March 9, 2022
Amazon announced plans to close all 68 of its physical book stores, pop-up shops and 4-star stores in the U.S. and U.K. The Company continues to invest in other concepts like Amazon Fresh, which it has grown to 23 stores; Whole Foods, which is currently operating around 540 stores; and its recently announced fashion store in greater Los Angeles. Though Amazon did not elaborate on the decision, these stores, representing less than 300,000 square feet of retail presence, are insignificant to Amazon’s broader retail business and apparently were not worth the resources necessary to manage the channel. Click here to request a list of future closings.
In other news, Amazon workers at a second facility in Staten Island, NY will vote on a union. The National Labor Relations Board has told labor representatives they have demonstrated enough support among employees to hold an election on whether or not to unionize. Organizers had already won the right to hold a vote at a different facility in Staten Island, scheduled for between March 25 and 30. To move forward with an election, union organizers typically have to prove they have gained signatures from at least 30% of workers at a facility.
Meanwhile, 24 Amazon investors are urging the Company to step up transparency in tax disclosures and adopt a new reporting standard. Asset managers Nordea, Royal London and several large European and U.S. pension funds are among those pushing for Amazon to issue a transparency report in line with the Global Reporting Initiative (GRI) tax standard. Amazon’s current extensive tax disclosures are in line with U.S. generally accepted accounting principles (GAAP).
Lastly, the FTC is approaching a mid-March deadline for making a decision on whether to approve Amazon’s purchase of movie studio MGM for $8.50 billion. Amazon certified that it has “substantially complied” with the FTC’s document requests, an action that started the clock for the FTC to make a decision about whether to file a legal challenge to the merger. The acquisition was first announced last May.
BJ’s Wholesale showed healthy sales growth during 4Q, up 10% but only posted a 0.9% comp increase (excluding fuel), indicating the growth was mostly new store driven. Still, the Company modestly outperformed 4Q19. Membership revenue continued its upward trend, rising about 10%, with member count expanding 3%, demonstrating that new customers are opting for higher-tier memberships. Digital sales expanded but not at the same torrid pace as during the pandemic, gaining 19% for the quarter and 22% for the year. BJ’s also announced preliminary expansion plans for FY22, with four new clubs slated for New York, Florida, Michigan, and Rhode Island. FY22 guidance included: Comps up low single-digits, sales up in the mid-single-digit range, membership revenue to continue growing in the mid-single-digit range, merchandise gross margin flat year over year though fuel margins are expected to increase due to current conditions, and capex of about $350 million.
Meanwhile, BJ’s announced the “first wave” of new clubs for this year, and its first BJ’s Market. The clubs will be located in Lady Lake, FL; Canton, MI; and Greenburgh, NY. The BJ’s Market, in Warwick, RI, will serve as an innovation lab to test new assortments, displays, product demonstrations and convenience initiatives.
Grupo Comercial Chedraui is in integration mode after closing on its acquisition of Smart & Final from Apollo Global Management in July 2021; Smart & Final now operates as a division of Bodega Latina, the Company’s U.S. subsidiary, along with the El Super and Fiesta Mart chains. In late December 2021, Bodega Latina announced a name change to Chedraui USA to more closely align it with Grupo Comercial Chedraui. Altogether, Bodega now has 377 locations across California, Nevada, Arizona, New Mexico and Texas. Our report takes a closer look at the Company’s operational and competitive status, including market position, real estate and sales trends, and provides visual competitive analyses as well as key real estate metrics like store count, average sales per square foot, and the new Real Estate Intelligence analytics solution. Click here to request this report.
Dollar Tree finished FY21 on a mixed note, as sales improved almost 5%, and comps expanded 2.5%; however, margins deteriorated. The Company did manage to outperform 4Q19 when sales and comps were up 2% and 0.4%, respectively. Dollar Tree is feeling the effects of supply chain disruptions and inflation, as it relies heavily on imported goods.
In September 2021, the Company announced plans to introduce a $1.25 price point to offset the operational headwinds and completed the rollout in February, ahead of schedule. The new pricing strategy has allowed Dollar Tree to reintroduce key traffic driving products that had been discontinued due to the constraints of the $1.00 pricing. So far, customers appear to have accepted the change. The Company will also continue the expansion of its $3 and $5 assortment to an additional 1,500 Dollar Tree stores in FY22. Recently, about 400 stores were closed due to their receipt of goods recalled from one of its DCs in Arkansas that was cited by the FDA in February 2022 for unsanitary conditions. Our analysts estimate the closure of the 400 stores will lead to about $52 million per month in lost revenue. Dollar Tree projects 1Q22 sales will improve 2.3% to 4.6%, with comps to rise low single-digits. For the full year, sales are projected to be $27.22 billion to $27.85 billion, up about 4% to 6%, with comps up low to mid-single digits. Dollar Tree plans to open 590 new stores, consisting of 190 Dollar Tree stores and 400 Family Dollar stores. About 350 of the Family Dollar stores will be combination stores. The Company will renovate about 800 Family Dollar stores. Capex for FY22 is budgeted at about $1.30 billion.
