May 8, 2018
Ahold Delhaize
Last week, Ahold Delhaize’s Food Lion division said it plans to invest $168.0 million on 105 stores in the greater Norfolk, VA market during 2018. The investment will go towards remodeling the stores, lowering prices, expanding offerings, hiring approximately 5,000 new employees and promoting current employees; the stores will remain open during the remodel process. Food Lion, which operates more than 1,000 stores in 10 Southeast and Mid-Atlantic states, has remodeled 544 of its stores over the last four years. In fiscal 2017, Food Lion remodeled a total of 164 stores; it completed the roll out of 93 remodels (representing an investment of $178.0 million) in the greater Greensboro, NC market in August and completed refreshing 71 stores in the Richmond, VA market in October. The below map highlights store concentration for Food Lion.
2018 Retail Bellwether Report
Brick-and-mortar is going through a transitional phase. In our 2018 Retail Bellwether Report, we examine a list of what we call 'Bellwether' retailers, as a means of analyzing broader trends across the retail industry. This august group of 30, is the top of the mountain for American retailing and accounts for over $1.801 trillion in collective annual retail revenue. These retailers don't just exist in a category, they often define it in size and performance. Where they go, other retailers attempt to follow, if only to just maintain their own market share.
Amazon
According to published reports, Amazon plans to introduce a 10% discount for Prime members on products at Whole Foods that are already marked down. That would be in addition to other incentives Amazon has rolled out to lure more Prime shoppers into Whole Foods stores, including free delivery (now available in 10 cities) and 5% cash back when members use an Amazon Rewards Visa card. The latest discount is aimed at turning more Prime members into regular Whole Foods customers. It is estimated that about 75% of Whole Foods shoppers are Amazon Prime members, but less than 20% of Amazon Prime members shop at Whole Foods. Whole Foods shut down its own rewards program on May 2 and is reportedly replacing it with Prime.
Meanwhile, Whole Foods has added electric vehicle charger stations from Blink Charging Co. at three of its stores in Pennsylvania. The charging stations will also be integrated into the development of more stores as they open. Whole Foods currently has electric vehicle charging stations at more than 100 of its 479 stores.
In other news, Amazon reportedly made an unsuccessful informal attempt to buy upmarket British supermarket chain Waitrose late last year. This was after Amazon bought Whole Foods in the U.S. for $13.40 billion and before Walmart announced that it was selling about 60% of its U.K.-based Asda Group to Sainsbury.
Supervalu
On May 3, Supervalu announced it completed the previously announced sales of 21 of its 38 Farm Fresh stores to Harris Teeter, Kroger’s Mid-Atlantic Division, and Ahold Delhaize’s Food Lion.
Publix
Publix’s first quarter sales increased 6.8% to $9.35 billion, driven by 5.1% comp growth including a 1.2% impact from the Easter calendar shift to the first quarter this year. Net earnings were up 22.5% to $680.3 million, boosted by U.S. tax reform and a change of accounting for investments. Operating income as a percentage of sales was 9%, compared to 8.5% last year. Effective May 1, Publix’s stock price increased from $41.40 per share to $41.75 per share. Publix stock is not publicly traded and is made available for sale only to current Publix associates and members of its board. During the quarter the Company opened 12 supermarkets, remodeled 27 and closed two stores.
Weis Markets
Weis Markets reported first quarter sales growth of 2.8% to $876.1 million, benefiting from Easter falling in the first quarter of 2018 compared to the second quarter last year. Comps (adjusted for the holiday shift) rose 1.5%. Operating income increased 12.8% to $22.8 million, favorably impacted by store-level efficiencies and improved inventory management. Net income was up 36.8% to $16.2 million.
The Company recently announced a $101.0 million growth plan for the construction of two new stores, 20 remodels, four pharmacies and one fuel center. The first new store opened in Nottingham, MD, outside of Baltimore, on April 12. The Company has also expanded and upgraded its Weis 2 Go online ordering service with curbside pick-up. It recently introduced this service in 25 additional stores and currently offers it in 79 locations. Speaking about the plan, Chairman and CEO Jonathan H. Weis said his Company’s 2017 cash flow benefited significantly from a decrease in its income tax rate due to the enacted Federal Tax Reform and that it should continue to do so in 2018. The Company plans to reinvest these tax savings into its growth and development programs. “We will use these savings to strengthen our Company’s long-term prospects. This reduction has helped us make major-and continuing - investments in associate training and career development. It has allowed us to increase our Cap Ex spending to more than $100 million while simultaneously paying down our banking line of credit. It also provides additional resources for potential acquisition opportunities.”
