February 26, 2020
On February 20, L Brands sold a majority stake in Victoria’s Secret to private equity firm Sycamore Partners, allowing the retailer to focus on growing sales and profitability at Bath & Body Works (BBW). The deal was worth $1.10 billion in enterprise value. The Company retained 45% of Victoria’s Secret’s value, using the $525.0 million in proceeds to reduce debt. In conjunction with the transaction, CEO and Chairman Lex Wexner resigned and became chairman emeritus, which has the potential to refresh and alleviate the Company’s brand image and reputation. Andrew Maslow was promoted to CEO of BBW and L Brands, after serving as COO of BBW. He has been with the Company for 15 years with almost 30 years of retail industry experience. Nick Coe was named vice chairman of Bath & Body Works’ brand strategy and new ventures, and he served as the prior CEO of BBW. Click here to request a list of future openings and closings.
According to reports, Modell’s Sporting Goods will close 24 of its 141 stores. Five of the stores are located in New Jersey, eight are in New York, four are located in Pennsylvania, and the balance are in either Washington D.C. or New England. CEO Mitchell Modell said the Company “currently has enough inventory, but goods are starting to tighten up as suppliers grow nervous. This is putting a time constraint on the Company to resolve its issues.” Another more recent report stated that four of the stores initially selected for closing will remain open based on further negotiations with a landlord. The Company will have closed about 22% of its store base in just over a year, reflecting approximately 34 closures since November 2018 when it operated 155 units. In a TV network interview, Mr. Modell said he is evaluating crowdsourcing as a means of identifying a potential purchaser to acquire a minority interest in the Company, which has been owned by the Modell family for four generations. Click here to request updates on closing locations.
Indications are that Transform Holdco (New Sears) has reached a deal for approximately $100.0 million in new financing from hedge fund Brigade Capital Management LP. Brigade has extended loans to other troubled retailers, including Barneys New York and Gymboree. The Company has tried to stabilize the business after bankruptcy, but a familiar pattern has emerged — asset sales and new debt to offset cash burn. The Company has also been shuttering stores and currently operates fewer than 180 Sears and Kmart stores nationwide (click here to request a list of closings).
After five years in the works, today Amazon opened its first, cashier-less grocery store called Amazon Go Grocery in Seattle, WA. At 10,400 square feet, the store incorporates the same technology as its Amazon Go locations. No human interaction is required, but the store will be staffed to help stock shelves and assist customers. While the space is still much smaller than a typical 40,000 square-foot supermarket, it is stocked with about 5,000 items, including fresh produce, dairy, packaged seafood, meats, bakery treats, household goods, meal kits and a selection of wine and beer.
In other news, published reports indicate that Amazon is working with automation specialist Dematic on a micro-fulfillment center (MFC) model to be located inside a new Amazon grocery format store in Woodland Hills, CA that is expected to open in 2020. The Dematic MFC would occupy about 7,200 square feet around the perimeter of the Amazon supermarket, or about 21% of the approximately 33,600 square-foot store.
Amazon also launched a pilot program of its telehealth service, called Amazon Care, to about 54,000 employees based in the Seattle, WA area. The telehealth service, which was unveiled in September, provides virtual medical consultations, the ability to schedule a follow-up visit from a medical professional in a patient’s home or office, and prescription delivery. Click here to request a list of future openings and closings.
Hy-Vee acquired four former QuikTrip locations in metro Des Moines, IA and will reopen them as convenience stores under its Fast & Fresh Express banner on March 20. Financial terms were not disclosed. Hy-Vee operates 22 c-stores under the Fast & Fresh banner in Iowa, Minnesota and Illinois, including 18 Fast & Fresh Express and four Fast & Fresh locations. In late January, Hy-Vee unveiled plans to buy six former Shopko stores in Iowa and convert them to the Hy-Vee Dollar Fresh format. The locations are slated to reopen under the Dollar Fresh banner by late summer. Targeted at smaller communities, the Dollar Fresh stores offer an assortment of fresh products at low prices. Click here to request a list of future openings.
Burlington Stores plans to open a new, 45,000 square-foot store in Greensboro, NC in April 2020. This will be Burlington’s 19th store in North Carolina. It is also opening a 40,000 square-foot store in Panama City, FL this spring. Currently, there are Burlington locations in Pensacola and Tallahassee, FL and Dothan, AL. The Company has 726 stores across 45 states and Puerto Rico. Click here to request a list of future openings.
