November 16, 2022
Target opened its first store under its new store strategy and design format outside Houston in Katy, TX. With a 150,000 square-foot layout, the new format is approximately 20,000 square feet larger than the chain average and includes a bigger backroom fulfillment space for online orders and an expanded assortment of merchandise available in the store. The Company said that while it will continue to open stores of all sizes, it will focus on this larger footprint in the next few years. Starting in 2023, more than half of Target’s 200 full store remodels and almost all of its 30 new stores will include elements of the new design. In 2024, all of Target’s remodels and new stores will feature the majority of the reimaged store format. Click here to request a sample list of future store openings.
In 4Q22, Sally Beauty’s sales fell 2.8%, to $963 million; comps were flat. The sales decline was driven by inflationary pressures on its consumer, supply chain challenges at Beauty Systems Group (BSG), and an unfavorable foreign exchange impact of 170 bps. For the full year, the Company’s sales dipped 1.5% while comps were up a modest 0.6%; comps growth was driven by BSG. Overall, online sales grew 30% to represent 9.3% of sales (up from 7% in 4Q21). Gross margin contracted 240 bps, to 48.2%, as the Company incurred a non-cash inventory write-down of $19.4 million during the quarter, contributing 180 bps to the decline. Further, increased labor costs drove up SG&A margin, and as a result, EBITDA fell 21.6% and 280 bps on a margin basis. As part of its store optimization plan, the Company closed 29 SBS locations and six BSG locations in 4Q22, ending the year with 4,794 locations (3,439 SBS and 1,355 BSG). After closing 117 stores under the plan, the Company is now accelerating closures with roughly 350 more planned in December 2022, the majority of which will be Sally Beauty Locations in the U.S. The Company will also close two of its smaller distribution centers in Oregon and Pennsylvania. For FY23, management expects low single digit comps growth and a stable gross margin. As of September 30, 2022, the Company had $71 million in cash, down from $401 million in the prior year period. Total debt was down 17% year-over-year to $1.15 billion as the Company used cash to fund the full repayment of its $300 million 8.75% Senior Secured Notes. The Company maintains a $500 million ABL facility with $69 million in outstanding borrowings.
For the first time since the start of the pandemic, more people intend to buy their holiday purchases in brick-and-mortar stores (46%) than online (45%), according to The NPD Group. The number of consumers planning to shop online for the holidays fell from 85% last year to 80% this year, the largest-ever shift favoring stores. Checkout receipt-based insights show in-store sales were up 1% in September, but online sales were flat. Of those buying online, 16% expect to use curbside pick-up which should also help boost the number of in-store customers. Mass merchandisers stand to benefit the most from more in-store shoppers, particularly given high costs; 44% of consumers profiled said they plan to shop at mass merchandisers, up from 42% last year. Overall, as we reported last week, the National Retail Federation is forecasting that U.S. holiday sales will rise from 6% to 8% in 2022, largely assisted by inflation.
A Washington state court extended the restraining order blocking the payment of Albertsons’ $4 billion special dividend to this Thursday to allow state lawyers to better prepare their claim that the payment would weaken Albertsons. Also last week, a U.S. federal court judge refused to temporarily block the special dividend payment, rejecting arguments made by the attorneys general of California, Illinois, and Washington D.C to block the payment until antitrust reviews of the proposed merger with Kroger were completed. Other reports indicate that the Oregon attorney general’s office also sent a letter to Albertsons requesting documents regarding the merger and special dividend. The proposed merger with Kroger has faced increasing opposition from states, politicians, independent grocers, and unions. The Company intends to use a mixture of cash and revolver borrowings to finance the dividend, and we estimate that post-dividend, it would maintain strong liquidity, with debt to EBITDA only increasing to the 2x range. However, while Albertsons continues to state the dividend will not materially impact its financial profile, that same argument may weaken its case for the merger. The Company has argued the merger with Kroger is necessary to build scale and increase its competitiveness with non-union Walmart and Amazon.
Amazon has rolled out its contactless payment system to two Whole Foods stores in the Dallas, TX area. The stores, located in the suburbs of Irving and Highland Village, are the first in the area to get the Amazon One palm payment technology, and in the coming weeks all 16 Whole Foods outlets in the region are expected to have the new system installed. The Amazon One technology is currently available at select Whole Foods, Amazon Go and Amazon Fresh locations in cities across the country.
