May 26, 2021
Today, Amazon announced it has entered into a definitive merger agreement to acquire MGM Studios for $8.45 billion to boost its Prime Video service. The deal is subject to regulatory approvals and other customary closing conditions. MGM has a vast catalog of more than 4,000 films including the Rocky and James Bond franchises. The catalog also includes 17,000 TV shows including “Shark Tank”, “Survivor”, "The Real Housewives”, “The Voice”, “The Handmaid’s Tale” and “Fargo.” Though this acquisition would represent the single largest acquisition since Amazon bought Whole Foods for $13.70 billion in 2017, Amazon is not a stranger to paying for digital content; it paid nearly $11 billion for video and music streaming content in 2020 alone, and it has agreed to pay a reported $1 billion this year for NFL rights. MGM, has been privately held since it emerged from bankruptcy in 2010. Its owners include Anchorage Capital, Highland Capital Partners, Davidson, Kempner Capital Management, Solus Alternative Asset Management and Owl Creek Investments.
Amazon alsoplans to retire its Prime Now same-day delivery programs and integrate the service, including online grocery delivery and pickup, into its mainline website and mobile app. According to a Company representative, the shifting of Prime Now’s service to Amazon.com and the Amazon app will enhance the one-stop shopping experience. Amazon has already retired the Prime Now app and incorporated the service into the Amazon website and app in India, Japan and Singapore. The transition in the U.S. is slated for completion later this year.
In other news, Amazon is reportedly close to a deal to buy MGM Studios for $8.5 billion – $9 billion. Amazon is interested in acquiring more TV and film content for its Prime Video service as it competes with Netflix, Hulu, Disney+ and other streaming video services. It would be Amazon’s biggest acquisition since it bought Whole Foods in 2017 for $13.7 billion. The transaction is expected to be announced this week. Click here for a list of Amazon future store openings.
Target’s FY20 year-end momentum continued in 1Q21, with sales and comps each up about 23%. This is the first quarter lapping the strong 2020 COVID-fueled sales, where 1Q20 sales and comps were each up 11%. Consumers returned to in-store shopping during the quarter; traffic grew 17% and exceeded ticket growth for the first time since the pandemic began. EBITDA and EBITDA margin jumped significantly, up 200% and 850 bps respectively. Click here to request a list of store openings and closings.
Amazon’s Whole Foods further detailed its store expansion plan to include 41 new stores in 13 states and Washington, D.C. The Company will open nine stores in California, seven in New York, five in Florida and four in New Jersey. Whole Foods also has two new stores each expected for Colorado, Illinois, Maryland and Texas. The remaining stores will open in Avon, CT; Portsmouth, NH; Falls Church, VA; Madison, WI; and Pittsburgh, PA. No timeline for the expected openings has been provided. Click here to request a list of future store openings.
7-Eleven announced that it has signed definitive agreements to sell a total of 293 Speedway and 7-Eleven stores to three separate buyers. This action follows the May 14 completion of 7-Eleven’s acquisition of approximately 3,900 Speedway locations in 35 states from Marathon Petroleum Corp. for $21.00 billion in cash. The divested stores are as follows: On March 15, 7-Eleven agreed to sell 124 Speedway and 7-Eleven sites in the Midwest, Northeast, Florida and Utah to Anabi Oil, a family-owned and operated business based in Upland, CA. On March 17, 7-Eleven agreed to sell 63 Speedway sites in California, Arizona and Nevada to Jacksons Food Stores, a national chain based in Meridian, ID. Finally, as reported on April 28, 7-Eleven agreed to sell 106 Speedway and 7-Eleven sites in the Mid-Atlantic and Northeast to CrossAmerica Partners LP, a publicly traded limited partnership headquartered in Allentown, PA. CrossAmerica will rebrand those stores as Joe’s Kwik Mart and partner with existing branded fuel suppliers for the sites. The announcement follows reports that the FTC would continue to investigate the acquisition for violating antitrust laws.
In other news, 7-Eleven is opening its first Laredo Taco Co. in Colorado, located in Platteville, with more than 10 other locations planned for the state this year. Laredo Taco Co. is a Mexican quick-service restaurant with locations in more than 500 Stripes and 7-Eleven convenience stores. All menu items are available both in-store and via DoorDash. Click here to request a proximity analysis of Speedway and 7-Eleven locations within 0.5mi.
Noodles & Company launched its first ghost kitchen test in Chicago, IL, which increases its off-premise capabilities. While the Company currently has 20 existing Noodles & Company units in the metro Chicago market, the ghost kitchen will help reach a new customer base through digital channels and give the brand a presence in between locations. The ghost kitchen will allow customers to place orders through the Company’s app or order through third-party delivery services DoorDash and UberEats. Noodles & Company said launching a ghost kitchen creates a cost-effective option to expand the brand within an established market through a location that does not require the infrastructure or staffing of a traditional restaurant.