If approved, Trader Joe’s will open another location on the Upper East Side of Manhattan in a space below the Queensboro Bridge. The 50,000 square-foot store will be located in a former Food Emporium, which closed in 2015. After opening a new Long Island City Trader Joe’s in December, the Company opened another unit in the East Village in January.
In the Fairway Group Holdings Corp., DIP case, the Court gave final approval to bidding procedures for a sale process under which Village Super Market, Inc., the stalking horse bidder, previously agreed to purchase up to five stores and a distribution center for $70.0 million, under the terms and conditions described previously. Counsel for the Debtors stated that the Company’s nine other stores are being “actively marketed.” The Court also approved store-closing procedures in case some of the units are not sold on an ongoing operational basis. Click here to request more information.
Sprouts Farmers Markets will open a new store in Mesquite, TX on March 4. The Company operates about 45 of its nearly 350 stores in the state.
Ascena Retail Group completed the orderly wind down of its Dressbarn business operations, closing over 650 stores and eliminating over $300.0 million of lease liability. Management stated that favorable sales performance by Dressbarn since the announcement fully offset the costs incurred in the wind down of approximately $60.0 million. Dressbarn intellectual property assets as well as its e-commerce business have been sold to a subsidiary of Retail Ecommerce Ventures LLC. The Company is now focused on its core businesses, Plus Fashion (Lane Bryant and Catherines), Kids Fashions (Justice), and Premium Fashion (Ann Taylor and Loft). Although the Company plans to continue closing unprofitable locations, it is in the midst of a portfolio review process including discussions to improve the balance sheet and liquidity. It is believed that the portfolio review is focused on the potential sale of Lane Bryant and/or Catherines.
In a recent filing with the SEC, Biglari Holdings said that since 2017 Steak ‘n Shake has experienced declining sales and profitability. As of December 31, 2019, a total of 107 of 368 Steak ‘n Shake restaurants were temporarily closed. According to Biglari, Steak ‘n Shake is actively working to reopen these restaurants as counter service units. The Company noted that there are no assurances that Steak ‘n Shake will be able to restore profitability after reopening closed stores.
Coborn’s is closing its underperforming Centennial Plaza store in St. Cloud, MN when the least expires at the end of March. Coborn’s currently has seven St. Cloud metro area locations.
Authentic Brands Group (in conjunction with Simon Property Group Inc. and Brookfield Property Partners LP) announced the acquisition of substantially all of the assets of Forever 21 has closed. As we previously reported, the new owners agreed to pay $81.1 million and assume certain liabilities as part of the transaction. Authentic Brands and Simon Property Group will each own 37.5%, and Brookfield Property Partners will own 25% of the intellectual property and operating businesses. Reports also state that the new owners plan to keep most of the Company’s 448 U.S. stores open and hire a new chief executive officer in the coming weeks. The new owners plan to keep the headquarters in Los Angeles and expect to expand in Europe, South America, China, the Middle East, and Southeast Asia. Click here to request a list of Forever 21 closings.
Lululemon Athletica said that its 38 Chinese stores have been closed since February 3 due to the COVID-19 (coronavirus) outbreak in the country. Some of its stores are now operating on a reduced schedule, as the Company continues to monitor the evolving situation. The Company plans to offer updates on the Coronavirus’ financial and operational impact on its fourth quarter earnings call scheduled for late March.
Walmart and one of its logistics partners, grocery delivery company Skipcart, have reportedly ended their relationship, which started in late 2018. Skipcart notified Walmart on January 31 that the partnership would cease of April 30, but has since moved the end date to March. Skipcart has been serving about 126 Walmart stores in 32 states, mostly in smaller markets. Skipcart CEO Ben Jones said that despite the fact that his company is making about 50,000 Walmart deliveries a month, it is losing money because the grocery model does not work. Skipcart will focus on restaurant deliveries, which apparently are easier and more profitable. Walmart reportedly has reassigned those stores to other outside delivery companies. Both Deliv and Uber stopped working with Walmart in the past few years, saying “last mile” deliveries were increasingly difficult to make cost effective. Click here to request a list of future openings.
Last week, Pacific Sunwear opened a 5,000 square-foot store in Los Angeles, CA, and on March 2 it plans to open an 8,000 square-foot store in New York City, NY. Besides selling exclusive PacSun collaborations, the two stores will have a dedicated “white space” for a revolving flow of pop-up shops, workshops, performances, panels, and exhibits that brands and influencers will curate on a bi-monthly basis. Interactive video screens will search and showcase PacSun’s many collections. The Los Angeles location also features a dedicated denim room with 40 different denim styles.
