February 5, 2020
Yesterday, 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, while exiting 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 also reshuffled mid-level management, including promoting John Harper to COO, formerly Chief Stores Officer. The store closures and cost cutting highlight the strength of competition, 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 listed above, aims to cut $1.50 billion in annual costs by 2022, while increasing the Company's competitiveness through digital growth, curated fashion, the expansion of off-price, and the upgrade of several locations. The Company plans to upgrade an additional 100 stores in 2020, continue expanding its off-price offerings, and 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 to $490.0 million, with most of the expense recorded in fiscal 2019.
In other news, on February 6, Macy’s will open what it calls a “flexible retail store format” at Southlake Town Square mall in Southlake, TX. The 20,000 square-foot store is named “Market by Macy’s” and will host “community-driven programming from cooking tutorials and book signings to crafting and fitness classes.” The location will debut two new exclusive brands, Getchell’s Apothecary, a beauty shop, and Herald, a food and beverage concept. Click here to request a sample list of future openings and closings.
Following earlier reports that Earth Fare hired restructuring professionals and began closing its stores, yesterday Earth Fare, Inc. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.
On Monday, Earth Fare, Inc. announced it had begun the process of closings all of its 52 stores after being unable to refinance its debt. Though the Company has generally been in growth mode over the last few years, we estimated at the time that Earth Fare could be facing significant operational headwinds due to competitive trends in the natural grocery space, particularly due to mainstream grocery stores increasing their natural and organic offering, as well as Amazon increasing the competitiveness of Whole Foods. Earth Fare noted "Over the course of the past few years, the Company has implemented numerous strategic initiatives aimed at growth and expansion and enhancing the customer experience. While many of these initiatives improved the business, continued challenges in the retail industry impeded the company's progress as well as its ability to refinance its debt. As a result, Earth Fare is not in a financial position to continue to operate on a go-forward basis. As such, we have made the difficult, but necessary decision to commence inventory liquidation sales while we continue to engage in a process to find potential suitors for our stores." Click here for a list of store closings.
On January 31, Stein Mart announced it entered into a definitive merger agreement under which an affiliate of Kingswood Capital Management will acquire all of the outstanding common stock of Stein Mart not already beneficially owned by affiliates of Jay Stein, Stein Mart’s former CEO and current chairman, and related investors, for $0.90 per share in cash (approximately $29.0 million). Upon closing, Stein Mart will become a privately held company, and Stein Mart common stock will no longer be listed or traded on any public stock market. The purchase price represents a premium of approximately 38% to Stein Mart’s closing stock price on January 30, the last trading day prior to this announcement. The transaction was unanimously approved by Stein Mart’s board (other than Mr. Stein), acting on the recommendation of a Special Committee of independent directors that conducted a comprehensive strategic review. The transaction will be financed with debt provided by Wells Fargo Bank and Pathlight Capital LP and by equity provided by affiliates of Kingswood. As part of the transaction, an entity managed by Jay Stein will contribute its equity and, following the closing of the merger, will indirectly own one-third of Stein Mart. The transaction, which is expected to close in the first half of calendar 2020, is subject to approval by Stein Mart shareholders, and the satisfaction of other customary closing conditions.
Stein Mart has been struggling to gain top-line traction and generated only$30.6 million in TTM EBITDA.
The Children’s Place announced it is relaunching the Gymboree brand later this month. The brand will be available on a new website and in shop-in-shop locations in more than 200 Children’s Place stores across North America. Gymboree filed Chapter 11 in January 2019 and subsequently closed all of its stores; in March 2019, The Children’s Place paid $76.0 million to acquire the rights associated with the Gymboree brand and its value-oriented Crazy 8 brand.
On January 29, H.E. Butt opened a 95,000 square-foot store in Houston, TX. The new store replaces a nearby unit that closed after enduring significant damage from floods following Hurricane Harvey.
