January 15, 2020
Macy’s reported holiday comps fell 0.7% on an owned basis and 0.6% on an owned plus licensed basis. Sales trends improved from the third quarter, when comps declined 3.5%. Comps increased 1.1% during the 2018 holiday period. Published reports stated that Macy’s is expected to close at least 19 stores in early 2020 (click here to request a list). The Company refused to comment and said it would provide details of its 2020 real estate plans at its investor conference on February 5.
Last week, Bass Pro Shops closed its Cabela’s location in Fort Oglethorpe, GA, in an effort to consolidate its brands. The location opened in 2015, and a Bass Pro Shop store opened in nearby East Ridge, TN in 2016. The two stores, based in the Chattanooga metro area, were just 2.4 miles apart from each other. In a statement, Bass Pro said, “By bringing these brands together, we can better serve our customers with greater product assortment, value and local expertise in a single location. We are currently updating the Chattanooga store at Jordan Crossing with expanded product offerings from Cabela’s and new exterior and interior signage that celebrates Cabela’s, Bass Pro Shops, and TRACKER. Once completed later this year, the remodeled store will celebrate a grand reopening with special deals and offers.” Click here to request a list of future openings.
Ahold Delhaize’s Giant Food Stores announced plans to invest $114.0 million in Pennsylvania over the next 18 months. Plans call for the creation of a 124,000 square-foot Giant Direct e-commerce fulfillment center, the opening of two new stores in Harrisburg (52,000 square feet) and Pocono Summit (66,000 square feet), and remodeling 35 stores in 2020 and 2021.
Hy-Vee plans to open its fifth Wahlburgers, a 5,300 square-foot restaurant in Milwaukee, WI, by January 21. It will be Hy-Vee’s second in the state, following a 6,000 square-foot Wahlburgers that opened on September 24 in Brookfield. In 2017, Hy-Vee announced plans to build, own and operate 26 Wahlburgers restaurants. Wahlburgers currently operates 29 restaurants in 18 U.S. states, two in Canada, and one each in the U.K. and Germany.
On January 10, Wawa opened a new 3,000 square-foot prototype store, which is half the size of a standard Wawa convenience store, in Philadelphia, PA. The store features a pick-up window for mobile orders and online ordering. It also introduces a new line of “Good to Go” expanded hot and cold express items. Click here to request a list of future openings.
Fry’s Electronics has quietly closed its Duluth, GA store, leaving it with one other unit in Georgia, in Milton. This follows the recent closing of the Company’s Palo Alto, CA location. The two closings bring the store count down to 32 units from 34. We previously reported on bare shelves at many of the Company’s stores during the holiday season, as well as management’s statement that it plans to continue business operations.
Ikea’s retail real estate arm, Ingka Centres, purchased Kings Mall Shopping Centre in London, U.K., for $220.0 million and plans to open a smaller-format Ikea there. Last year, Ikea announced plans to open smaller format locations in city centers in 30 major cities in Europe, Russia, Asia, North America and Oceania. Most will be placed in mixed-use community destinations that could include retail and entertainment, as well as health care and educational facilities. Last April, the Company opened its first American city center location in New York’s Upper East Side and announced plans to roll out more than a dozen small-format stores nationwide. While the Company did not specify store size, the locations will be significantly smaller than its traditional 300,000 square-foot locations. Ingka Centres operates 45 malls and shopping centers in Europe, Russia, and China, and plans to grow to 70 locations by 2025. Click here to request a list of future openings.
Walmart unveiled its Alphabot robotic automation technology, designed to help fulfill grocery pickup-up orders within its stores. The Company has been testing the platform at one of its Supercenters in Salem, NH since the middle of last year. The new system is located in a 20,000 square-foot extension connected to the Salem store and will serve as a dedicated grocery pickup point with drive-thru lanes for customers. Click here for a list of the Company’s planned new locations.
