February 12, 2020
Macy’s announced a three-year “Polaris Strategy,” focused on stabilizing profitability and positioning itself for future growth. As part of the plan, the Company will close 125 department stores over the next three years, about 20% of its namesake banner’s store footprint, and exit its weakest mall locations. The Company will also cut 10% of its corporate and support staff (~2,000 employees) and close several offices, leaving the New York City office as its sole headquarters. The Company reshuffled mid-level management, including promoting John Harper to COO (formerly chief stores officer). The store closures and cost cutting reflect the competitive challenges, particularly from mass and online, the shift in customer behavior to digital commerce, and the need for a differentiated and compelling shopping experience. The 125 stores account for $1.40 billion in annual sales.
Macy’s Polaris Strategy, which includes the corporate restructuring and store closures described above, aims to cut $1.50 billion in annual costs by 2022, while increasing the Company’s competitiveness through digital growth, curated fashion, expanding off-price, and upgrading several locations. The Company plans to upgrade an additional 100 stores in 2020 and continue expanding its off-price offerings; it is testing a new smaller-format concept called Market by Macy’s in strip centers. Macy’s will also invest $1.00 billion in four private-label brands and in its supply chain. Polaris will cost $450.0 million – $490.0 million, with most of the expense recorded in fiscal 2019. For the latest list of future closings, pleaseclick here.
Earth Fare, Inc., DIP filed first day motions seeking approval to reject leases associated with eight previously closed stores, the use of cash collateral, payment of PACA/PASA claims, and interim and final orders confirming the store-closing agreement is operative and effective, authorizing on a final basis the debtors to assume the store-closing agreement, authorizing and approving store-closing sales free and clear of all pre-petition liens & claims, approving dispute resolution procedures, and authorizing customary bonuses to employees essential to store closings.
Meanwhile, Earth Fare employees are suing the Company, saying it violated the Worker Adjustment and Retraining Notification (WARN) Act. The employees filed a class action claiming that they were not given the 60-day layoff notice required by law. Click here for a list of the Company’s store closings.
On February 4, LVMH announced that its subsidiary Sephora plans to open 100 new stores in 2020, more than doubling the number of store openings from previous years in what is considered the largest expansion in any one year in the retailer’s history. The new stores are expected to open in more than 75 U.S. cities including Charlotte, NC; Nashville, TN; and San Jose, CA, and will be slightly smaller than existing Sephora locations at about 4,000 square feet compared to the typical 5,500 square-foot size. LVMH does not break down results for Sephora, other than stating that Sephora experienced sustained growth in fiscal 2019, with strong revenue particularly in Asia, the Middle East and the U.S., and “excellent performance of skincare in all regions.” Sephora currently operates more than 490 stores across the Americas, as well as over 660 locations inside J.C. Penney stores. For the latest list of Sephora’s future openings, please click here.
In other news, LVMH announced that Tiffany & Co.’s shareholders have approved the previously announced acquisition of Tiffany by the Company for $135 per share in cash, representing a total equity value of approximately US$16.20 billion (€14.70 billion), more than double LVMH’s $7.00 billion acquisition of Christian Dior in July 2017. The acquisition of Tiffany is expected to strengthen LVMH’s position in jewelry and further increase its presence in the U.S. The transaction is still expected to close during the second half of 2020.
Strategic Sales Insights Report:
Now in the second year of its three-year “Restock Kroger” strategic initiative launched in October 2017, Kroger is growing its supermarket business by focusing on three specific areas to drive comp sales: fresh, power brands, and data and personalization. These three areas combined to help generate positive results in the third quarter of fiscal 2019, as Kroger posted a 2.5% increase in identical sales (excluding fuel), its ninth consecutive positive quarter. Kroger plans to continue focusing on initiatives like expanding its Simple Truth and Private Selection private label, utilizing data to roll out more personalized offers, and a new look and marketing campaign. 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.
Topgolf Entertainment Group announced a new venue concept featuring an open, single-floor design, with the first location slated to open in April in Augusta, GA. Topgolf has plans underway to open the new venue concept in Chattanooga and Waco, TX as well. All three locations will include Toptracer Range ball-tracing technology in climate-controlled hitting bays, where guests can enjoy a variety of entertainment and socialization options on the tee-line and in the distinct backyard-style outdoor area. The space will offer yard games, seating areas with fire pits, and picnic-style dining tables serving food and beverage items. The Company also announced it will open its first venue in New York early next year, in Holtsville, NY.