Saks Fifth Avenue closed its 16,000 square-foot men’s store at Brookfield Place in lower Manhattan, NY. Parent Hudson’s Bay Co. announced plans to retain the space and said it is in the process of developing plans for its future use, which it expects to announce in the coming months. The shuttering of the men’s store comes about a year after Saks closed its 86,000 square-foot women’s store at the same mall.
On January 29, Lucky’s Market Parent Company, LLC announced that it entered into an asset purchase agreement with a group led by founders Bo and Trish Sharon for the seven locations that will continue to operate. The stores are in Traverse City, MI; Cleveland and Columbus, OH; Columbia, MO; Melbourne, FL; and North Boulder and Fort Collins, CO. Terms of the agreement were not disclosed and are subject to Court approval and an overbidding process.
On January 31, the Debtor entered into a Stalking Horse Asset Purchase Agreement with Publix to sell five Florida-based Lucky’s stores for about $11.5 million. On February 3, it entered into three more Stalking Horse Asset Purchase Agreements for additional stores: With ALDI, Inc. to sell four leased stores, a leased undeveloped outparcel, and one owned store, all in Florida, for about $7.8 million; With Seabra Foods XIV, Inc. to sell one leased Florida based Lucky’s store in Orlando, FL for about $1.3 million; and with LM Acquisition Co. LLC to sell eight leased stores in five states, a leased undeveloped outparcel, and a parking lot as well as certain contracts, permits, trademarks, software, goodwill, and customer and end-user data for about $3.7 million.
Kohl’s is building two new stores in the Dallas-Fort Worth, TX market that are slated to open this fall. The locations in Prosper and Grand Prairie are each 55,000 square feet, much smaller than a typical Kohl’s store, which averages 88,000 square feet. The Company operates 1,159 stores nationwide.
Dick’s Sporting Goods announced plans to open two namesake locations and one Golf Galaxy at the end of this month. The Company is opening adjacent Dick’s and Golf Galaxy locations in Birmingham, AL and a standalone Dick’s in Tyler, TX. Following the openings, there will be 727 Dick’s stores and 95 Golf Galaxy stores in 47 states. Click here to request a list of future openings and closings.
Krispy Kreme will open six new shops in New York City this year and reopened its refurbished Penn Station shop on January 30. Krispy Kreme doughnuts can be found in approximately 12,000 grocery, convenience and mass merchant stores in the U.S. The Company has about 1,400 retail shops in 33 countries. Stater Bros. has begun incorporating Krispy Kreme kiosks at its stores throughout the Inland Empire of southern California. Click here to request a list of future store openings.
Ascena Retail Group is selling its 195,000 square-foot headquarters in Mahwah, NJ, and has hired a commercial real estate firm, Binswanger, to conduct tours of the facility. If Ascena completes a sale of the facility, it may relocate its headquarters to another area in New Jersey, or it may move into the headquarters previously used by Ann Inc., which it acquired in 2015. Reports say the lease for Ann’s 300,000 square-foot headquarters at 7 Times Square in Manhattan, NY was renewed in 2017, and it has been undergoing extensive renovations. Ascena also owns office space in Columbus, OH, where its Lane Bryant and Catherine’s brands are located.
Yesterday, Noodles & Company announced that it refranchised nine restaurants in Charlotte, SC and Orlando, FL to existing franchisee River City Restaurant Group (RCRG). Following the transaction, RCRG now operates 17 Noodles & Company restaurants and has plans to develop 22 new units between 2021 and 2032. As of the end of 3Q19, 67 of the Company’s 458 restaurants were franchised, representing a 14.6% franchised rate. For fiscal 2020, Noodles & Company expects to open 10 – 15 new restaurants system-wide. Starting in fiscal 2021, expansion is expected to increase to between 5% – 7% unit growth per year, largely driven by franchisees.