Smart & Final
Smart & Final reported first quarter sales growth of 5.1% to $1.02 billion, driven by 1.2% comp growth and new stores. Comp growth was comprised of a 2.9% increase in transaction size, partially offset by a 1.7% decreased in transaction count. Sales for Smart & Final banner stores were up 4% to $795.2 million, with flat comp growth, while Smart Foodservice Warehouse sales increased 9.4% to $221.0 million with comp growth of 5.8%. Concurrent with the earnings release, the Company announced the transition of the Cash & Carry banner to Smart Foodservice Warehouse Stores. E-commerce sales increased more than 85% “off a small base,” and the Company plans to grow those capabilities in both banners in 2018. The Company posted a net loss of $7.1 million, compared to a loss of $4.6 million last year. Similar to 2017, store openings in 2018 are scheduled for the latter half of the year. It expects to open a total of three to five Smart & Final Extra! stores and three to five Smart Foodservice Warehouse stores during fiscal 2018, in addition to two to three relocated Smart & Final stores.
President and CEO David Hirz commented, “Despite continuing promotional activity within the grocery landscape, we were able to improve our gross margin rate driven by maturing new stores, merchandising initiatives aimed at both household and business customers, and the expansion of our marketing channels. We’ve also been successfully growing our business customer sales, a key differentiator for us in the market.”
Commenting on the transition to the new Smart Foodservice Warehouse banner, Derek Jones, president Smart Foodservice Warehouse Stores and EVP, said, “The updated name better reflects our mission and provides a much clearer message to current and future customers about the products and services we offer. This new name is a much more accurate reflection of who we are and what we do.”
Albertsons Market
Last week, a “next generation” remodeled Albertsons Market store reopened in Albuquerque, NM. The store features expanded prepared foods and a dining area adjacent to a full-service Starbucks. Additional offerings include fresh sushi, a salad, soup and wing bar, expanded organic offerings, and a large selection of wines and beer. It also offers Streetside, Albertsons Market’s online grocery shopping and curbside pickup service. Albertsons Market is operated by The United Family, a subsidiary that has 95 stores in Texas and New Mexico under five brands.
Aldi
Aldi will open its second New Castle County store in Parsippany, NJ on May 17. The new store will feature a “modern and convenient layout” emphasizing fresh food, produce, dairy and baked goods.
Roche Bros.
Roche Bros. plans to open a supermarket in Arsenal Yards, Boston’s new mixed-use development in Watertown, MA. The new store will feature a “Chop Shop” with cut fruits and vegetables, expanded prepared foods, a Roasters Café with indoor/outdoor seating and an outdoor produce market in-season. The store is expected to open in the summer of 2019. Roche Bros. operates 19 Roche Bros., Sudbury Farms and Brothers Marketplace grocery stores throughout Greater Boston, Metro-West and Southern MA.
Schnuck Markets
Schnuck Markets plans to open a new small-format store in Warrenton, MO. The 37,000 square-foot store is currently under construction and expected to open in late fall. The Company’s stores average over 60,000 square feet, but their size varies according to locations. Its largest store is more than 130,000 square feet, and its smallest is a 21,000 square-foot urban format store called Culinaria that opened in 2009 in St. Louis, MO. As reported last week, the Company will close two underperforming stores in Rockford, IL, this summer. Schnucks noted that it has six other stores in the Rockford area. The Company operates 100 stores in Missouri, Illinois, Indiana, Wisconsin and Iowa.
Save-A-Lot
Last week, Save-A-Lot opened a new store in North Tonawanda, NY, in a former Aldi site.
Walmart
According to published reports, the board of India’s Flipkart Online Services has approved Walmart’s bid to acquire about 75% of the Company for an estimated $15.00 billion. Google-parent Alphabet Inc. is expected to participate in the investment with Walmart. According to the deal, SoftBank will sell the approximately 20% stake it holds in Flipkart through an investment fund that is valued at roughly $20.00 billion. A final close is expected by May 14. Walmart reportedly beat Amazon in the battle to purchase Flipkart; its board decided a deal with Walmart is more likely to win regulatory approval because Amazon is the No. 2 e-commerce operator in India behind Flipkart and its primary competitor.
