., two in Mexico, and two in Brazil. As of November 23, the Company had 5,790 stores in the U.S., 606 stores in Mexico, and 37 units in Brazil.
Town Sports International’s operational health deteriorated in the third quarter, driven by top-line pressures and eroding profitability. While third quarter net sales were up 4.8%, this was largely due to $9.4 million in incremental revenues from newly acquired clubs, as comparable club revenues declined 2.9%, on top of a 1.5% gain in the prior-year period. As of September 30, the Company served approximately 630,000 members via 187 clubs, compared to 621,000 members via 181 clubs in the prior-year period. Profitability headwinds included increased marketing spend, higher club operating costs related to new club openings, and higher payroll expense due to growing wages. Overall, EBITDA declined 30.6% to $8.4 million, and EBITDA margin contracted 360 basis points. As a result of eroding profitability, leverage metrics deteriorated, as debt to TTM EBITDA rose to 3.9x from 3.1x in the comparable period. While liquidity of $33.4 million remains adequate to service working capital needs, it is markedly lower than the comparable period’s liquidity of $90.9 million (partially due to an amendment to its credit facility on November 8, 2018, in which the bank lowered the size of the current revolver to $15.0 million, from $45.0 million, reflecting the Company’s deteriorating credit quality).