At its New York City flagship and online, Nordstrom launched “See You Tomorrow,” an apparel resale shop designed by Olivia Kim, VP of creative projects. The assortment includes women’s apparel, shoes and handbags, men’s apparel, accessories and shoes, children’s wear, and jewelry and watches. The shop is stocked in part with cleaned, repaired, and refurbished items from the Nordstrom Quality Center, which processes returned and damaged merchandise from the Company’s full-price stores. Customers can also exchange their own used clothing for gift cards. On January 30, Nordstrom appointed Michael Maher to the position of chief accounting officer. Previously, Mr. Maher served as SVP of finance, since May 2017. Click here to request a list of future openings and closings.
Wakefern’s Price Rite Marketplace banner has implemented its new format in five stores in Massachusetts under a 16-month-old rebranding program. Store redesigns include new décor and a more vibrant color palette, a farmer’s market-style produce department, LED lighting, improved signage, and new self-service checkouts. A new area called the Drop Zone showcases hot deals that include products typically priced at $5 or less. The upgraded Massachusetts locations followed rebrands at five Maryland stores launched in November. During 2019, it rolled out rebrands at 35 locations in Connecticut, Pennsylvania, Massachusetts, New Hampshire, New York and Maryland. Plans call for updates to more stores in Massachusetts, New York and Rhode Island early this year. Currently, Price Rite Marketplace has 64 stores.
On February 3, Forever 21 filed an executed Stalking Horse Purchase Agreement for the sale of substantially all of its assets under section 363 of the Bankruptcy Code to SPARC Group F21, LLC, a consortium of Simon Property Group Inc., Brookfield Property Partners LP, and Authentic Brands Group, for $81.1 million. Concurrent with the execution, the buyers deposited $13.5 million with an escrow agent. Included in the transaction is intellectual property related to Riley Rose (a beauty store) and other brands, as well as the Company’s e-commerce platforms. Excluded assets include warehouses in Los Angeles and Vernon, CA, which are subject to separate previously executed sale agreements. The Stalking Horse Purchase Agreement provides for a breakup fee of $4.6 million. The deadline for competing bids is February 7, an auction, if necessary, is scheduled for February 10, and a hearing to approve the sale is scheduled for February 11.
Captain D’s announced plans to open 25 additional locations during 2020, including its first restaurants in Michigan and Utah. Looking ahead, it is continuing to focus its efforts on corporate and franchise development in target markets throughout the South and Midwest, including Central/Southern Florida, Texas, and Wisconsin. During 2019, Captain D’s opened 15 new locations and signed eight franchise development agreements. Currently, Captain D’s has more than 530 restaurants in 22 states.
On January 7, BSN Sports, a division of Varsity Brands, acquired the team sports business of Wayne Sporting Goods, based in Wayne, PA. Financial terms of the deal were not disclosed. As part of the transaction, owner Steve Galczenski joined BSN Sports along with his support team. The Galczenski family closed the single retail store in downtown Wayne, PA.
Last week, the second Walmart Health Center opened in a remodeled Supercenter in Calhoun, GA. Located at one of the front entrances, the health center offers affordable primary and urgent care, labs, x-ray and diagnostics, counseling, dental, optical and hearing services via partnerships with several providers. The concept debuted last September in Dallas, GA.
Walmart will report fourth quarter earnings on February 18. The Company does not disclose interim numbers for the holiday shopping period, so this will be the first look at how good a season it was.
In other news, the Company reported it is laying off personnel at its Allswell brand. This is of note because Allswell is Walmart’s first native digital brand. Allswell is an online mattress and bedding retailer, competing in a very crowded field and, apparently, “all is not well” at the digital banner. ROC
Earning Reports
Amazon announced results for its fourth quarter and fiscal year ended December 31. The Company ended the year on a strong note, with total 4Q sales rising 20.8%, driven by robust growth in both the retail and AWS businesses. Unlike many of the other retailers that have reported, Amazon’s holiday sales were positive and not impacted by the six fewer days in the selling season. The move to one-day shipping increased total shipping costs 40% from last year; however, the ongoing strength in AWS lifted adjusted operating margin, which rose 52 basis points, well above consensus estimates. The Company generated FCF of over $25.00 billion for the year.