In a conversation with our analysts, management at Barnes & Noble stated that the Company currently operates 602 stores, with its larger stores averaging just under 26,000 square feet; approximately 10% are smaller units averaging 8,000 square feet. Management believes that the optimal store size is 18,000 square feet. Average sales per square foot is about one third higher in the smaller units. The Company continues to open some large stores in situations where volume and affordability are appropriate. Approximately 16% of the units are in malls. In 2022, the Company plans to open 35 new stores; it has historically closed 10 to 15 stores annually, reflecting a net annual growth rate of 3% to 4%. Management continues to explore store-opening opportunities in suburban markets. Sales currently exceed pre-pandemic levels; for the last two years, revenue has increased in the very high single to low double-digit level. Based on proprietary AggData data, foot traffic at the Company’s stores has been trending up in 2021 compared to 2019 and was significantly up over 2020, which was negatively impacted by lockdowns. Separately, Amazon’s plans to close all 24 of its physical bookstores in the U.S. is unlikely to have a major impact on Barnes & Noble’s business. The volume generated from Amazon’s physical locations is relatively insignificant compared to its online book business, which is a more consequential competitive threat to Barnes & Noble.
Wendy’s plans to open 150 to 200 REEF ghost kitchen locations in 2022, up from its current count of 30 Reef vessels in the U.S., U.K. and Canada. By contrast, the Company opened about 200 total new stores in 2021. According to Wendy’s, this expansion is part of a broader focus on nontraditional store formats, which will make up about 50% of the Company’s new unit development this year. Last summer, Wendy’s committed to opening 700 ghost kitchen units with REEF by the end of 2025.
Saladworks, part of the WOWorks family of brands, is opening 20 new ghost kitchen locations through its partnership with Combo Kitchen. Scheduled to begin operations by March 25, Saladworks menu items will soon be available for delivery across Central Florida through Combo Kitchen’s agreement with the Florida-based restaurant chain, WingHouse Bar & Grill, and its numerous locations throughout the state. The partnership allows Saladworks to extend its menu offerings into new markets with minimal costs, and experiment and test before investing in costs associated with real estate, development, and staffing. In the past year alone, Saladworks has grown by more than 42 restaurant locations, entering new markets such as Michigan and Nevada. Roughly 79% of these openings mark nontraditional presences such as ghost kitchens, food trucks, grocery retail, airports, hospitals and universities.
In 4Q21 Kroger posted a 4% ID sales increase, excluding fuel; on a two-year stacked basis, ID sales jumped 14.6%. Total sales (including fuel) advanced 7.5% to $33.05 billion; excluding fuel, sales growth was limited to 3.7%. Digital sales continue their retreat from pandemic-aided highs, down 13% but still up 105% on a two-year stack. Company-provided operating income was up 21%, with operating margin rising more than 40 bps. For the full year, ID sales were up 0.2%, excluding fuel; on a two-year stacked basis, ID sales increased 14.3%. Total sales (including fuel) were up 4.1% to $137.89 billion; excluding fuel, sales were up 3.7%. Digital sales were up 113% on a two-year stack. With regard to e-commerce, during 4Q21, the Company opened a Customer Fulfillment Center (CFC) built by Ocado in Forest Park, GA and a cross-dock spoke facility in the Indianapolis area; announced CFCs in development in the Cleveland area and North Carolina; and announced a cross-dock spoke facility in Oklahoma City, OK.
The Company also recently announced it will open a 270,000 square-foot CFC in Ohio (its second in the state), capable of serving customers in Pennsylvania, where Kroger currently has no brick-and mortar presence.
Finally, the Company plans to offer delivery through the addition of spoke facilities in Austin and San Antonio, TX, and Birmingham, AL. The new facilities are new geographies for the Company. Both the 70,000 square-foot northeastern Austin, TX facility and 67,000 square-foot northeast San Antonio, TX facility will collaborate with the hub in Dallas, TX. The 50,000 square-foot Birmingham, AL spoke facility will collaborate with the hub in Forest Park, GA (Atlanta). All three facilities are expected to become operational later this year.