On January 6, Town Sports International Holdings (TSI) announced that it entered into an agreement to acquire the studio business of Flywheel Sports for an undisclosed price. Established in 2010, Flywheel operates 29 boutique locations throughout the U.S. and is known for competitive indoor cycling and other workouts such as “FlyBarre” and “FlyFIT.” The transaction is expected to enhance TSI’s revenue potential, as the Company plans to offer packaged membership options for access to Flywheel’s boutique facilities; more than half of these facilities are within two miles of a TSI location. Flywheel’s current owner, Kennedy Lewis Investment Management, has agreed to provide seller financing of $25.0 million via a second lien loan, and up to $25.0 million of additional second lien debt, to help TSI refinance its existing term loan due November 15, 2020. The deal is expected to close in the first quarter of 2020.
TSI recently reported disappointing third quarter results, as comparable club revenues declined 2.9%, after a 1.5% gain in the prior-year period. As of September 30, 2019, 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.
A rebranding at four Safeway Community Market locations in California, known as Andronico’s until 2016, the year Albertsons purchased them, is reviving the Andronico’s name. The stores include two in Berkeley, one in San Anselmo and one in Los Altos. A fifth location in San Francisco that opened last January retained part of the original name – Andronico’s Community Market. The rebranding will include reinstating specialty foods that were typical of Andronico’s offerings, with private-label Safeway items and bargain items being sold off to make room for them.
Amazon plans to open another distribution center in Nashville, TN, its 10th in the region. The Company is looking to build a 130,000 square-foot facility on a 40-acre property, which it is under contract to purchase. Pending government approval, the facility could be operational by September.
In other news, Amazon is reportedly planning to give more data on counterfeit goods to law enforcement in a further crackdown on fakes listed on its websites. The move comes as Amazon faces public scrutiny over how it polices counterfeits and allegedly unsafe products on its platform.
The Competition Commission of India (CCI) ordered an investigation into alleged competition law violations by Amazon and Walmart’s Flipkart, the latest setback for those companies operating in the country. The CCI said it was ordering a wider probe following a review of allegations that Amazon and Flipkart were promoting some “preferred sellers” and, in turn, hurting business of other, smaller sellers.
Meanwhile, Walmart India has cut 56 executive jobs, as it restructures in the country. It has been struggling to expand its wholesale business and adhere to new rules for foreign-owned retailers.
Southeastern Grocers will open a 28,100 square-foot Winn-Dixie store in Jacksonville, FL on February 12, less than two months after the previous tenant Publix Supermarkets closed on December 28.
Fiesta Restaurant Group announced that it will close 19 underperforming Taco Cabana restaurants in Texas, effective immediately. These restaurants represent 11.5% of the entire Taco Cabana banner, which consisted of 165 restaurants as of September 29. For the year ended December 29, the 19 restaurants generated $24.5 million in sales but had an operating loss of $4.2 million. Management expects to record asset impairment charges of approximately $7.0 million to $8.0 million and lease impairment charges of $1.0 million to $3.0 million in the fourth quarter of fiscal 2019.
According to a WARN notice, Amazon’s Whole Foods will close a gluten-free baking facility in Morrisville, NC on March 8, impacting 102 employees.
Domino’s began construction on a new 59,000 square-foot supply chain center in Katy, TX that will produce fresh pizza dough and serve as a warehouse and distribution center for more than 300 Domino’s stores in South Texas and parts of Louisiana. Click here to request a list of future openings.
CVS Health CEO Larry Merlo commented that after debuting the new HealthHUB format in the Greater Houston, TX market last year, it expand the format to 50 locations in four markets by the end of 2019. The Company now plans to expand the format to about 600 stores by the end of 2020 with a trajectory to 1,500 stores by the end of 2021. The format features a broader range of health care services to help patients better manage chronic conditions, and more products and services focused on overall health and wellness.
On January 8, Smart & Final opened a new store in Los Angeles, CA. The 31,000 square-foot store features expanded organic and produce offerings and online delivery.
