January 11, 2023
In a January 5 announcement, Bed, Bath & Beyond indicated that “there is substantial doubt about the Company's ability to continue as a going concern.” It further indicated it is evaluating strategic alternatives, “including restructuring or refinancing its debt, seeking additional debt or equity capital, reducing or delaying the Company's business activities and strategic initiatives, or selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code. These measures may not be successful.” Recent reports suggest a filing may occur within weeks though discussion could go into February. It is unlikely they can last that long with limited new product coming in. After four extensions, the Company not surprisingly also terminated its previously commenced exchange offer for a total of $1.18 billion in three sets of unsecured Senior Notes.
Yesterday, Bed, Bath & Beyond reported results for its 3Q22 ended November 26, 2022, which included a net sales decline of 33% to $1.26 billion from $1.88 billion, primarily reflecting a comparable sales decline of 32%. By banner, comps decreased 34% at Bed Bath & Beyond and declined in the low-twenties at BABY. By channel, comps declined 31% in Stores and 33% in Digital. The Company indicated that sales performance was driven by lower in-stock position of approximately 70% and a decrease in customer traffic. During 3Q22, the Company closed six Bed Bath & Beyond stores though it indicated it remains on track to complete approximately 150 closures by the end of FY22. The Company has paused its new store and remodel programs for the remainder of FY22, which is expected to reduce its FY22 planned capital expenditures by approximately $150 million from a prior expectation of approximately $400 million.
As of November 26, 2022, the Company had a total of 949 stores, including 762 Bed Bath & Beyond stores, 137 buybuy BABY stores and 50 stores under the names Harmon, Harmon Face Values or Face Values.
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Recent public reports suggest Party City is preparing to file for bankruptcy within weeks. The Company has now engaged AlixPartners LLP as a restructuring adviser as it is believed to be in discussions with its bondholders to convert debt into equity to trim the approximately $1.70 billion of debt on the balance sheet. The process would reportedly also include some store closures. Bondholders have been working with law firm Davis Polk & Wardwell LLP as well as financial adviser Lazard Ltd. The Company may be looking at its unsustainable debt levels and dwindling liquidity and buckling under the wave of upcoming debt and interest payments, especially the $32.8 million interest payment on the Senior Notes due February 15 as well as other payments coming due in early February. The stock has also been tanking with a market cap of just $27 million at this point.
Amazon entered into a new $8 billion, unsecured 364-day term loan. Amazon has leveraged various financing options to support its cash flow needs given the uncertain macroeconomic environment, which has included slowing retail sales and lower profit expectations for the fourth quarter. Amazon also announced layoffs impacting 18,000 workers, about 5% of its corporate workforce. These layoffs are likely indicative of the pullback expected as Amazon has already started trimming back products and services including its Scout neighborhood delivery robots, its Amazon Care primary healthcare business, and some of its small format stores.
Burlington Stores signed a lease for a new 30,000 square-foot store at the Springfield Town Center in Fairfax County, VA outside of Washington D.C. The location is expected to open later this year. The shopping center now has an occupancy rate of greater than 95%, with anchor tenants including Target, JCPenney, Macy’s, Dick’s Sporting Goods and Regal Cinemas. According to our most recent REI data, there were nearly 270,000 unique visitors to Springfield Town Center in November 2022. View the map below for more visitor information.
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As expected, Walgreens reported lower 1Q23 operating earnings, reflecting COVID headwinds (declining vaccinations and testing), higher losses/investments in the new U.S. Healthcare segment, and increased labor investments. The bottom line was also weighed down by a $5.20 billion after-tax opioid settlement. 1Q23 U.S. comps grew 3.8%, including increases of 4.8% at pharmacy and 1.4% in the front-end. This month U.S. Healthcare completed its acquisition of Summit Health, which led management to raise its sales outlook for the segment and Company. Excluding COVID headwinds and currency changes, WBA projects FY23 core business growth of 8% to 10% with growth weighted towards 2H23 as COVID headwinds are projected to fade. U.S. Retail Pharmacy performance is also expected to benefit from scripts recovery, improved reimbursement trends net of procurement, lower shrink, and stronger front-end performance. As it continues to scale its value-based care delivery, the U.S. Healthcare segment ended the calendar year with 393 VillageMD locations (200 co-located), 112 Health Corners, completed the acquisition of Shields in December, expects to close the CareCentrix acquisition in 3Q23, and is targeting ending FY23 with positive EBITDA. Management said it is considering further M&A, but smaller and more targeted deals, not likely to top $1 billion.