On March 3, Petco announced an agreement to purchase Thrive Pet Healthcare’s 50% stake in the parties’ pet hospital joint venture, which was originally started in May 2017. The joint venture currently operates nearly 100 full-service veterinary hospitals in Petco stores across 14 U.S. states. These hospitals have become a focal point for Petco to retain foot traffic during the rise of e-commerce; most likely, Petco anticipates opening more of these vet hospitals in the near future and wanted more control of the process. Upon closing, the hospitals will be rebranded as Petco’s Vetco Total Care hospital. The transaction is expected to close in 2Q22, subject to customary conditions.
Earlier today, Petco reported results for its 4Q21 ended January 29. The Company’s performance trend remained positive in 4Q as revenue increased 13% and comps increased 14%; two-year stacked comps were up 30%. Digital revenue increased 25% and was up 143% on a two-year stack. Services and Vet revenue, the two primary growth focuses of the Company, were up 22% and 37% on a two-year stack, respectively.
Albertsons announced last week it hired Goldman Sachs and Credit Suisse to begin a review of “potential strategic alternatives aimed at enhancing Albertsons’ growth and maximizing shareholder value.” With details sparse, management said the review would include an “assessment of various balance sheet optimization and capital return strategies, potential strategic or financial transactions and development of other strategic initiatives to complement Albertsons’ existing businesses.” Management also said it will be “responding to inquiries,” indicating it would consider offers to buy the Company. While we believe a strategic acquisition by a competitor like Kroger or Ahold Delhaize would be difficult to clear regulatory hurdles, a sale of individual banners or a monetization of the Company’s large real estate holdings is possible. Any investments could be used to pay a dividend or accelerate the Company’s digital, logistics or store remodel investments. However, an equity distribution could be under consideration.
Dollar General announced plans to create 10,000 net new career opportunities in FY22. The plans include expected new stores, distribution centers and private fleet growth. The new jobs represent an estimated 6% overall increase to its current workforce. Dollar General recently announced the planned addition of 1,110 new store openings, including approximately 100 new pOpshelf store openings. The Company also plans to add new traditional and DG Fresh distribution centers and further expand its DG Private Fleet network.
In other news, Dollar General recently opened its first store in Idaho located in Athol. The Company now has a presence in 47 U.S. states.
Bashas opened a newly remodeled and remerchandised supermarket in Kingman, AZ. The store features new amenities and expanded offerings including new self-checkout stations, new seating areas, a specialty grab-n-go sandwich case, and a wider produce assortment.
Burlington Stores’ 4Q21 sales increased 14% and comps rose 6% compared to 4Q19. Gross margin contracted 230 bps compared to 4Q19, as higher shipping costs outpaced lower markdowns. The greater sales offset the gross margin decline and lifted quarterly EBITDA 10% to $307 million (EBITDA was still down 12% compared to 4Q19). The Company also expects to open 120 new stores and relocate or close 30 stores (this compares to a net 79 store openings in FY21).
Fabletics plans to open 30 new stores this year, which will bring its count to 100 by year end. The Company opened 21 stores over the past two years. Also, in July 2021, Fabletics entered the resale market in collaboration with online resale platform ThredUp.
Big 5’s sales totaled $273.4 million during 4Q21 (13 weeks) compared to $290.6 million in 4Q20 (14 weeks), a 6% decrease. Same store sales increased 0.2% in 4Q21 and were up 10.6% compared to 4Q19. The Company opened one new store during the year, ending the period with 431 units.
Brookshire Grocery recently opened its new FRESH store in Fate, TX, a 66,000 square-foot location that includes an outdoor dining patio and children’s playground. It is the second store under the banner, with the first opened in Tyler, TX in 2011.
Chico’s reported 4Q21 sales growth of 29%, with comps up 29.2%, following a 24.9% comp decline in the prior-year period. The top line was still 6% lower than pre-pandemic 4Q19. By banner, Soma reported 9.5% comp growth (up 26.2% compared to 4Q19), White House Black Market reported 45.6% comp growth (down 6.5% compared to 4Q19), and Chico’s reported 33.2% comp growth (down 12.3% compared to 4Q19). During the year, the Company closed 36 locations, including 13 closures in 4Q.