Earning Reports
Bed Bath & Beyond’s third quarter sales declined 9% to $2.76 billion, driven by an 8.3% drop in comps and a net reduction of 10 stores. The Company noted during its earnings conference call that comp sales performance was negatively impacted by the later Thanksgiving holiday and the shift of certain holidays into the fourth quarter. From a channel perspective, comp sales in physical stores declined in the high single-digit percentage range while comp sales from customer-facing digital channels declined mid-single digits, with the bulk of the pressure stemming from fewer transactions. The Company’s margins also remained pressured, with adjusted gross margin sliding 80 basis points, driven by increased promotions. Reported SG&A margin rose 230 basis points on sales deleverage of fixed costs, advertising, and technology costs. As a result, EBITDA fell 20.7% to $161.0 million, and EBITDA margin was down 90 basis points to 5.8%.
Following the release of 3Q19 results, the Company suspended its full-year guidance, as new CEO Mark Tritton evaluates the business and develops a go-forward strategy. The Company will have an investor event in the spring, at which time it will provide updated guidance. In reaction to news of the guidance suspension and third quarter earnings miss, the Company’s stock price has fallen 11% to $15.00 (yesterday’s closing price). During the third quarter, the Company closed 14 stores across all concepts and has updated its full-year store closure guidance. The Company now expects to close 40 stores in fiscal 2019, including 20 Bed Bath & Beyond stores, down from 60 total closures, of which 40 would have been Bed Bath stores. The Company is delaying these closures until mid-fiscal 2020, as it uses these locations to facilitate clearance and sell-through merchandise associated with the inventory reduction initiative. The Company remains on track to open 10 stores, including two Bed Bath locations in fiscal 2019. Click here to request a list of future openings and closings.
Last week Albertsons posted its eighth consecutive quarter of positive comps during the third quarter. However, EBITDA growth stalled due to increased investments in digital initiatives and higher rent costs following recent sale leasebacks, which allowed the Company to deleverage. The balance sheet is now in decent shape; at third quarter end, year-over-year debt level was cut more than $2.20 billion to $8.75 billion, with debt to EBITDA now at 3.1x. Management said on the earnings call that with the lower debt levels, its investor group led by Cerberus has some “flexibility” to pursue various exit options, including the long anticipated IPO.
Reports surfaced on Monday that management is preparing to go public and will decide whether it will launch an IPO in the coming weeks. A valuation of around $19.00 billion, or about 7x EBITDA, is being reported (assuming the $19.00 billion includes debt).
The investor group led by Cerberus has held a position in Albertsons since it first acquired about 650 of its stores in 2006. The chain then shrank to under 200 stores, before acquiring about 900 former related banners from Supervalu in 2013, and then merging with Safeway in 2015. The Company previously announced plans to raise up to $1.60 billion in an IPO, but then in late 2015 canceled those plans as the market for grocery stocks faltered.
In other news, Albertsons will close five underperforming Randalls stores in the Houston, TX area by February 15. Liquidation sales will begin tomorrow. A Randalls representative commented, “In such a competitive environment, our company must sometimes make tough decisions to close underperforming stores so that we can reinvest in our remaining stores in the marketplace.” Click here to request a list of future openings and closings.
Costco’s December sales increased 10.5% to $17.04 billion. Comps, excluding gas and foreign exchange, rose 7.8%, consisting of growth of 8.4% in the U.S., 6% in Canada, and 5.9% in Other International. E-commerce sales, which still only account for about 4% of revenue, increased 42.6%. E-commerce sales in December were positively impacted by an estimated 20%, due to Thanksgiving/Black Friday/Cyber Monday occurring a week later this year versus last year. Total and comparable sales were positively impacted by approximately 1%. Click here to request a list of future openings.
Urban Outfitters reported holiday sales increased 2.9%, and retail comps rose 3%, driven by growth in online sales, partially offset by negative store comps. By brand, comps increased 8% at Free People and 5% at Anthropologie but were down 1% at Urban Outfitters. While Free People’s performance was driven by strong, full-price sales, Anthropologie and Urban Outfitters increased promotional activity in apparel, which the Company expects will put more pressure on fourth quarter gross margin than originally expected. For the 11 months ended December 31, 2019, total sales increased 0.5%, and retail comps were up 1%. The Company opened 25 new stores during the year-to-date period, including 10 Free People stores, nine Anthropologie locations, and six Urban Outfitters units. It also closed seven underperforming locations (three Anthropologie, one Free People, one Urban Outfitters, and two restaurants).