SpartanNash announced the expansion of its wholesale network with the acquisition of Great Lakes Foods, an independent grocery wholesaler, including its 300,000-square-foot distribution center in Menominee, Mich. Terms were not disclosed. The warehouse serves approximately 100 independent grocery customers and employs 125 Associates. The acquisition represents about a 3% expansion of SpartanNash’s distribution network. The business integration will occur throughout 2023.
Focus Brands has development deals to open more than 50 dual and tri-branded locations this year, and many will include drive-thrus. The Company owns Auntie Anne’s, Carvel, Cinnabon, Jamba, McAlister’s Deli, Moe’s Southwest Grill, and Schlotzky’s and currently has 175-plus dual branded units open and another 65 in various stages of development across the U.S. Based on research, Focus Brands announced four types of pairings: Cinnabon Swirl (Cinnabon and Carvel) which is scheduled to open later this year; Auntie Anne's/Cinnabon; Auntie Anne's/Cinnabon/Carvel; and Auntie Anne's/Jamba. The Company said that the combined pairings allow for more menu options which drives higher unit-level volume and provides new opportunities for franchisees.
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Five Below announced sales results for the holiday period from October 30, 2022 through January 7, 2023. Holiday sales increased 11.2% to just over $1 billion and comps increased 0.9%. As a result of the strong holiday season, Five Below anticipates that both 4Q22 and full year results will come in towards the high end of its previous guidance. Management had projected 4Q22 sales to be up 9% to 11%, with comps ranging from -1% to 1%. For the full year, Five Below anticipated a sales increase of 6% to 7%, but comps declining 2% to 3%. CEO Joel Anderson commented, “Given this holiday performance, we now expect to finish the fourth quarter and full year near the high end of our previously provided guidance ranges. We are entering fiscal year 2023 with momentum and excited to be executing our Triple-Double strategy, including opening 200+ stores for the first time in our history and converting over 400 stores to the new Five Beyond format.”
On January 6, Macy’s announced that it expects the Company's 4Q22 sales to come in at the lower end of its previously announced forecast. CEO Jeff Genette commented, “Black Friday/Cyber Monday sales were in line with our expectations, while the week leading up to and following Christmas were ahead. However, the lulls of the nonpeak holiday weeks were deeper than anticipated.” The Company had previously forecasted 4Q sales of $8.16 billion – $8.40 billion, or a 3% to 6% decline from 4Q21. Management also indicated that it expects consumers to remain pressured this year, particularly in 1H23, a factor management took into account when planning inventories this year. On January 4, the Company also announced it will be closing four Macy's stores located in California, Colorado, Hawaii and Maryland.
Meanwhile, Bloomingdale’s will open its third Bloomie’s location at University Village in Seattle, WA later this year. The Company debuted the Bloomie’s concept in 2021 with a 22,000 square-foot store in Fairfax, VA. A second location, 51,000 square feet, opened in October 2022 in Skokie, IL. The locations provide a selection of top brands in a broad range of categories including apparel, accessories, beauty, gifts, etc., and are significantly smaller than the traditional Bloomingdale’s store, which ranges in size from 150,000 to 200,000 square feet. Bloomingdale’s operates 34 full-line stores and 20 Outlet locations.
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Boot Barn announced preliminary results for 3Q23 ended December 24, 2022. The Company expects to report sales increased 5.9% to $514.6 million, while same store sales declined 3.6%, cycling 54.2% growth in the prior-year period. Retail comps were down 0.8% and e-commerce sales fell 15.2%. Merchandise margin declined 190 bps, driven primarily by a 180 bps headwind from higher freight expense. EPS is projected to be $1.74, down from $2.27 last year. The Company opened 12 new stores during the quarter, and 33 stores year-to-date, bringing its total store count to 333. Full results are due in late January.
Like most of the sector, Fitness International, LLC (LA Fitness) has been challenged since the start of the pandemic but is now seeing solid improvements. FY22 sales were estimated to be about 90% of pre-pandemic levels but management expects to be above pre-pandemic in FY23 driven by continued membership recovery. Balance sheet metrics are still elevated with debt-to-EBITDA at about 5x but is expected to improve to 4x in FY23. Additionally, as of March 31, 2022, the Company had ample liquidity including $359 million in cash and $362 million revolver availability, with the revolver not due until January 2025. The Company launched its Esporta Fitness banner in 2019 to better compete with HVLP gyms and subsequently converted many LA Fitness Facilities to this format; however, lately it has been converting several of its Esporta locations back to LA Fitness gyms, including all locations on Long Island, NY.