Our Hot Market Report takes a closer look at the Washington D.C. real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, digital insights, and demographics. Click here to request a copy of the full report.
While BJ’s Wholesale Club was lapping a strong quarter (1Q20 revenue and comps up 21% and 27%, respectively), 1Q21 was somewhat disappointing, with revenue up a scant 2%, and comps turning negative. Other big-box retailers have reported strong 1Q results. Digital growth also slowed, up 31% but down from the 300% spike in the previous year. Membership revenue is still a bright spot, up about 9%. BJ’s did not add any new clubs during the quarter but has six new locations planned for FY21. Click here to request a list of future store openings.
Scheels is renovating a 220,000 square-foot former Nordstrom store in Chandler, AZ, with plans to open the unit in 2023. The new location will feature family-friendly attractions with 75 specialty shops, a 16,000-gallon saltwater aquarium, a wildlife mountain, a candy shop, and a restaurant with an interactive arcade and sports simulators. The Company also plans to open a new unit in Missoula, MT this fall, in a former J.C. Penney location. Scheels operates 29 locations in 13 states. Click here to request a list of future store openings.
ACE Hardware’s 1Q21 sales increased 42% to more than $2 billion due to comp growth of 30%, a 220% increase in digital sales, and increased retail inventory depth. The comp increase was the result of a 12.3% rise in same-store transactions and a 15.7% rise in average ticket. Wholesale revenue grew nearly 42% to $1.9 billion, and retail revenue increased 45% to $163 million.
Wholesale gross margin was up 10 bps to 13%, but retail gross margin was down 20 bps to 47%. Operating income nearly tripled to $111.8 million. ACE added 48 new domestic stores during the quarter, while 15 locations cancelled their memberships. The Company ended with 4,680 stores, an increase of 114 stores from a year ago. Click here to request a list of future store openings.
Foot Locker’s 1Q net sales for the period ended May 1 were up 83%, and comps were up 80.3%, following a 42.8% decline in the prior-year period due to pandemic-related closures. Compared to 1Q19, sales were up 3.6%. Gross margin expanded a substantial 11.8% due to less promotional activity and leverage on higher sales. Overall, adjusted operating income totaled $286 million, compared to an operating loss of $89 million in the prior-year period. The balance sheet remains strong, given a $1.85 billion net cash position, up 230% over the year-ago period. As a result, management spent $34 million on share buybacks and paid $21 million in dividends. In addition, the Company invested $51 million on its store fleet, digital platforms, supply chain and logistics abilities, and other infrastructure. Foot Locker opened 12 new stores, closed 58 locations, and remodeled or relocated 15 stores. As of May 1, the Company operated 2,952 total locations, down from 3,113 in the prior-year period. Looking ahead, management plans to convert 33% of its 231 Footaction stores into other banners over the course of the year. The majority of the remaining Footaction locations will be closed as leases expire over the next two years.
Foot Locker announced that it plans to convert approximately 33% of its 231 Footaction stores into other existing concepts throughout FY21 (see Store Concentration map for Footaction below). A majority of the Company's remaining Footaction locations will be closed as leases expire over the next two years. Management noted it plans to focus resources on its Foot Locker, Kids Foot Locker, Champs Sports and Eastbay concepts. We note that the Company has been rationalizing its store-base over the past several years, with store count declining from 3,284 in 1Q18, to 2,952 in 1Q21. For FY21, the Company plans to open approximately 160 stores, remodel or relocate 120 locations, and close 240 stores. Click here to request a list of future store openings and closings.
L Brands reported improved 1Q21 results (ended May 1), as every reporting segment grew from last year, given easy top-line comparisons. Total sales expanded 83% and 15% from 1Q20 and 1Q19, respectively, despite accelerated store closures over the past few years. On a two-year stack, Bath & Body Works sales (49% of 1Q21 sales) advanced almost 60%, and direct sales more than doubled in the same period. Victoria’s Secret sales (51% of 1Q21 sales) fell 7% from an almost 20% reduction in in-store sales. Due to fewer promotions, inventory discipline and merchandise margin improvement, 1Q21 gross margin reached 46.8%, which contributed to EBITDA dollar growth. At quarter end, cash almost tripled to $2.8 billion, and debt dipped slightly to $5.3 billion. The Company remains on track to complete the separation of the two banners by August; L Brands also announced that it appointed a CFO for each of the standalone businesses. Current L Brands SVP of finance Wendy Arlin will become CFO of Bath & Body Works; she has been with the Company since 2005. The Company brought in an external hire for the CFO of Victoria’s Secret, Tim Johnson, who previously served as CFO of Big Lots. Click here to request a list of future store openings and closings.