Save-A-Lot has closed three northeast Florida stores since December, in Jacksonville (2) and Orange Park. A fourth, also in Jacksonville, is slated to close on February 22. There are nine Save-A-Lot stores still operating in the region. Click here to request a list of future openings and closings.
Amazon plans to open its first fulfillment center in Iowa, in the city of Bondurant. The 645,000 square-foot facility is set to launch in late 2020. The Company also opened its latest Central Ohio fulfillment center in West Jefferson on February 9. The facility is 855,000 square feet.
In other news, Amazon U.S.’s cloud computing unit AWS will invest 1 billion reais (US$236.2 million) in the Brazilian state of Sao Paulo over the next two years, to strengthen its infrastructure in South America. In December, almost a year after launching its first in-house fulfillment and delivery network in Brazil, Amazon announced plans to open a new distribution center in Pernambuco.
Meanwhile, Amazon has begun legal action in India to stop an antitrust investigation against the Company, saying it could cause “irreparable” loss and damage to its reputation. Last month the Competition Commission of India (CCI) ordered an investigation of Amazon and rival Walmart’s Flipkart over alleged violations of competition law and certain discounting practices. They are accused of violating Indian law by racking up billions of dollars of losses to fund deep discounts and discriminating against small sellers. The companies deny the allegations. Click here to request our FYE report.
On February 5, Lucky’s Market Parent Company, LLC, DIP entered into two more Stalking Horse Asset Purchase Agreements (APA) with Winn-Dixie Stores, Inc. (Southeastern Grocers) to sell four leased stores and a leased undeveloped outparcel, all in Florida, for about $2.8 million; and with Carlos Alvarez (Hitchcock’s Markets) to sell one leased Florida based Lucky’s store in St. Petersburg, FL for about $0.3 million. APAs were previously signed with ALDI for five leased store properties and the purchase of one owned property (six total), with Seabra Foods XIV for one leased store, Publix Super Markets for five leased store properties, and Bo and Trish Sharon for seven ongoing leased store operations (subsequently amended to exclude the Melbourne, FL store). Assuming all APA’s close, thus far 23 of their total 39 stores have been addressed.
On February 4, the U.S. Trustee appointed the Official Committee of Unsecured Creditors, whose members include United Natural Foods, Inc., Harvest Meat Company, Inc., and Benderson Development Company, LLC. Click here for a list of the Company’s store closings.
Hy-Vee recently opened its fifth Wahlburgers, a 5,300 square-foot franchise location in Milwaukee, the second unit in Wisconsin. According to Hy-Vee, it plans to build, own and operate 26 Wahlburgers restaurants. Its other Wahlburgers locations are at the Mall of America in Bloomington, MN; Olathe, KS; West Des Moines, IA; and Brookfield, WI.
7-Eleven is testing a cashier-less store at its corporate headquarters, in Irving, TX. During the pilot, the 700 square-foot non-traditional unit is only available to 7-Eleven employees. The prototype offers an assortment of the most popular products sold in 7-Eleven stores, including beverages, snacks, food, groceries, OTC drugs, and non-food items. The product mix will continue to be refined. This latest project comes on the heels of 7-Eleven’s Mobile Checkout feature and 7NOW delivery services.
On February 4, Gymboree Group, DIP filed a Disclosure Statement and Plan of Reorganization, which state that the Company plans to emerge from bankruptcy and undertake a new business model. The Company plans to purchase a controlling interest in Certified Art and Collectibles, which is developing a system to electronically verify the authenticity of art, memorabilia, and other items. Following the acquisition, the reorganized Debtors intend to rename Certified Art and Collectibles as LuxVerity, complete its development, and market its products. This follows the closure of all of the Company’s retail stores during the Chapter 11 proceedings and the sale of: (i) 102 Janie and Jack stores and 45 outlets to The Gap, Inc. for $35.0 million, and (ii) the Gymboree and Crazy 8 brand names to The Children’s Place for $76.0 million. The reorganization will be partially capitalized by an exit facility, which will fund: (i) payment of certain administrative and priority claims; (ii) general corporate expenses; and (iii) the purchase of a controlling interest in Certified Art and Collectibles. The exit facility consists of a $10.0 million revolver to be provided by Goldman Sachs Specialty Lending Group L.P. General unsecured creditors are not expected to receive any recovery on their claims, which the Debtors estimate to total between $186.8 million and $824.8 million. The reorganized Company will retain all causes of action (including avoidance actions), and it may, in its sole discretion, pursue or settle any such actions in accordance with “the best interests of the estate.” Hearings to consider the adequacy of the Disclosure Statement and to confirm the Plan are scheduled for March 12 and April 21, respectively.