Yum Brands
Yum! Brands’ worldwide sales fell 3.2% to $1.37 billion. The Company opened 239 net new units for 3% net new unit growth. It refranchised 144 restaurants, including 52 KFC, 43 Pizza Hut, and 49 Taco Bell units for proceeds of $205.0 million. As of the end of the quarter, the Company’s global franchise ownership mix was 97%. Worldwide same-store sales rose 1%, consisting of growth of 2% at KFC (negatively impacted by a chicken shortage in the U.K. forcing temporary closures in February), 1% at Pizza Hut, and 1% at Taco Bell. Net income increased 54.6% to $433.0 million. The Company reiterated its fiscal 2018 same-store sales guidance of growth of 2% – 3% and net new unit growth of 3% – 4%.
Freds
On May 4, Fred’s reported fourth quarter results for the period ending February 3 that included sales growth of 2.1% and a comp decline of 0.9%. A day earlier, Fred’s announced the resignations of Timothy A. Liebmann, EVP and COO of the Pharmacy unit, and Mary Louise Gardner, EVP and CMO. The resignations were effective as of April 27. The Company indicated both individuals resigned to pursue other opportunities. These resignations follow CEO Michael Bloom’s departure, announced on April 27, along with a number of executive changes at the Company since September 2017.
Following a strategic review, yesterday Fred’s announced that it has reached a definitive agreement to sell its specialty pharmacy business, EntrustRx, to CVS Health. The Company will receive $40.0 million plus an amount equal to EntrustRx’s inventory. The deal is expected to close by the end this month, and the Company indicates proceeds will be used to pay part of the Company’s $167.2 million of debt and for general corporate purposes. Fred’s initially acquired EntrustRx in April 2015 along with Reeves-Sain Drug Store for $66.0 million; the deal included a retail pharmacy in Tennessee. Fred’s is still in the process of potentially selling other assets, including exploring its options for its owned real estate.
PriceSmart
PriceSmart’s April sales increased 1.6% to $240.3 million, and comps rose 1.9%. For the eight months ended April 30, sales rose 5%, to $2.06 billion, and comps increased 2.7%. On May 3, the Company opened a new warehouse club in Santo Domingo, Dominican Republic, its fourth in the county. This brings its total store count to 41.
Macy's
On May 2, Macy’s acquired STORY, a 2,000 square-foot store in New York City that changes its design and merchandise every four to eight weeks. Terms of the deal were not disclosed. Going forward, STORY will be a Macy’s sub-brand, not a standalone brand. STORY’s founder Rachel Shechtman, named Macy’s brand experience officer, will bring STORY’s interactive experiences to Macy’s; STORY’s COO Jenny Shechtman was named Macy’s VP of operations. CEO Jeff Gennette commented, “The need to change brick-and-mortar to make it more experienced-based is a high priority for every omni-channel retailer out there.” According to Rachel Shechtman, STORY’s net income has doubled each year since its inception in 2011. The standard four to eight week period, the Company earns $600,000, or $1.0 million during the holidays. There are currently 690 full-line Macy’s and Bloomingdale’s stores as well as 160 specialty stores.
Big 5 Sporting Goods
First quarter sales at Big 5 Sporting Goods fell 7.3% to $234.2 million, reflecting a 7.5% decrease in comparable store sales, partially offset by the opening of four new stores during the year. Management attributed part of the weak sales to the calendar shift of the Easter holiday. Gross margin fell 200 basis points and SG&A margin deteriorated 160 basis points, reflecting a decrease in merchandise margins of 58 basis points and higher store occupancy expense as a percentage of net sales. Ultimately quarterly EBITDA decreased 70.5% to $4.0 million, and EBITDA margin fell 370 basis points to 1.7%. TTM EBITDA margin fell to 2.6% from 5.7% at the same time last year and was well below the industry average of 8%. TTM interest coverage of 13x remained strong, but fell from 43x at the same time last year. The Company lapped last year’s benefit from the closing of 200 Sports Authority stores in its markets. The negative impact was compounded by the more recent reopening of 10% of the Sports Authority stores as Dick’s units in Big 5’s market area. About 25% of the Company’s stores overlap a Dick’s within a three-mile radius. In California, where about half of Big 5’s stores are located, there is a 27% overlap with Dick’s. During the first quarter of fiscal 2018, the Company did not open or close any stores. For the 2018 second quarter, Big 5 anticipates opening two stores and closing two underperforming stores, including one closure related to a relocation. For fiscal 2018, the Company currently anticipates opening eight new stores and closing three units.
