March 11, 2020
Albertsons is preparing to launch an initial public offering (IPO), and the Company’s valuation was around $19.00 billion, or about 7x EBITDA. Last week, the Company filed an S-1 report with the SEC indicating it is officially planning its IPO. All shares being offered will be sold by the Selling Stockholders, which is the Cerberus-led investment group that currently controls the Company’s common stock. The number of shares and price range for the shares, which will be listed under the symbol ACI, have not yet been determined.
In a letter to prospective stockholders, CEO Vivek Sankaran said, “Since the Safeway merger in 2015, we have successfully completed the integration of our stores, supply chain and technology platforms. We have invested in capabilities allowing us to serve the customer wherever, whenever and however they choose to shop. We now benefit from one of the industry’s largest networks of First-and-Main, food retail locations with leading market shares in valuable and growing markets.” The Company has employed two automated micro fulfillment centers, which along with other revamped digital and robotic initiatives are expected to contribute towards its goal of $1.00 billion in cost savings. The Company has also been using proceeds from sale and leasebacks to reduce its debt; year-over-year debt levels were reduced $2.22 billion at the 3Q19 period ended November 30, 2019. While the Company’s operating results have been on a rebound lately, with comps up 2.1% in the first three quarters of fiscal 2019, it’s questionable whether this growth is robust enough, and the sector continues to face competitive pressures, including online growth. While the Company is growing its own omnichannel capabilities, the costs related to this initiative have been disruptive to margins. Further, the recent Covid-19 virus outbreak has shaken the equity markets in recent weeks. Click here for a sample list of openings and closings.
On March 9, J.C. Penney filed an 8K disclosing that it regularly engages in discussions with respect to potential strategic transactions to enhance its capital structure. The Company revealed that during the course of recent discussions with a creditor, it provided the creditor with certain non-public information subject to a non-disclosure agreement. J.C. Penney has decided to discontinue discussions with the creditor as the parties were unable to reach final terms, though the Company intends to engage in future discussions with respect to its capital structure, if terms are favorable to J.C. Penney. The non-public information now being disclosed concerns valuation of its real estate, some of which is securitizing its $1.55 billion term loan that matures in June 2023. The Company appraised 266 encumbered open owned stores/ground leases, six encumbered owned warehouses, and 350 unencumbered open owned stores/ground leases/operating leases. The Company has not appraised six encumbered open stores/leases, five unencumbered leased distribution centers, and 224 unencumbered open owned stores/ground leases/operating leases based on a variety of factors, namely lease term, square footage, and/or mall grade. The “lit” value (occupied stores) of the unencumbered real estate was estimated at $1.40 billion and the encumbered real estate was valued at $2.35 billion. The “dark” valuation (unoccupied stores) was $696.0 million for the unencumbered properties and $1.34 billion for the encumbered properties. Although discussions have ended for now, these valuations are promising for future discussions regarding refinancing the 2023 term loan.
In other news, last week J.C. Penney announced plans to close six underperforming locations. While the Company did not share specifics, it did say it would give more details about its real estate plans when it meets with analysts on April 7. The Company currently has about 850 stores, down about 200 units over the last five years. As we reported in last week’s issue of this publication, FY19 sales fell 7.1%, and comps were down 7.7%. For FY20, the Company expects comps to fall 3.5% – 4.5%. Click here to request a list of future closings.
On March 8, Art Van Furniture, LLC filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The proceedings have been designated as case number 20-10553. The Company retained two prominent firms to liquidate inventory in all of its stores. Going-out-of-business (GOB) sales reportedly began on March 6 at all 142 Company-owned Art Van Furniture, Art Van PureSleep, and Scott Shuptrine Interiors in Michigan, Illinois, Ohio, Indiana, Missouri, and Iowa. There are also 20 franchised Art Van Furniture locations across Michigan, which are not liquidating at this time. Company-owned Wolf Furniture (acquired in 2017) will be sold to Robert Levin, pending Court approval. Of Wolf’s 17 stores in Pennsylvania, Maryland and Virginia, eight in Maryland and Virginia will be liquidated. All liquidating stores are expected to be closed by May 31. Click here to request a list of closings.