Urban Outfitters reported record 4Q22 consolidated sales of $1.33 billion, up 22% year over year and 14% from pre-pandemic 4Q20. Retail comps were up 14%, mainly driven by double-digit growth in digital channel sales, partly offset by a low double-digit decline in brick-and-mortar sales on reduced store traffic. By banner, comps were up 3% at Urban Outfitters, 14% at Anthropologie, and 49% at Free People, compared to 4Q20. For the year, the Company opened 56 stores and closed 18 retail locations, ending FY22 with 682 locations.
On March 6, Ryan Cohen and RC Ventures LLC delivered a letter to the board of Bed Bath & Beyond encouraging it to adjust its strategy and explore alternative paths to value creation. Mr. Cohen is the co-founder of Chewy, chairman of GameStop, and owns a 9.8% stake in Bed, Bath & Beyond through RC Ventures LLC. He was critical of the Company and management’s performance over time, expressing his belief that the Company should narrow its focus to fortify operations and maintain the right inventory mix to meet demand, while simultaneously exploring strategic alternatives that include selling or spinning off the buybuy Baby (Baby) banner and/or selling the entire Company, potentially to a “well-capitalized financial sponsor.”
Victoria’s Secret’s 4Q21 net sales increased 4% to $2.18 billion, slightly above the Company’s previous guidance in the range of flat to up 3%. Comparable sales increased 1%. During FY21, there were seven store openings and 41 closures, bringing the total Company-operated store count to 899. By region, there were 808 stores in the U.S., 26 in Canada, and 65 in China.
Friendly’s Restaurants is launching a new fast-casual concept called Friendly’s Café. The first location opened in Westfield, MA on February 26 and includes signature offerings from Friendly’s menu served for both dine-in and off-premise guests. The 2,700 square-foot restaurant includes seating for 45 customers, as well as dedicated space for curbside pickup. Friendly’s entry into a new restaurant category comes about a year and a half after parent FIC Restaurants filed for Chapter 11 bankruptcy protection for the second time since 2011.
Grocery Outlet reported mixed 4Q results. Sales decreased 3%, mainly due to lapping the extra week in the prior year; though on a comparable 13-week basis, comps still decreased 1.2% (up 6.7% on a two-year stack basis). EBITDA also decreased 7.5%.
Looking forward, in FY22 the Company is expecting to deliver comp gains of between 4% and 5%, and EBITDA of between $210 million and $217 million (between 6% and 9% increase over FY21), while opening 28 new stores.
Weis Markets’ 4Q sales increased 8% to $1.10 billion, driven by comp growth of 6.9% over last year and 21% on a two-year stacked basis. Operating income was up 12.7% to $30.4 million. In FY21, the Company increased its capex program, reinvesting more than $150 million in its growth by opening four new/relocated stores and eight fuel centers, completing 13 remodels, and executing more than a thousand retail store improvement projects.
During 4Q21, Majors Management LLC and its affiliates took ownership of 69 convenience stores from Alimentation Couche Tarde’s Circle K chain. The stores are located in Alabama, Florida, Louisiana, North Carolina, South Carolina and Virginia. The acquisition extends Majors’ geography into Virginia and expands its footprint in the other southeastern states. Thirty-four of the sites will convert to franchised Kangaroo Express locations. In March 2021, Couche-Tard tapped NRC Realty & Capital Advisors to coordinate and manage the sale of 269 sites across 25 U.S. states and 37 sites across six provinces in Canada.
In its latest deal, Couche-Tard sold 25 Circle K, Kangaroo Express, or Flash Food branded sites in Georgia, South Carolina and Tennessee to AS Capital LLC, a new company established by the principals of Gas Express LLC and Synergy Capital Investments. Earlier this year, the Company said that roughly a dozen Louisiana c-stores — in Baton Rouge, Hammond, Lafayette, Monroe, Shreveport and Slidell — carrying the Circle K banner will transition to franchised Kangaroo Express units over the coming months.
Meanwhile, Alimentation Couche-Tard has suspended its operations in Russia, effective immediately. It operates in Russia under its primary brand, Circle K, employing more than 320 people. It has 38 stores located in St. Petersburg, Murmansk and Pskov.
Wegmans plans to open its first Connecticut location with a new store in Norwalk, which will bring the chain into its ninth state. The two-level supermarket will be 95,000 square feet. An opening date has not been set.
Wegmans also plans to open an 84,000 square-foot store in Washington, D.C. this summer and its first Manhattan store (second in NYC) in 2H23. Wegmans is slated to open two other new stores in 2022, an 81,300 square-foot location in Alexandria, VA this spring, and a 110,000 square-foot store just outside Wilmington, DE (a new state for Wegmans) in 2H22. The Company entered North Carolina, its seventh state, with the fall 2019 opening of a 104,000 square-foot supermarket in Raleigh.