Looking ahead at the first quarter, Amazon expects sales to rise 16% – 22% from last year and anticipates operating income of $3.00 billion – $4.20 billion. The Company will continue its investments in its one-day delivery service (expected to cost about $1.00 billion in Q1).
Meanwhile, Amazon is still expanding its brick-and-mortar presence with the planned opening of 10 Amazon 4-star stores in 2020, according to a listing on its website. Amazon debuted the 4-Star concept in fall 2018 and has since opened nine locations. The 4-star stores carry items from some of the most popular categories on Amazon.com, including devices, consumer electronics, kitchen, home, toys, books and games. Everything in the store is rated four stars and above, is a top seller, or is new and trending on Amazon.com. Upcoming locations include two each in New Jersey and California, and one each in Arizona, Connecticut, Florida, Georgia, Michigan and Texas (click here to request a list of future openings).
Amazon opened a new 48,000 square-foot office for Alexa tech teams located in downtown Santa Barbara, CA, and will double its workforce in the city with an additional 150 jobs.
Tractor Supply Company’s fourth quarter sales increased 2.7% to $2.19 billion, and comps were up 0.1%, on top of 5.7% comp growth in the prior-year period. Comparable average ticket increased 1.8%, but comparable transaction count decreased 1.7%. The Company cited strength in the consumable, usable and edible categories led to comp growth during the quarter. This was partially offset by weakness in cold weather seasonal and holiday discretionary categories. Gross margin rose 26 basis points to 33.8% due primarily to a reduction in freight expense as a percentage of sales. As a result, operating income rose 5.6% to $190.4 million. The Company opened 30 new Tractor Supply stores and five new Petsense stores during the quarter, and closed one underperforming Petsense location. At the end of 2019, Tractor Supply operated 1,844 stores and 180 Petsense locations. Click here to request a list of future openings.
Starbucks’ first quarter sales rose 7.6% to $5.78 billion. Global comps were up 5%, led by 6% comp growth in the U.S. and 3% comp growth in China. Operating income was up 20% to $275.9 million. The Company opened 539 net new stores in the first quarter, bringing its store count to 31,795, a 6% increase over the prior year. As mentioned above, in response to the coronavirus outbreak, the Company has temporarily closed more than half of its stores in China, representing over 2,000 locations. The Company did not provide an estimate for the negative impact on sales, but it is expected to be material for the second quarter and full year.
Starbucks is now offering its Starbucks Delivers on-demand delivery service to 49 markets in 29 U.S. states. The Company is adding metro areas including Austin, Baltimore, Charleston, Cleveland, Detroit, Las Vegas, Pittsburgh, Memphis, Nashville, New Orleans, Portland, Raleigh-Durham, San Antonio, and Tampa-St. Petersburg. Starbucks plans to expand delivery to nearly all U.S. states in the coming months. The Company launched Starbucks Delivers as a pilot in conjunction with Uber Eats in late 2018. The delivery service is available via the Uber Eats mobile app. Starbucks has also developed packaging to help ensure the quality of hot and cold menu items.
H&M reported that fiscal 2019 fourth quarter sales increased 9%, to SEK61.69 billion, and were up 5% in constant currencies. For the full year, the Company’s sales increased 11% in SEK and 6% in constant currencies. The sales growth was driven by both in-store and online sales, with a 24% increase in online sales in SEK and 18% in constant currencies. Profit after financial items increased 24% to SEK5.40 billion in the fourth quarter, and 11% to SEK17.39 billion for the year. For 2020, the Company plans to open about 200 new stores and close 175. Most of the new stores will open in South America, Asia (excluding China), Russia, and Eastern Europe, while the closures will mainly be in Europe, the U.S., and China. Click here to request a list of future openings and closings.