Tops Markets is closing its Orchard Fresh store in Orchard Park, NY, ending a seven-year experiment to push into the higher-end grocery market that it had hoped to roll out across the Buffalo Niagara region and other markets. According to the Company, “Since opening the concept store in 2013, a number of initiatives and programs have been developed and tested there that are now being incorporated into our recent and future Tops store remodels.”
Sprouts Farmers Market announced it will open two new Washington stores; one in Silverdale on March 18 and the other in Seattle on April 15. The two new sites will give Sprouts four locations in the state.Click here for a list of the Company’s planned new locations.
Amazon is now offering its cashier-less technology to other retailers and has launched a new website to promote it. The technology, called “Just Walk Out,” has been used in its Amazon Go stores. Amazon says the technology takes “as little as a few weeks” to install in existing stores, and the Company can work with construction plans for new stores and remodels. Amazon is saying that it already has signed several deals with unidentified customers. As with Amazon Go stores, consumers will be able to take products off store shelves and be accurately charged after they leave the store. Customers will not need a mobile app to enter stores but rather will just use a credit card to gain entry, which will be charged when they leave. Retailers licensing the technology will do so using their own banners.
During a conference call on March 5, Modell’s Sporting Goods’ management said it has been unable to find an outside equity investor. Therefore, it announced plans to file for Chapter 11 protection. The Company said it plans to continue operations during the proceedings, and potential outcomes range from a going concern sale to a liquidation. Management also said it will continue evaluating potential investors if there is not a stalking horse bidder at the time of the filing. Click here to request a list of closings.
7-Eleven has reportedly ended its bid to acquire Speedway, LLC from Marathon Petroleum Corp. (MPC). The two companies were said to have been in exclusive talks. The $22.00 billion deal would have added roughly 4,000 convenience stores to Seven & i Holdings’ footprint in North America. Sources indicate that the negotiations broke down due to concerns over valuations and the high price of the deal. MPC began exploring a possible sale of Speedway even as it moves toward spinning off the chain into an independent company by the end of the year. Under that plan, the new Speedway will consist of all of MPC’s Company-owned and operated convenience stores. MPC continues to plan to invest $550.0 million in Speedway, primarily focusing on converting convenience stores it has acquired over the past two years to Speedway’s branding and systems.
A new 2,500 square-foot Big Y Express convenience store is currently under construction in Westfield, MA. It will include six gas pumps and an electric car charging port. The store is expected to open this summer. The Company currently operates 10 Big Y Express gas station locations and will open its 11th in Ellington, CT soon.
Lowe’s Canada’s RONA division inked a deal to sell the assets of Ace Canada to Peavey Industries, a Canadian farm, ranch, and hardware retailer. Terms of the deal were not disclosed. Lowe’s gained the Ace Canada licensing agreement when it acquired RONA in 2016, then condensed the distribution operations to share efficiencies with Lowe’s Canada. Under the new purchase agreement, RONA will assign to Peavey the license and distribution agreements between RONA and Ace Hardware International for the Ace Hardware brands in Canada. Lowe’s Canada will continue to supply lumber and building materials for the independent retailers affiliated with Peavey, which currently maintains 92 retail stores under three brands. RONA operates 386 stores in Canada, and Lowe’s Canada has 61 units; Ace Canada has 108 units.
In other news, Lowe’s reported three locations in the Nashville, TN area were damaged after a devastating tornado on March 3 that killed 25 people. All three locations have remained open to allow customers access to cleaning supplies and generators for the recovery effort. Lowe’s operates 60 units in Tennessee, including 12 in the Nashville area.