Cato’s December sales decreased 1.7% to $85.0 million, and comps were flat. For the 11 months ended January 4, sales were down 1% to $771.8 million, and comps were up 2%. CEO John Cato stated, “December same store sales were below our current trend.” The Company closed 21 stores in December, but is in the process of opening stores under its Versona banner. Click here to request a sample list of recent and future openings/closings.
PriceSmart reported first quarter revenues increased 4.1% to $811.9 million, with net merchandise sales up 4.2%. Currency exchange impacted sales negatively by $12.2 million or 1.6%. Comparable net merchandise sales increased 1%, with currency exchange negatively impacting comps by 1.5%. Operating income was $30.7 million, up from $24.7 million in the prior year, and net income jumped 35% to $19.7 million.
PriceSmart’s December net merchandise sales increased 4.3% to $362.1 million. Currency exchange negatively impacted sales by $1.1 million or 0.3%. Comps fell 0.1% and were negatively impacted by $1.0 million due to currency exchange.
The Company opened four new warehouse clubs over the past year, bringing its store count to 45.
Denny’s Corporation reported preliminary results for its fourth quarter and fiscal year ended December 25. Fourth quarter domestic system-wide same-store sales increased 1.7%, including a 0.5% increase at Company restaurants and a 1.8% increase at domestic franchised restaurants. Fiscal year domestic system-wide same-store sales grew 2%, including 1.9% growth at Company restaurants and 2% growth at domestic franchised restaurants.
In 2019, Denny’s opened 30 restaurants, including 14 international units, and closed 36 restaurants, bringing the total restaurant count to 1,703. The Company also completed 144 remodels during fiscal 2019, including three at Company-owned restaurants. Additionally in 2019, Denny’s sold 105 Company-owned restaurants to franchisees to substantially complete the refranchising strategy.
Based on preliminary results, Denny’s is reiterating its fiscal 2019 guidance expectations for adjusted EBITDA of $93.0 million –$96.0 million.
Reitmans’ (Canada) December sales increased 2.5%, reflecting a net reduction of 35 stores, and comps (including e-commerce) were up 6.4%. Sales for the nine weeks ended January 4 increased 1.2%, and comps were up 4.4%. The Company closed one underperforming store, ending with 586 stores in operation (260 Reitmans, 112 Penningtons, 78 Addition Elle, 81 RW & Co and 55 Thyme Maternity), down from 621 stores last year.
Walmex reported that comps in Mexico rose 2.6%, while total sales in the country rose 4.1%. The Company said that last year it launched its biggest expansion in Mexico since 2013, opening 134 new stores and boosting its presence by nearly 5%. Walmart now operates 3,407 stores in Mexico, where it has more locations than in any other country outside the U.S. Nearly all the new units belong to the Bodega Aurrera family of stores, including the small, no-frills Bodega Express, which is cheaper and quicker to build than Walmart’s bigger formats. In Central America, Walmart opened 27 stores in 2019.
Walgreens Boots Alliance reported results for its first quarter ended November 30 that fell short of expectations, driven by weaker U.S. script volume, ongoing pharmacy reimbursement rate pressures, and continued soft trading conditions in the U.K. However, the Company maintained full-year guidance of roughly flat EPS for fiscal 2020 and remains confident their strategic plans are the right ones to drive long-term sustainable growth. Walgreens shares have dropped more than 8% in value since the disappointing earnings release, which failed to provide any color on speculation the Company may be taken private in a massive LBO.
The Buckle’s December sales increased 4.7% to $143.9 million, and comps were up 5%. Due to the later Thanksgiving holiday, Cyber Monday shifted from fiscal November in 2018 to fiscal December in 2019. The increase in online sales for the fiscal month due to this shift positively impacted both total and comparable store sales. Excluding online sales, brick and mortar comps increased 1.9%. For the 48-week period ended January 4, sales increased 1.6% to $853.0 million, and comps were up 2%. The Company currently operates 448 retail stores in 42 states, down from 452 stores in 43 states a year ago.