On February 19, Sprouts will open a 30,000 square-foot store in Cave Creek, AZ. Click here to request a list of future openings.
Fareway Stores is purchasing the assets of McGonigle’s Food Store Inc., in Kansas City, MO, with plans already approved by the city council to expand the market. This location will be Fareway’s first store in the state. The Company currently operates 122 stores in Iowa, Illinois, Minnesota, Nebraska and South Dakota.
iFresh opened a new store in North Miami, FL last week. The 30,000 square-foot supermarket will be the largest in the area.
On February 10, Forever 21, DIP notified the Court that the auction scheduled for that day was suspended because the Debtors had not yet received any qualified bids other than the $81.1 million Stalking Horse Bid submitted by SPARC Group F21, LLC, a consortium of Simon Property Group Inc., Brookfield Property Partners LP, and Authentic Brands Group. The notification stated that the Company reserves the right to hold the auction on an adjourned date. The Debtors stated that the hearing scheduled for today (February 11) to approve the Stalking Horse Bid will go forward, absent further notice (including as a result of any adjourned auction). It appears that an adjourned auction would only occur if the existing Stalking Horse Bid is not approved, and if other bids were received subsequently.Click here for more information.
As part of its NextGen remodeling initiative, Dunkin’ Brands said will invest about $60.0 million for “state-of-the-art, high-volume” brewing equipment for domestic locations, with matching investments from franchisees. The brewers will allow the brand to expand the variety of drip coffee blends, increase operational efficiencies, reduce waste, and enhance the quality and consistency across the system. This is on top of the new espresso machines installed in 2018 and the new iced coffee brewers in 2019. As of the end of 2019, the Company had 525 NextGen stores and expects to end 2020 with 1,400 remodeled stores. Click here to request a list of future openings.
In other news, Dunkin’ Brands said that it will close 450 Speedway-owned and operated locations throughout 2020. The closings comes under a termination agreement with Speedway LLC, which is the retail network of Marathon Petroleum Corp. Dunkin’s CFO Kat Jaspon commented, “These limited-menu locations are lower volume units, in total representing less than 0.5% of Dunkin’ U.S. annual system-wide sales. By exiting these sites, with minimal financial impact, we’re confident we’ll be better positioned to serve many of these trade areas in the coming years with new Dunkin’ NextGen restaurants that offer a broader menu.”
QuikTrip is expected to break ground on its first convenience store in Alabama later this year in Tuscaloosa. The store is expected to open by fall 2021. QuikTrip currently operates more than 800 c-stores in 11 states.
Earning Reports
Bed Bath & Beyond reported preliminary financial data for the first two months of its fiscal fourth quarter (December 2019 and January 2020), which highlights the ongoing struggles the Company faces to improve its performance. Same store sales fell 5.4% in the period, driven by weak in-store traffic, inventory management issues and increased promotional activity and markdowns. This is even after the positive shift of Cyber Monday to the quarter from 3Q last year. By channel, sales fell 11% in store, while digital rose 20%. Markdowns and the shift to digital weighed on gross margins, which fell 300 bps. Inventory issues, including being out of stock of key holiday product, further impacted sales growth. Adjusted operating expenses rose 190 bps, excluding declines from the sale leaseback transaction and severance expense, driven by sales deleverage, ongoing technology costs and advertising expenses.
The Company's stock fell 23% in after-market trading.
Click here to request a list of future openings and closings.
Yesterday, Burlington Stores Inc. announced updated guidance for the fourth quarter and full-year periods of fiscal 2019. Management now expects fourth quarter sales to increase 10.5% compared to previous guidance of a 9% to 10% increase. Comparable sales are expected to increase 3.9% versus previous guidance of a 2% to 3% increase. As a result, adjusted fourth quarter earnings per share (EPS) is expected to be in the range of $3.21 to $3.23, this compares to adjusted EPS for the prior year period of $2.83, and previous guidance of $3.12 to $3.17. For the full year ended February 1, 2020, total sales are expected to increase 9.3%, compared to previous guidance of an 8.8% to 9.1% increase. Comps are expected to grow 2.7% compared to prior guidance of a 2.1% to 2.4% increase. As a result, fiscal 2019 adjusted EPS is expected to be in the range of $7.37 to $7.39, compared to the adjusted $6.44 earned in fiscal 2018, and previous guidance of $7.28 to $7.33 per share. Click here to request a list of future openings and closings.