AutoZone’s 3Q21 sales increased more than 31% to $3.65 billion, and domestic comps were up 29%. Gross margin decreased 118 bps to 52.4% due to accelerated growth in its commercial business and investments in pricing initiatives. Operating expenses decreased from last year due to strong sales growth and $75 million in prior-year pandemic-related expenses, including emergency time off for employees. EBIT rose 63% to $803.5 million. During the quarter, the Company opened 25 new stores and closed one underperforming location in the U.S., and opened seven stores in Mexico and one store in Brazil. As of May 8, there were 5,975 units in the U.S., 635 in Mexico, and 47 in Brazil. Click here to request a list of future store openings.
Cato’s 1Q21 sales more than doubled to $213.1 million, and comps were up 111% from 1Q20, which was negatively impacted by COVID-related store closures during the last six weeks of the quarter. When compared to 1Q19, sales were down 7%, and comps dropped 8%. Gross margin increased from 15.4% to 41.5% due to higher merchandise margins. SG&A margin improved to 29.9%, from 53.1%, due to leveraging of expenses as a result of normalized sales and a $5.3 million non-cash impairment charge in the prior year. Earnings before income taxes were nearly $24 million, compared to a loss of $37.5 million last year. The Company closed five stores during 1Q21, ending with 1,325 stores in 32 states.
On May 21, Skogens’ Festival Foods opened a new store in West Allis, WI in a former Pick ‘n Save location. Another store is scheduled to open in mid-July in Greenfield, making it the sixth location in the Milwaukee area and the 35th Festival Foods in Wisconsin.
The Children’s Place reported 1Q21 revenue (ended May 1) up 71% from last year and 6% from 1Q19, demonstrating a return of product demand and government stimulus. 1Q21 gross margin recovered to 43.4%, driven by fixed cost leverage, higher merchandise margins, and lower occupancy expenses. The Company remains on track to close an additional 98 stores this year. During the quarter, the Children’s Place amended its credit facility to extend the additional $35 million in revolver availability through April 2022, resulting in a total borrowing base of $365 million. At quarter end, cash balances totaled $65.4 million, a 9% decline from last year. Due to the Company’s term loan issuance in 3Q20, total debt increased 16% to $271 million.
Windsor Fashions, a Southern California-based young women’s apparel and accessories retailer that specializes in special occasion dresses, announced plans to open 150 locations in 2021 and 2022. Windsor currently operates 230 stores in 42 states, having opened more than 100 stores since 2015 (including 10 in 2020). The Company was founded in 1937 by the Zekaria family; in 2017 it partnered with private equity firm Sun Capital to significantly expand the business. This led to several enhancements to its e-commerce capabilities and resulted in a 50% increase in online comps.
Last week, Saker ShopRites announced the opening of a new 71,500 square-foot store in Wall Township, NJ. Saker ShopRites owns and operates 32 ShopRite supermarkets, 30 pharmacies, two liquor stores, and a Dearborn Market and Garden Center in New Jersey. Click here to request a list of future store openings.
Wendy’s Restaurants of Canada announced on May 19 the transition of 13 franchised restaurants in Quebec to Compass Restaurants Group’s Kathryn and John Chayka. The restaurants were previously owned by DP Murphy (Quebec) Inc. The agreement also includes a commitment from the owners to build additional new restaurants by the end of 2025, which would double Wendy’s footprint in the province.
In other news, Delight Restaurant Group acquired 44 Wendy’s restaurants on Long Island, NY from The Wendy’s Company. Financial terms were not disclosed. As part of the transaction, Delight plans to build several new Wendy’s units in the area and remodel certain acquired restaurants under the brand’s Image Activation initiative. Previously, the group acquired 54 Wendy’s in North Carolina as part of NPC International’s bankruptcy sale process. Delight Restaurant Group plans to continue expanding through acquisitions and new unit development. Click here to request a list of future store openings.
Dine Brands Global’s IHOP chain is piloting a new fast-casual concept called “flip’d by IHOP.” The new brand caters to the growing demand for made-to-order breakfast, lunch and dinner. The first flip’d location is currently scheduled to open in New York City this summer, with three additional sites in Lawrence, KS; Columbus, OH; and Dublin, OH being explored for later this year. Click here to request a list of future store openings and closings.
Google will open its first-ever permanent brick-and-mortar store this summer, in the Chelsea section of Manhattan. It will be located in the 1.2 million square-foot building that is home to Google’s New York City offices. Google said the store will allow consumers to experience its hardware products and services. Customers will be able to browse and buy Google-made products, including Pixel phones, Nest devices, Fitbits, and Pixelbooks. In addition, there will be on-site experts offering tech support for Google devices as well as how-to workshops throughout the year.