Hy-Vee will close all four of its Aisles Online fulfillment centers the week of March 23. The centers are located in Eagan, MN; Des Moines, IA; Omaha, NE; and Kansas City, MO. Operations will be transferred to Hy-Vee’s retail stores later this month. Aisles Online was launched in 2015, with the Eagan, Omaha and Kansas City centers opening last year. About a year ago, Hy-Vee dropped plans for a traditional distribution center in Austin, MN, to focus on online ordering. Hy-Vee also partners with Instacart and Shipt for grocery delivery. A growing number of retailers are opting for micro fulfillment models, which fill online orders out of existing store locations, including Albertsons, ShopRite, Loblaws, and Amazon’s new grocery store chain.
The Company has recently postponed a number of store openings, a sign that market saturation and competition could be impacting its growth opportunities. A 74,000 square-foot Spring Lake Park, MN store that was set to open this spring will now open in the fall, and new stores in Blaine, Maple Grove, Chaska, Farmington and West St. Paul are reportedly in a “no update” status.
Yum! Brands acquired Heartstyles, a company offering a leadership development program aimed at building the skills of people who drive performance for KFC, Pizza Hut, and Taco Bell restaurants globally. Financial details were not disclosed.
Meanwhile, Taco Bell is focusing on expanding its fast casual-style Cantinas format, with hopes of growing it into a $20.00 billion brand. Currently, there are 30 Cantinas across the U.S., with a recent launch in New York City and another expected to open in the fall in Times Square in Manhattan. In addition to new locations, Taco Bell plans to revamp existing locations to the Cantina design. First introduced in 2015 in Chicago, the Cantinas serve alcohol and lack a drive thru, a key feature of traditional Taco Bell locations. Taco Bell expects the Cantinas to take on different looks depending on where they are located. Click here to request a list of future openings and closings.
Target recently rolled out its strategic initiatives for 2020. Its plans include expanded offerings for its same-day pickup service at stores; Target will begin adding fresh groceries to the list of items customers can order to go from stores, as well as from its drive-up service. In 2019, Target’s Drive Up service saw sales grow by more than 500%. The Company’s Order Pickup service recorded 50% sales growth. Until now, those services were limited to household essentials and shelf-stable groceries like cereal. The new service will begin in the Twin Cities this spring and then expand to markets in Texas and Florida. The Company will add the offering to half of all Target stores by the holidays. The Company also plans to test pickup of alcoholic drinks in Florida and Oregon, also expected to be in most stores by later this year.
In 2019, Target’s small-format stores contributed more than $1.00 billion in total sales. Following the opening of its 100th small-format store last year, the Company said the format will expand with nearly three dozen new stores in 2020, marking the biggest year to date for the small-format store model. Throughout 2020, Target plans to add Drive Up to dozens of small-format stores across the country that have parking lots. Target will also begin exploring sites for stores that are approximately 6,000 square feet -- roughly half the size of its smallest small-format store -- in an attempt to reach more customers in urban neighborhoods and on college campuses. The first store lease is expected be signed in 2020, with an opening date in 2021. Target also remains on track to complete more than 1,000 store remodels nationwide by the end of 2020 (announced in 2017), with plans for about 300 remodeled stores this year. According to the Company, the average sales lift of a remodeled Target store has been in the range of 2% – 4% in year one, with an average of more than 2% in the second year. As part of its remodel program, Target will test a new front-of-store layout with fresh flower displays, a curated product assortment, and lower walls and counters in an effort to make it easier for employees to offer service to customers. The Company will also introduce a transformed electronics department in 200 stores this year, followed by 200 more stores in 2021. Additionally, in an attempt to increase the speed and efficiency of its supply chain, Target will begin scaling robotics solutions that have been in development and testing across the country to replenish inventory to hundreds of stores by this summer. In 2020, Target also intends to open new warehouses near key markets, including New York and southern California, to more efficiently replenish stores in high-volume areas. Click herefor a list of the Company’s planned new locations.
On March 5, La-Z-Boy announced its intention to acquire the business that operates six independently owned La-Z-Boy Furniture Galleries stores, with approximately $30.0 million in annual retail volume, and one warehouse in the Seattle, WA market. Terms of the deal were not disclosed. The transaction is a result of the planned retirement of independent dealers, Chris and Lisa Washko, who took over the stores in 2011. The transaction is expected to close in June and is subject to customary closing conditions. The stores will become part of La-Z-Boy’s retail segment, which is composed of 155 stores. The stores are expected to contribute about $15.0 million of additional sales.