Sephora has decided to not move forward with its Sephora Studio concept, a store format with a smaller assortment that focuses more on services than its traditional locations. There are currently five such locations, and those will remain open. In early February, Sephora announced a North American store expansion that includes 100 new stores this year, more than double the stores opened in 2019. Expansion plans include opening stores in more than 75 cities, focusing on “local neighborhoods and community centers,” including Charlotte, NC, Nashville, TN, and San Jose, CA. To accommodate the local focus, the Company plans to use a smaller 4,000 square-foot format for some of the stores. These new stores won’t be as small as some of the Sephora Studios locations (which were as small as 2,000 square feet), and they will not sacrifice product assortment or services offered. The Company is not giving them a separate name either; they will still be called Sephora. Click here to request a list of future openings.
Redner's Markets will open a 54,000 square-foot store in Lewes, DE in spring 2021. According to the Company, it is the third Redner’s Fresh Market store, a format the Company launched in 2017 to offer customers a more upscale, enhanced shopping environment. Redner’s Markets is employee-owned, with 44 grocery stores and 21 quick shops throughout eastern Pennsylvania, Maryland and Delaware.
Bob’s Discount Furniture opened four new stores this month, located in Florence, KY; Dayton, OH; Colerain, OH; and Rockford, IL. It also completed one relocation in Norwalk, CT. Bob’s operates 126 stores in 20 states. Click here to request a list of openings.
Earning Reports
Sprouts Farmers Market reported 4Q and FY earnings in line with expectations. Comps were up 1.5%, which, along with 27 more stores in operation, translated to 7.5% sales growth in the quarter. Full-year comps, however, were only 1.1%; the Company has been challenged driving comp gains and hinted that traffic is likely to be negative in 2020, as comps are only expected in the 0% – 1% growth range. EBITDA was up $10.0 million in the quarter due to increased sales and stable margins.
Looking ahead, Sprouts noted it is pulling back on store expansion to 20 stores for fiscal 2020, down from around 30 in prior years, and expects to reinvest cash flow back into the business as well as pay down the revolver. It has already repaid the credit facility by $50.0 million and expects another $50.0 million – $60.0 million pay-down before the end of 1Q. Management also noted several strategic changes: beyond 2020, the Company expects to accelerate growth above the historical 30 stores per year, with a smaller format that is less complicated and more profitable (similar to many of its older Southern California stores). Sprouts also noted that it plans to enter new markets with a greater concentration of new stores. The Company will also add more DCs, which will improve supply chain network effectiveness and efficiency. Click here to request a list of future openings.
Macy’s reported fourth quarter sales decreased 1.4% to $8.58 billion, and comps on an owned plus licensed basis fell 0.5%. The comp decline was primarily the result of lower international tourism and weak sales at lower tier malls. Management noted that digital sales accelerated as the quarter progressed. The lower sales and gross margin, primarily due to higher delivery expenses, pushed quarterly EBITDA down 5%. Those same factors drove fiscal 2019 EBITDA down 12.4% to $2.14 billion. EBITDA margin decreased 100 basis points to 8.5%, but remains above the department store sector average of 7.9%. Click here to request a list of future openings and closings.
The Home Depot’s fourth quarter sales decreased 2.7% to $25.78 billion, but consolidated comps were up 5.2%; U.S. comps rose 5.3%. Operating income improved 0.7% to $3.40 billion. Sales per retail square foot increased 2.8% to $425.70, and the average ticket price went up 4.1% to $68.29. CEO Craig Menear commented, “Fiscal 2019 was a record year for our business and one marked by significant progress as we invest to transform ourselves into The Home Depot of the future. We had a strong finish to the year as our fourth quarter results reflect strength in our core business, solid execution around our holiday events and the overall health of the consumer.” The Company ended the year with 2,291 stores across North America.
Loblaw Companies reported 4Q sales growth of 3.3% to C$11.59 billion. Food retail (Loblaw) same-store sales were up 1.9%. Drug store (Shoppers Drug Mart) comps rose 3.9%, with pharmacy comp growth of 6.1%, and front-store comp growth of 2.2%. The Company reported net income of C$266.0 million, compared to C$243.0 million last year. Operating income jumped 21.6% to C$690.0 million, including a positive impact of C$73.0 million primarily related to the implementation of IFRS 16 accounting change.