Walmart has announced what it calls “the next phase” of integration of its store and online operations - Market Fulfillment Centers (MFC) that the retailer says “are poised to serve as automated fulfillment centers that are located within a Walmart store.” An MFC’s inventory is separate from the store’s own inventory.
Ross Stores’ 4Q21 revenue rose 18% and 14% compared to 4Q20 and 4Q19, respectively. Comps increased 9% compared to 3Q19.
Looking forward, the Company expects 1Q22 comps to be down 2% to 4%, compared to a 13% increase in the prior-year period. FY22 comps are expected to be flat to up 3%, with EPS expected to be between $4.71 and $5.12, compared to $4.87 in FY21. Over the long term, the Company believes it can expand to about 3,600 locations, from the 1,923 in operation as of the end of FY21.
Xponential Fitness’ 4Q21 revenue increased 78%, and North America system-wide sales were up 76%, driven by 53% comp growth, compared to a 35% decline in the prior-year period. Overall, EBITDA totaled $8.6 million, up from $3.3 million in 4Q20. As of December 31, 2021, the Company had $21 million in cash. Looking forward, the Company expects to open 500 to 520 new studios in FY22, compared to 282 new studios opened in FY21. FY22 sales are expected to total $201 million to $211 million, an increase of 33% at the midpoint. FY22 EBITDA is expected to total $67 million to $71 million, an increase of 153% at the midpoint.
Hibbett’s 4Q22 sales of $383.3 million increased 1.7% year-over-year and 22.5% over two years. Comps declined 1%, with brick and mortar comps down 1.6%, and e-commerce comps up 1.8%; on a two-year stacked basis, comps increased 20.7%, with store comps up 15.9%, and e-commerce comps up 48.1%. During the quarter, the Company opened 12 new stores and closed two underperforming locations, bringing its base to 1,096 in 35 states as of January 29.
The Gap’s top line grew 2% year over year but remained 3% below pre-pandemic 4Q19 due primarily to store closures. Management had also warned in 3Q21 of acute supply chain headwinds impairing the Company’s ability to meet customer demand, which impacted mostly the Old Navy banner (53% of sales). Nonetheless, 4Q comps were up 3% annually and 3% above 4Q19, driven in part by a robust 44% increase in online sales compared to 4Q19. Online sales now represent 43% of the total business. By banner, comparable sales growth was mixed: Gap (26% of sales) and Athleta (9% of sales) were up 3% and 42%, respectively, while Old Navy was flat, and Banana Republic (12% of sales) was down 2%. During FY21, 191 underperforming stores closed and 97 locations opened, leaving 2,835 Company-owned locations at FYE. Management also pared back the number of franchisees from 615 to 564. For FY22, management expects low single digit year-over-year sales growth and an adjusted operating margin of between 6% to 6.5%. The Company also expects to open about 30 to 40 stores each for Old Navy and Athleta. In addition, as part of its 350-store closure plan, the Company expects to close about 50 to 60 Gap and Banana Republic stores in North America during the year.
Southeastern Grocers continued its Florida expansion with the opening of a new Winn-Dixie store in Westlake, FL on March 2.
QDOBA is adding three pilot locations, in Seattle, WA; Austin, TX and Atlanta, GA with REEF, an operator of mobility, logistics hubs and neighborhood kitchens across North America. Beginning in April, REEF-operated kitchens offer QDOBA’s menu via streamlined delivery service. In the three pilot markets, QDOBA and REEF plan to test up to 25 locations with a goal to expand throughout the U.S. and into International markets over the next two to five years.
Save A Lot owner Save Philly Stores has completed 19 store remodels in Delaware, New Jersey, and metro Philadelphia. The $4.5 million investment includes an easier-to-shop store layout with updated décor. The stores also feature expanded assortments and a larger non-foods selection. The upgrades are part of a plan announced last July by Save A Lot to remodel a third of its store base in 2021 and upgrade the rest of the stores by 2024. Also in July, Save A Lot launched a brand refresh led by an updated logo, a marketing campaign, and updated packaging for more than 55 private brands.
Asian grocery chain T&T Supermarkets, a subsidiary of Loblaw Companies Ltd., plans to open two stores in Western Canada over the next year. The two units are in addition to the recently announced new locations in Toronto and Montreal. The addition of these stores will bring T&T’s store count to 33 locations across Canada.