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According to reports, Cineworld, DIP plans to close more theaters, although details were not provided. Approximately 23 units have been closed since the bankruptcy filing in September 2022, which is approximately 5% of the base prior to the petition date. The Debtors state that there are currently 478 units in operation.
The number of restaurants per capita is at its lowest point in 25 years according to Mitsubishi UFJ Financial Group, despite population growth of 23% between 1998 and 2022. There were nearly 650,000 restaurants in the U.S. at the end of 2022, down 2% from the prior year and continuing a trend of declines in recent years. In addition, Mitsubishi does not expect developments to increase significantly in the near future as construction costs and building supply remain constrained. Sales over the last year have risen primarily due to higher menu prices and stable foot traffic, but signs are showing that foot traffic may be slowing as customers reevaluate their spending patterns in reaction to the significant hike in cost of living.
In November 2022, the National Restaurant Association released its Restaurant Performance Index (RPI), which showed that the RPI declined for the first time in four months, as restaurant operators reported softer comps and customer traffic trends. The adjacent chart shows the monthly RPI fluctuations since 2003.
Denny’s reported preliminary results for its 4Q and FY ended December 28, 2022. Denny’s 4Q domestic system-wide same-restaurant sales grew 2%, including a 1.7% increase at franchised locations and a 6% increase at Company-owned units. FY22 comps were up 6.3% (6% franchise and 10.4% Company-owned). During 2022 the Company opened 30 restaurants, including eight international, and closed 66 underperforming locations, bringing its total year-end restaurant count to 1,656; 49 remodels were completed (11 Company-owned and 38 franchised).
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Red Robin announced it is evaluating a sale-leaseback transaction related to up to 35 owned properties. The Company has engaged CBRE Group to lead the process and anticipates the proceeds will be used to repay debt, fund capital investments, and repurchase shares of company stock, subject to the terms of the Company's credit agreement and approval by the board of directors. Red Robin expects the evaluation process to be complete in 1Q23 and if pursued, a transaction to be finalized in the first or second quarter of 2023.
Gap listed its 162,000 square-foot office space at 1 Harrison St. in San Francisco, CA for lease or sale; the building currently houses Athleta. This comes after Old Navy shuttered its Mission Bay-area headquarters (also in San Francisco) last year and consolidated its employeesinto the office building at 1 Harrison St. Since then, Gap conducted layoffs in San Francisco, New York, and across Asia, due to rising operating costs that have been cutting into profitability.
Following purchasing four companies last year, Beacon began 2023 announcing that it has acquired Mobile, ALbased First Coastal Exteriors, LLC. First Coastal Exteriors distributes complementary residential and commercial building products including siding, gutter products, and windows from its locations in Mobile, AL and Pearl, MS. Beacon operates over 470 branches throughout all 50 states in the U.S. and 6 provinces in Canada and is planning to expand its footprint as part of its Ambition 2025 initiative.
Chicken Salad Chick, an Auburn, AL-based fast-casual restaurant chain, is planning to add 25 units over the course of 2023. Founded in 2008, the Company, which sells signature sandwiches as well as salads, sides and soups, now has 225 locations across 17 states primarily in the southeast and midwest. This week it is opening its first Chicago-area outlet in Batavia, IL. Additionally, Chicken Salad Chick has signed two development deals for Colorado, bringing six locations to Denver and three locations to Colorado Springs. The first of the six locations for Denver is slated to open in Summer 2023, and all six are expected to be completed within the next five years.
Detroit Wing Company opened its first location outside of Michigan, with a new 1,200 square-foot takeout and delivery-only shop in the Cleveland, OH area. Founded in 2015, the Eastpointe, MI-based Company’s stores offer 20 types of sauces for its classic wings, boneless wings and chicken tenders. There are now 26 locations in operation and three more are in development.
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After completing its 2022 delivery expansion plans, Walmart announced that it now operates, with its vendors, 36 drone delivery hubs across seven states: Arizona, Arkansas, Florida, North Carolina, Texas, Utah and Virginia. Over the past year, the Company has completed more than 6,000 drone deliveries to customers in as little as 30 minutes. The top five items delivered via drone from Walmart were, in order, Great Value Cookies and Cream Ice Cream 16 oz, 2lb Bag of Lemons, Freshness Guaranteed Hot Rotisserie Chicken, Red Bull 8.4 fl. oz, and Bounty Select-a-Size Paper Towels. Walmart management said that the Company has the largest drone delivery footprint of any U.S. retailer and it looks forward to further expansion in 2023.
The below retailers recently released their earnings reports. To request more information on these companies, or to discuss the financial performance with a retail industry expert, please click here.