Subsequent to fiscal year end, the Company announced the future closure of two distribution centers in Laval and Ottawa. The Company is investing to expand its Cornwall DC to serve its food and drug retail businesses in Ontario and Quebec. Over the next two years, the DCs in Laval and Ottawa will be transferring their volumes to Cornwall.
Rent-A-Center’s fourth quarter sales increased 0.9% to $667.9 million, driven by a consolidated same store sales increase of 1.6%, partially offset by refranchising 100 locations over the last 12 months and the closures of 194 Rent-A-Center stores. Excluding the effects of refranchising, sales increased 2.4%. Rent-A-Center Business segment sales (65.7% of total sales) decreased 6% to $438.8 million, driven by the aforementioned refranchising efforts, partially offset by a 1.2% comp increase. Preferred Lease segment sales (28.7% of total sales) increased 10.8% to $191.9 million, with a 2.1% comp increase from Acceptance Now. Franchising segment sales (3.5% of total sales) more than doubled to $23.5 million from $9.5 million. Mexico segment sales (2.1% of total sales) increased 9.6% to $13.7 million, and same store sales were up 7.6%. Adjusted EBITDA rose 30.2% to $63.7 million, with a 520 basis point increase from the Rent-A-Center segment partially offset by a 460 basis point decrease from the Preferred Lease segment.
Aaron’s reported fourth quarter sales increased 1% to $1.00 billion. Progressive Leasing sales increased 6.7% to $559.5 million; invoice volume increased 34.4% driven by growth of 23.3% in invoice volume per active location and a 9% increase in active locations to approximately 22,000. Progressive Leasing had 1.07 million customers at year end, a 22.4% rise from the prior year. Sales in the Aaron’s Business unit decreased 5.4% to $435.0 million, primarily due to the net reduction of 145 stores during 2019, the expected attrition of revenue from prior year store mergers, and lower collections, partially offset by positive contributions from 152 franchised locations acquired throughout 2018. Comps were up 0.4%, an improvement from the prior year’s 0.5% decline. At year end, Aaron’s Business had 1,167 Company-operated stores and 335 franchised stores. Adjusted EBITDA rose 11.1% to $125.2 million, with Progressive Leasing generating a 17.6% increase and Aaron’s Business generating a 3.6% decrease.
The Cheesecake Factory reported 4Q revenue growth of 18.6% to $694.0 million, driven by the acquisition of North Italia and the remaining business of Fox Restaurant Concepts on October 2, 2019. Comps increased 0.6%. Net income tripled to $48.7 million, reflecting a gain on investment in unconsolidated affiliates as well as an impairment and lease termination charge.
During the quarter the Company opened three new Cheesecake Factory locations, one North Italia, and two Flower Child restaurants. In addition, three restaurants opened internationally under licensing agreements, including the first location in Macau.
Carter’s reported fourth quarter sales increased 1.3% to $1.10 billion. U.S. retail sales (56.3% of total sales) were up 2.2% to $619.9 million, and retail comps rose 1.6%. The Company opened 20 new stores and closed three underperforming locations in the U.S. during the quarter. In the wholesale segment (31.7% of total sales), U.S. sales decreased 0.7% to $348.9 million, reflecting an $8.8 million decrease in off-price channel sales, partially offset by increased demand for the Company’s exclusive Carter’s brands. International segment sales (12% of total sales) increased 2.4% to $131.7 million reflecting growth in Canada and markets outside of North America, partially offset by the change in the Company’s business model in China. Overall, gross margin declined 50 basis points to 42.5%, and adjusted EBITDA fell 2.6% to $188.0 million.
Despite reported favorable holiday trends in e-commerce and seasonal businesses, Kirkland’s sales and comps fell 3.2% and 2.7%, respectively, during its fiscal 4Q. These declines reflect weaker sales in November from increasing home furnishings competition, but sales were stronger in December and January. This is also a sequential improvement, given 3Q sales and comps dropped 6.2% and 6.4%, respectively. The Company did not open or close any stores during the quarter, ending with 432 stores. The Company had $30.0 million in cash at year-end, no debt, and has planned store closures in February and March.
For the 52 weeks ended February 1, 2020, sales and comps dropped 6.7% and 6.1%, respectively, driven by one store closing in fiscal 2019. The Company also opened five stores during the year. Click here to request a list of future openings and closings.