Schnuck Markets has acquired the IGA store in Mahomet, IL. The 38,000 square-foot store will remain open as Mahomet IGA through March 29 and will reopen on April 1 under the Schnucks banner.
Yesterday, CVS Pharmacy, a subsidiary of CVS Health Corp. and Schnucks Markets announced that they have entered into an agreement for CVS Pharmacy and certain of its subsidiaries to acquire Schnucks’ retail and specialty pharmacy businesses; terms of the deal were not disclosed. Under the agreement, CVS Pharmacy and its subsidiaries will acquire and operate 99 of Schnucks’ pharmacies and will brand them as CVS Pharmacy. Additionally, CVS Pharmacy and its subsidiaries will acquire the prescription files from 11 Schnucks pharmacies and transfer them to nearby CVS Pharmacy locations. The transaction is expected to be completed by end of the second quarter of 2020 and is subject to customary closing conditions. Click here for a sample list of openings and closings.
Ahold Delhaize’s Giant Food opened a new store in Falls Church, VA, its 25th location in Fairfax County. The 69,000 square-foot store replaces a former Shoppers Food Warehouse, previously divested by Supervalu. Click here for a sample list of openings and closings.
Dollar General recently opened its first store in Wyoming located in Pine Bluffs. It now operates in 45 U.S. states. It will also enter Washington State this Spring.
Earning Reports
Last week, Kroger announced results for its fourth quarter and fiscal year ended February 1. During the quarter, Kroger’s identical store (ID) sales remained positive, as the Company posted a 2% ID sales increase, excluding fuel. Total sales rose 2.1% to $28.89 billion. Excluding fuel and business dispositions, total sales increased 2.3%. However, investments in price, continued industry-wide pricing pressure in pharmacy, and growth in the specialty pharmacy business pushed gross margin down 60 bps. Kroger recognized an impairment charge in the quarter related to the planned closing of 35 stores in fiscal 2020. Consequential to the Lucky’s Market bankruptcy proceeding, Kroger reported a non-cash charge of $174.0 million in 4Q and deconsolidated Lucky’s Market from its financial statements. Management noted that the Company’s Our Brands private label products achieved its best year ever, exceeding $23.10 billion in sales. Kroger introduced 758 new Our Brand items in 2019, which helped boost the top line. Since its launch, Kroger’s Simple Truth has become the leading natural and organic brand in the country, with annual sales exceeding $2.50 billion.
Meanwhile, on March 4, Kroger closed two 12,000 square-foot Fresh convenience stores in Columbus, OH and is discontinuing the concept initially launched in May 2017. Click here for a sample list of openings and closings.
Nordstrom’s 4Q sales increased 1.2% to $4.54 billion. Full-price sales (66.4% of total sales) increased 1% to $3.02 billion, and off-price sales (31.4% of total sales) were up 1.8% to $1.42 billion; credit card revenue (2.2% of total sales) declined 2% to $99.0 million. Digital sales grew 9% and represented 35% of total sales, up from 33% in the prior-year period. Gross margin decreased nine basis points to 35% due to higher costs from growth of the loyalty program and planned occupancy costs related to the New York City flagship store, partially offset by increased merchandise margin. EBIT declined 10.2% to $299.0 million; excluding integration charges of $32.0 million (related to Trunk Club, see below for details), EBIT margin decreased slightly compared to the prior year. Looking ahead to fiscal 2020, the Company plans to open two off-price locations this year, one in Langley, BC, Canada in the spring, and one in Tacoma, WA in the fall. Nordstrom ended the year with 110 full-line and 242 off-price U.S. locations, and six full-line and six off-price stores in Canada. Click here to request a list of future openings and closings.