Gander Outdoors
On May 5, Gander Outdoors opened four new stores, in Bemidji, MN; Florence, AL; Kingston, NY; and Sheboygan, WI. The Bemidji location is the fourth of six stores opening in Minnesota this year, while the Florence store is the Company’s first store in Alabama. The Kingston store is the third of five stores planned for New York, and the Sheboygan store is the fifth of 11 stores planned for Wisconsin. In Camping World's conference call, CEO Marcus Lemonis addressed progress on the opening of the Gander Outdoors stores. Management originally targeted the opening of 72 Gander Outdoors stores by mid-June 2018. The Company has slowed the process and now anticipates most of the Gander stores will be open by mid to late summer, while stating “they should all be open by the end of the year, for sure.” As of the end of the first quarter (March 31), 28 of the Gander Outdoors locations were open, and as of today 42 locations are open.
Academy Sports + Outdoors
Academy Sports + Outdoors opened a new 63,000 square-foot store in New Bern, NC, the Company’s 11th location to open in the state. Academy has 246 stores operating across the U.S.
American Apparel
American Apparel is preparing to open a flagship location in Los Angeles, CA, its first foray back into brick-and-mortar after closing all of its physical locations following its bankruptcy in early 2017. New owner Gildan Activewear bought American Apparel’s intellectual property for $88.0 million in an auction last year but did not keep any of the physical stores. The Company said that the new location will complement e-commerce operations and allow for tests of changing trends. According to Gildan’s management, the Company has yet to decide whether it will franchise, open more Company-owned stores, or choose another path. The new location is set to open during the fourth quarter in a former American Apparel location, using slightly less space than the original store, which operated in 6,100 square feet of space.
Duluth Trading Company
Duluth Trading Company plans to expand to a total of 100 locations over the next five years, up from the 34 stores currently in operation. According to CEO Stephanie Pugliese, the Company is “looking for a coast-to-coast presence from Portland, ME to Portland, OR.” The Company opened 15 stores last year, plans to open 15 this year, and will continue that pace over the next five years. Stores are opening this year in Alaska, North Dakota, Oregon, Oklahoma, Texas, Ohio, Maine and Colorado. Duluth, which began as a catalog company, says that with each store opening, about 25% of customers are new to the brand. Top revenue states for the Company include New York, California and Texas.
Shipt
This week, Shipt is launching same-day online grocery delivery from BI-LO, Kroger, Publix and Target stores in metro Myrtle Beach, SC, and from Target stores in the Knoxville, TN area. Shipt said it plans to add more than 150 new Shipt shoppers in the Myrtle Beach area and around 175 in Tennessee to handle order fulfillment at the stores. Shipt was acquired by Target in December.
Sprouts Farmers Market
Sprouts Farmers Market has ended its relationship with Amazon, which used Prime Now for delivery. Meanwhile, the Company has expanded its partnership with Instacart and has begun offering grocery delivery in Denver, San Diego and Sacramento, CA. Customers in all of its major markets across Arizona, California, Colorado, Kansas, Missouri, Nevada, New Mexico, Oklahoma, Texas and Utah can now have their groceries delivered from Sprouts via Instacart. The Company will continue expanding the service to the majority of its major markets nationwide by the end of the year…
Amazon
Amazon launched its own private-label pet food on its website on May 2. Amazon’s Wag brand currently includes dry dog food in several varieties and is available only to Amazon Prime subscribers.
Loblaw Companies
Loblaw Companies announced plans to expand its grocery pickup and delivery services across Canada. It plans to add home delivery to five more markets this year, including Montreal, Halifax and Regina. Late last year, the Company partnered with Instacart to launch home delivery in two Canadian cities. It is currently available in 11 markets, including Toronto and Vancouver. Loblaw also says it plans to expand its click-and-collect program with 500 new pickup sites this year. By the end of 2018, it aims to have more than 700 pickup locations.