Ahold Delhaize noted that inflation again boosted the top line during 3Q22, as net sales at Ahold Delhaize USA grew 8.8%, to $14.75 billion; comps, excluding fuel, advanced 8.2%. Brand performance continued to be led by Food Lion, which has now delivered 40 consecutive quarters of positive sales growth. In addition, Food Lion To Go is now available in 601 stores, and Food Lion To Go and/or home delivery services are expected to expand to nearly 1,000 stores by the end of 2022. At Stop & Shop, the Company continues to move forward with its remodeling program, with over 40% of the stores now remodeled since 2018. An important focus area for Stop & Shop is New York City, where the Company announced a multi-year $140 million investment earlier in FY22. With the first five store remodels completed (an additional seven remodels are slated to be completed by the end of FY22), management noted all stores were trending ahead of plan, with the sales lift driven by increased units and new customer transactions. Hannaford posted positive comparable sales growth for the 27th time over the past 28 quarters. In 3Q, U.S. online sales were up 20.8%, to $1.08 billion (7.3% of U.S. revenue), on top of 53% growth a year earlier; at the end of the quarter, the Company had 1,471 click & collect points and expected to have a total of 1,553 by the end of FY22.
Maurices is expanding its tween girls’ brand Evsie with more than 240 in-store shops around the country and its first-ever freestanding locations in West Jordan, UT, Fargo, ND and Boise, ID. The in-store shop concept launched this past spring in 50 stores, and it expanded to 150 in-store locations in August. The Company has nearly 900 stores across the U.S. and Canada. Ascena Retail Group sold the chain in 2019 to an affiliate of British private equity firm OpCapita.
Panera announced a new development plan for urban areas that would feature two smaller formats. The first, named Panera To-Go, consists of 1,000 square-foot locations that offer pick-up service only and no seating; the first location was launched in Chicago earlier this year and another will open in New York City in the next few weeks. The second format, at 2,000 square feet, will be 40% smaller than the average Panera restaurant, with a focus on take-out items and very limited seating; the debut restaurant opened in Manhattan last week. As of November 3, there were just over 2,100 Panera locations in 48 states and Canada. Looking ahead to 2023, the Company is planning to use these two new formats to expand to more cities and other non-traditional locations in places like hospitals and universities.
Planet Fitness’ business continued to grow in 3Q22 with revenue increasing 58% driven by an 8.2% increase in system-wide same store sales and 160 more clubs in operation. Total membership also hit a record high, with over 16.6 million members (up from 16.5 million in 2Q22) as the Company opened 29 new locations in the period, bringing the total club count to 2,353. As expected, the sales gains leveraged fixed costs leading to EBITDA increasing nearly 50%. In light of positive performance, management lifted its FY22 outlook with same-store sales growth now in the low double-digits. Click here to request a sample list of future store openings and closings.
Grocery Outlet reported 3Q22 sales increased 19.4% to $918.2 million, and comps were up 15.4%. The Company opened six new stores, ending with 431 stores in eight states. Adjusted EBITDA rose 15% to $59.1 million. Looking ahead, the Company revised its FY22 outlook, now expecting to open 26 stores, down from 28. Sales are now anticipated to be $3.55 billion, up from prior expectations for $3.46 billion – $3.48 billion; comps are projected to grow 11%, up from 8% – 8.5%. Adjusted EBITDA is anticipated to be $224 million, up from $218 million – $223 million. Click here to request a sample list of future store openings.
Canadian Tire opened the first two Remarkable Retail concept stores in Ottawa and Welland (Niagara region). These stores are much larger than the typical Canadian Tire store, which is 60,000 square feet. The 135,000 square-foot Ottawa store (its largest in Canada) opened September 15 and was a relocation of an existing Canadian Tire store. The 120,000 square-foot Welland store (third largest in Canada) expands an existing Canadian Tire store that was 64,000 square feet. It features improvements to the auto service operations, a garden center, and a drive-thru for online or bulk item pickup.
The Habit Burger Grill, owned by Yum! Brands, opened a new store in Santa Clara, CA, in Mission College. This is the chain’s second restaurant in Santa Clara and 236th in California. Another store is opening in Long Beach, CA tomorrow (November 16); the chain operates more than 80 locations in the greater Los Angeles area, though this is the first in Long Beach. Since Yum acquired the chain in March 2020, when there were 276 Habit restaurants across the U.S. and China, Habit has added a net 65 locations, including 38 over the past year. There were 341 units at the end of 3Q22. Click here to request a sample list of future store openings.
Warby Parker reported 3Q22 sales increased 8.3% to $148.8 million, above its previously issued guidance and on top of 32% growth in the prior year period. However, the rate of customer acquisition slowed, with its active customer base increasing 5.1% to 2.26 million, compared to 23% growth in 3Q21. The Company opened 13 stores during the quarter, bringing its total count to 190. It continues to expect to open 40 new stores this year. See the chart below for the Company’s updated FY22 outlook.