Natural Grocers’ 1Q sales increased 3.8% to $230.5 million, driven by comp growth of 1.9%, partially offset by the closing of one store. Comp growth reflected a 2.5% increase in daily average transaction size, partially offset by a 0.6% decrease in daily average transaction count. Gross margin decreased slightly by 40 basis points due to both increased occupancy costs and slightly lower product margins. Operating income decreased 29.4% to $2.8 million, impacted by a new lease accounting standard.
The Company opened two new stores in the quarter, including its first in Louisiana, bringing its total count to 155 units in 20 states. The Company has signed leases for four new stores and acquired the property for an additional new store, in Colorado, New Mexico, Oregon, Utah, and Washington, respectively. These new stores are slated to open during fiscal 2020 and beyond. For fiscal 2020, the Company expects comp growth of 0.5% – 2.5% and EPS of $0.37 – $0.45.
The Cato Corporation’s January sales declined 1% to $44.2 million, and comps were up 1%. Fourth quarter sales decreased 1%, to $188.2 million, and comps were also up 1%. For the year, sales were down 1% to $816.0 million, and comps rose 2%. CEO John Cato said, “January same store sales were below our current trend.” During January, the Company opened one new store in Florida and closed one underperforming location. The Company opened five new stores and closed 25 underperforming stores during fiscal 2019, ending with 1,281 stores in 31 states. The Company will release full fourth quarter results on March 19. Click here to request a list of openings and closings.
Yum! Brands’ 4Q worldwide revenue increased 8.7% to $1.69 billion. System-wide comps increased 2%, including growth of 3% at KFC, 4% at Taco Bell, and a decline of 2% at Pizza Hut. In the U.S., Pizza Hut’s same-store sales fell even further, declining 4%. The Company has named Kevin Hochman, who led KFC’s turnaround in its home market as its U.S. president, as the interim president of Pizza Hut’s U.S. division.
Fourth-quarter net income was $488.0 million, up from $334.0 million, last year. Results were impacted by a $21.0 million investment expense related to the change in fair value of its investment in Grubhub, which struggled in 2019, as fierce competition from DoorDash, Uber Eats, and Postmates put pressure on its business.
Yum China, which was spun off in 2016, warned that the Wuhan coronavirus will likely “materially affect” its 2020 sales and profits. It said it could report an operating loss in the first quarter. China is KFC’s largest market by system-wide sales and Pizza Hut’s second largest. Yum China has temporarily closed about a third of its restaurants in the country, and those still open have seen sales drop dramatically. Same-store sales during the Lunar New Year holiday fell by 40% to 50% from a year ago. In response, Yum China has rolled out “contactless delivery” so customers do not have to engage with employees to pick up their food from a restaurant. Yum China reported 4Q revenue growth of 6% to $2.03 billion. Same-store sales rose by 2%, led by 3% growth in KFC sales, offset by flat Pizza Hut business. During the quarter, the Company opened 1,029 new stores for 4% net unit growth. Click here for a list of the Company’s planned new locations.
According to published reports, L Brands may sell its Victoria’s Secret banner to private equity firm Sycamore Partners. The segment has struggled in recent years amid rising competition from Third Love, Aerie and others; 3Q19 comps fell 8%, and total sales declined 7.7% to $1.41 billion. Longtime CEO Les Wexner has been under pressure to resign due to the Company’s weak results, along with his ties to Jeffrey Epstein. A deal of this nature would leave L Brands with its better-performing Bath & Body Works banner. Sycamore Partners is a well-known player in the retail space, having acquired Staples, Talbots and Torrid, among others. Click here to request a list of openings and closings.
Costco reported January sales growth of 8% to $11.57 billion. Total comps, excluding fuel and currency exchange, rose 5.3%, consisting of growth of 5.6% in the U.S., 4.8% in Canada, and 4.5% in Other International. E-commerce sales increased 17.2%. For the 22 weeks ended February 2, the Company reported sales growth of 7.6% to $68.60 billion. Total comps were 6.1%, including growth of 6.3% in the U.S., 5.6% in Canada, and 5.3% in Other International. E-commerce sales rose 17.1%. Click here to request a list of future openings.
PriceSmart’s January net merchandise sales increased 3.9% to $254.0 million. Comps rose 0.3%. Foreign currency exchange rate fluctuations negatively impacted net merchandise sales by $0.5 million and comps by $0.4 million. Over the past year, the Company opened four new warehouse clubs, bringing its total store count to 45.