During its earnings conference call, Nordstrom announced the closure of all six of its Trunk Club stores, located in Chicago, Boston, Dallas, Los Angeles, New York City, and Washington D.C. CEO Erik Nordstrom said, “Our plans include relocating clubhouse styling to nearby Nordstrom stores to reach more customers.” Trunk Club was founded in 2009 by Brian Spaly and was acquired by Nordstrom for $350.0 million in August 2014. However, Nordstrom struggled to grow the brand, and in 2016 announced a $197.0 million write-down of Trunk Club and closed its Chicago, IL fulfillment center. After business stabilized, Nordstrom announced the hiring of 175 full-time positions for Trunk Club in January 2019, expecting to generate $500.0 million in revenue by 2021. By absorbing Trunk Club into Nordstrom’s physical stores, it will complement an already well-established personal stylist service, and shopping experience.
Nordstrom also indicated that it has dismantled the organizational structure of its co-presidents, naming Erik Nordstrom as its CEO. Pete Nordstrom will remain president and take on the additional role of chief brand officer. The Company has employed the co-president management structure since 2015, with Erik, Pete, and their brother Blake, who passed away last year. Erik Nordstrom stated, “These titles help clarify our respective roles, as we strive to maximize our impact both as individual leaders and as a team.”
Casey’s 3Q sales increased 9.8% to $2.25 billion. Quarterly comps were up 3.5% for Grocery and Other Merchandise, and increased 2.8% for Prepared and Fountain; same store fuel gallons sold were down 2%. Average margin for fuel slipped to $0.217 a gallon from $0.221 a gallon last year. Casey’s commented that “an unfavorable pricing environment compared to the same period a year ago led to lower growth in fuel gross profit dollars.”
The Company has 11 stores under agreement to purchase and a new store pipeline of 88 sites, including 15 under construction as of January 31.
Looking ahead at fiscal 2020, Casey’s expects same store sales growth of 2.5% – 4% for Grocery and Other Merchandise, 1.5% – 4% for Prepared Food and Fountain, and (1%) – 0.5% for fuel. It has plans to acquire 20 stores and build 60 new locations. Click here for a list of the Company’s planned new locations.
Abercrombie & Fitch’s 4Q sales increased 2.5% to $1.18 billion, and comps were up 1%. By brand, Hollister sales (60% of total sales) slipped 0.3% to $710.5 million, and comps were down 2%; Abercrombie sales (40% of total sales) decreased 7% to $474.0 million, but its comps increased 8%. U.S. sales (68.7% of total sales) were up 5%, but international sales (31.3%) were down 2%. Gross margin was down 90 basis points to 58.2%, and as a result, operating income fell 5.7% to $122.3 million. During FY19, Hollister opened 19 new stores and closed 15 underperforming locations, and Abercrombie opened 21 new units and closed 32 underperforming locations, ending the year with 546 Hollister stores and 308 Abercrombie units.
Ross Stores’ 4Q sales rose 7.4% to $4.41 billion, and comps grew 4% on top of a 4% increase last year. Management commented that the comp increase was primarily driven by higher traffic. The greater sales and leveraged expenses outpaced a slight decrease in gross margin due to higher shipping costs and lifted quarterly EBITDA 9.1% to $683.1 million. Those same factors pushed FY19 EBITDA 5.3% higher to $2.50 billion. FY19 EBITDA margin fell 20 basis points, but TTM EBITDA margin of 15.6% remains one of the highest in the sector and well above our monitored industry average of 7.9%. Looking ahead, management stated it expects to open 100 new stores during FY20, consisting of 75 Ross stores and 25 dd’s DISCOUNT’S locations. In addition, it anticipates closing or relocating approximately 10 older locations. For the latest list of future openings, please click here.