Sprouts’ 3Q sales advanced 5.4% driven by 16 more stores in operation and 2.4% comp growth, which did not keep up with inflation. Company-provided EBITDA grew 3.8% to $121.5 million but slipped 20 bps on a margin basis to 7.6% due to increased wage and marketing expenses. Sprouts remains committed to accelerate its growth, guiding 30 or more store openings in FY23. The Company maintains a pristine balance sheet with over $700 million in liquidity. Click here to request a sample list of future store openings.
Camping World agreed to acquire Ashley Outdoors, a family-owned RV dealership in Salem, AL. The acquisition is slated to close in 1Q23, after which the location will be rebranded to the Camping World banner. Camping World has existing locations in Calera, Dothan, Anniston, and Robertsdale, AL. The Company ended 3Q22 (September 30) with 193 locations, up from 187 a year ago. Click here to request a sample list of future store openings.
Recently, Restaurant Brands International (RBI), opened a digital food hall in Miami, FL on the site of a former Burger King restaurant. At the KYLO Food Hall (which stands for Kitchens You Love), customers can place one order for food from three RBI-owned banners—Burger King, Popeyes and Firehouse Subs—as well as other local brands. The food is prepared in a ‘ghost kitchen’ at the site, and the take-out orders can be placed via app or at an on-site kiosk as there is no seating at the venue.
Sporting Life announced plans to open three new stores, including a 37,000 square-foot unit in Burlington, ON that opened on November 12; a 35,000 square-foot store in Edmonton, AB is scheduled to open November 19, and a 27,000 square-foot Laval QC store is due to open December 3. In addition to the new openings, Sporting Life’s flagship store in Toronto, ON was upgraded to include a new 3,500 square-foot ski and snowboard shop, an expanded tennis shop, as well as a sneaker shop. Sporting Life operates 14 high end stores across Canada’s largest cities in premium malls. The Company also owns Golf Town, which operates 47 stores across Canada.
Schnucks is planning to bring its Eatwell Market banner to the St. Louis, MO region. The second location of its higher-end store format (the first was opened in Columbia, MO in June 2020) will carry thousands of natural and organic products and feature a made-to-order drink area specializing in single-serve offerings. The 30,000 square-foot grocery store is expected to open in Chesterfield, MO in Spring 2023.
Fiesta Restaurant Group’s 3Q22 sales increased 7.9% to $95.6 million. Pollo Tropical comps were up 9.3%, despite the impacts of Hurricane Ian in the final week of the quarter. The Company estimates Hurricane Ian negatively impacted restaurant sales and comps by $2.5 million and 2.6%, respectively. The comp increase resulted from a 14.6% increase in product/channel mix and pricing, partially offset by a 5.3% decrease in comparable restaurant transactions. Adjusted EBITDA rose 7.3% to $3.9 million on higher restaurant sales, partially offset by higher costs. Hurricane Ian negatively impacted EBITDA by $1.6 million. As of October 2, 2022, there were 137 Company-owned Pollo Tropical restaurants, and 32 franchised Pollo Tropical restaurants in the U.S., the U.S. Virgin Islands, Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas.
Nordstrom plans to open a new, 31,000 square-foot Nordstrom Rack location in Las Vegas, NV in Spring 2023. This will be the chain’s second location in Las Vegas, and brings the total count to four Nordstrom Rack stores and one full-line Nordstrom in Nevada. Last week we reported on plans for a new 24,000 square-foot Nordstrom Rack due to open in Fall 2023 in San Luis Obispo, CA. Click here to request a sample list of future store openings.
Carrols Restaurant Group’s 3Q22 restaurant sales increased 5.3% to $444 million, with Burger King comps up 4.9% and Popeyes comps up 6.5%. Average check at Burger King restaurants grew 11%, inclusive of 10% menu price increases and lower promotional activity, which was partially offset by a traffic decline of 5.5%. At Popeyes, which represented 5% of total sales, traffic grew 3.6% and average check was up 2.8%. Adjusted EBITDA totaled $17.7 million, down 5% from the prior year period. The Company opened one new Burger King during the quarter, and closed two underperforming BKs, ending with 1,022 units; Popeyes’ store count remained unchanged at 65.
CKE Restaurants announced a franchise agreement with Spycher Burger Gang AG to develop Carl’s Jr. restaurants in Switzerland. Plans for the first Carl’s Jr. restaurant in Switzerland are underway, with a targeted opening in mid-2023. Key cities include Zurich, Basel, Bern, and Lucerne. This partnership adds to Carl’s Jr.’s growing European presence, which includes restaurants in Spain, France, Denmark, and Turkey.
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