Dollar Tree reported 4Q sales growth of 1.8% to $6.32 billion. Enterprise same-store sales increased 0.4%, up 1.4% at its Dollar Tree segment and down 0.8% at its Family Dollar segment, its first decline in six quarters. Operating income was $249.4 million compared to an operating loss of $2.15 billion last year. During 4Q19 the Company incurred a number of “discrete charges”, including a goodwill impairment charge of $313.0 million, a $24.6 million reduction in tax expense for the reversal of a valuation allowance related to the Company’s foreign net operating loss carry forwards, an $18.0 million charge related to the litigation reserve, and a $300,000 acceleration in financing costs associated with a debt repayment. Excluding the “discrete charges” from the fourth quarters of both years, adjusted operating income was $580.4 million, down from $632.6 million last year. Gross margin fell 50 bps driven by tariffs, partially offset by improved freight costs.
During the quarter, the Company opened 112 new stores, expanded or relocated 17 stores, and closed 95 stores. Additionally, the Company opened 10 Dollar Tree stores that were re-bannered from Family Dollar and completed five renovations to the Family Dollar H2 format. Dollar Tree CEO Gary Philbin commented that the support teams for both retailers are now working in one location with consolidated leadership, which will drive greater efficiency.
Looking ahead at fiscal 2020, which includes an impact of $47.0 million related to tariffs and $15.0 million related to the new clean fuel regulations for ocean shipping, Dollar Tree estimates sales of $24.21 billion – $24.66 billion, comp growth in the low single-digits, and 3.1% selling square footage growth plus 1,250 Family Dollar H2 renovations.
Costco reported 2Q revenue growth of 10.4% to $39.07 billion. Comps, excluding gas and foreign exchange, increased 7.9%, consisting of growth of 8.1% in the U.S., 6.8% in Canada, and 7.1% in Other International. E-commerce sales rose 28%. The Thanksgiving holiday shift (one week later this year) positively impacted comps by 0.5%, and e-commerce sales by 11 bps. Net income was up 4.7% to $931.0 million.
The Company also reported March sales growth of 13.8% to $12.20 billion, benefiting from an uptick in consumer demand, which it attributes to concerns over the Coronavirus. The Company estimates the positive impact on total and comp sales to be 3%. Comps increased 11.7%, consisting of 11.6% growth in the U.S., 10.4% in Canada, and 13.5% in Other International. E-commerce sales rose 22.7%. Click here for a sample list of openings and closings.
Ascena Retail Group’s 2Q20 sales decreased 4.3% to $1.22 billion, and comps declined 2%; by segment, comps were up 7% at Plus Fashion (26.2% of total sales), flat at Premium (51.3% of total sales), and declined 15% at Justice (22.5% of total sales). Management commented that the steep comp decline at Justice was due to merchandising mistakes, which it is in the process of correcting. The Dressbarn wind-down was completed in February and is reported as a discontinued operation.
The lower sales outpaced gross margin expansion primarily due to fewer markdowns at Plus and Premium, and as a result, quarterly EBITDA fell 6.7% to $37.6 million. During the quarter, the Company closed 55 locations, including 27 Lane Bryant and 14 Catherines locations. However, management commented that it is not in any active conversations regarding its brand review, indicating the Company remains committed to the Plus Fashion segment.
Chuy’s reported 4Q sales growth of 5.4% to $102.0 million and comps up 2.9%, consisting of a 3.9% increase in average check and a 1% decrease in average weekly customers. The Company reported a net loss of $1.4 million, compared to income of $3.4 million in the prior-year period, impacted by impairment, closed restaurant costs, and legal settlement charges of $6.1 million. Full-year sales and comps were up 7.1% and 2.6%, respectively. Management is committed to modest store growth, with five to seven new stores expected in 2020, following six new openings in 2019. The Company expects 2% – 3% comp growth in fiscal 2020.
Dick’s Sporting Goods reported 4Q sales increased 4.7% to $2.61 billion, and comps were up 5.3%. E-commerce sales increased 15% and represented 25% of total sales, up from 23% last year. The Company is in the process of removing the hunting department from 440 Dick’s Sporting Goods stores this year, and as a result recorded pre-tax charges of $48.8 million during the quarter. Gross margin improved 70 basis points to 28.6%, and EBITDA rose 5.3% to $229.1 million. The Company closed seven DICK’S Sporting Goods stores and one Golf Galaxy store, ending with 726 Dick’s Sporting Goods stores in 47 states, 94 Golf Galaxy stores in 32 states, and 27 Field & Stream stores in 16 states. Click here for a sample list of openings and closings.
Cato’s February sales decreased 3% to $57.3 million, and comps were down 3%. CEO John Cato stated, “February same store sales were below our expectations.” The Company opened 15 stores, relocated one existing store, and closed two underperforming locations during the month, ending with 1,294 units in 31 states. Click here for a sample list of openings and closings.
J.Jill 4Q sales of $168.1 million were down 1.6%, driven in part by a 2.8% decrease in comps. In addition to the top-line decline, gross margin contracted 360 basis points due to an increase in promotional activity to clear slower-moving merchandise. Overall, adjusted 4Q EBITDA was down about 36% to $11.8 million, with EBITDA margin eroding 380 bps to 7%. Declining profitability led to a deterioration in leverage metrics, as evidenced by a 3.6x total debt to TTM EBITDA, up from 2.3x in the prior-year period. The Company opened one store and closed four existing locations in 4Q, ending the year with 287 locations.
Looking forward, management expects 1Q20 comps to decline 3% – 5%, with FY20 comps to also be down 3% – 5%. FY20 sales are expected to decline 2% – 4%, and gross margin is expected to expand about 200 basis points. The Company plans on opening six new stores and closing six underperforming locations in FY20, ending the year unchanged at 287 locations.
American Eagle Outfitters’ 4Q sales increased 5.7% to $1.31 billion, and comps were up 2%, marking the 20th consecutive quarter of positive comps. By brand, American Eagle’s comps decreased 3%, while Aerie’s comps were up 26%. Gross margin declined 360 basis points to 31% due to higher markdowns. Operating income plummeted to $476,000 from $101.4 million, as the Company incurred $65.0 million of pre-tax non-cash impairment charges related to 20 stores, and $11.0 million in charges related to severance and other costs. The Company ended the year with 1,095 U.S. stores, after opening 64 stores (27 American Eagle and 37 Aerie), and closing 25 underperforming locations (21 American Eagle and four Aerie). Click here to request a list of future openings.
PriceSmart’s February net merchandise sales increased 11.7% to $255.5 million, favorably impacted by the extra day from leap year. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by $1.6 million or 0.6%. Comps increased 1%. For the year-to-date period, sales increased 5.3% to $1.65 billion, and comps rose 0.7%. The Company added four new warehouse clubs since last year, bringing its store count to 45.
Christopher & Banks reported 4Q sales increased 4.5% to $88.1 million, and comps were up 3.6%. Gross margin rose 290 basis points due primarily to reduced occupancy costs as well as merchandise margin improvement. SG&A margin improved 220 basis points to 34%, due to lower expenses and leverage on higher sales. Adjusted EBITDA loss narrowed to $3.0 million from $7.0 million last year. The Company ended the year with 447 stores operating in 44 states, down from 455 locations last year. The Company expects to close 10 stores in fiscal 2020 and open five to 10 new stores.
Urban Outfitters’ 4Q sales increased 3.6% to $1.17 billion, and comps were up 4%, driven by growth in e-commerce sales, partially offset by negative store comps. By brand, comps increased 9% at Free People (18.4% of total sales), 6% at Anthropologie (42%), and were flat at Urban Outfitters (38.5% of total sales).
Retail segment sales (93% of total sales) increased 4%, while wholesale segment sales decreased 10% due to a 12% decrease at Free People. Gross margin decreased 446 basis points, driven by higher retail segment markdowns due to underperforming products at Urban Outfitters and Anthropologie. As a result, operating income fell 66.2% to $38.6 million. During the fiscal year, the Company opened 26 new stores (10 Free People, nine Anthropologie, and seven Urban Outfitters) and closed 12 underperforming locations (one Free People, five Anthropologie, four Urban Outfitters, and two food and beverage restaurants).
