November 23, 2022
Southeastern Grocers is reportedly exploring a sale and is rumored to be in talks with prospective buyers. The Company would not comment, other than to say that it is always reviewing ways to enhance shareholder value and that it has an obligation to consider transactions that do so. The Company operates 424 stores (see store concentration in the map below), including about 325 in Florida, where Ahold Delhaize, Kroger, and Albertsons have no physical stores. However, the planned merger between Albertsons and Kroger would seem to preclude a deal with those two competitors. Southeastern Grocers is C&S' largest customer (not counting the winding down Ahold business). Such a deal would make an acquisition by a self-supplying entity less attractive, though would not completely eliminate that possibility. Click here for more information.
Chipotle announced the opening of its 500th restaurant with a Chipotlane, the Company’s digital order drive thru pick-up lane, in Louisville, KY. The Chipotlane format was introduced in the U.S. in early 2018, and the Company noted that new restaurant openings that include this feature have demonstrated higher volumes and greater returns than a traditional Chipotle restaurant format. In 2023, Chipotle plans to open between 255 to 285 new restaurants, with at least 80% including a Chipotlane. Click here to request a sample list of future openings.
According to an annual survey conducted by the National Retail Federation and Prosper Insights & Analytics, an estimated 166.3 million people are planning to shop between Thanksgiving Day through Cyber Monday this year. This is the highest since NRF began tracking the data in 2017 and is almost eight million more people than last year. The survey indicated that 69% of holiday shoppers plan to shop during the holiday weekend, with Black Friday continuing to be the most popular day to shop (69%), followed by Cyber Monday (38%). Among the 114.9 million Black Friday shoppers, 67% plan to shop in store, up from 64% last year. Shoppers’ motivations include deals (59%), tradition (27%), it’s something to do (22%). For inspiration, online search (43%) remains the top source, followed by friends and family (35%) and in store (31%). By categories, consumers plan to give clothing (55%), gift cards (45%), toys (37%), books/music/movies/games (33%), and food/candy (31%). Last year’s holiday sales grew 13.5% over the prior year and totaled $889.30 billion; over the past 10 years, holiday retail sales averaged an increase of 4.9% year-over-year.
Mastercard Spending Pulse expects U.S. retail sales (excluding automotive) will grow 15% on Black Friday compared to last year. In-store holiday sales are anticipated to be up 18% on the post-pandemic return of doorbusters, window displays, and brick and mortar collaborations. Department stores are expected to experience a nearly 25% increase in Black Friday sales; restaurants are projected to generate 35% year-over-year growth; airlines and lodging are expected to experience 39% and 32% growth, respectively.
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Three new Primark stores are opening in the New York City metro area this holiday season. The first location opened last week at the Roosevelt Field Mall in Garden City in a space that is just over 44,000 square feet. The second store is slated to open on December 1 in Queens, and the third retail outlet is due later in the month in Brooklyn. The Company said these openings mark the kickoff to its U.S. growth plan to reach 60 stores by 2026. View where Primark currently operates locations on our Store Concentration Map below. Click here to request a sample list of future store openings.
Scheels is planning to open a 240,000 square-foot store in Tulsa, OK in the fall of 2024. The location, which is expected to generate about $100 million in annual sales, will be the Company's 34th location, with 30 existing stores and three others scheduled to open during the next two years. Click here to request a sample list of future openings.
Nike debuted the first North American store under its Nike Rise format in Miami, FL last week. Nike Rise also has stores in Seoul, South Korea, London, U.K., and Guangzhou, China. The Miami store features a Nike By You space, which offers customized sneakers and apparel, and The Sport Hub, where shoppers can return items, pick up their online purchases, and scan items for product information.
BJ's Wholesale Club turned in another quarter with double-digit sales growth as 3Q22 revenue jumped 12.2%; comps were up 5.3%, excluding fuel. Comp growth was driven by about an equal increase in both average ticket and traffic. The food category was particularly strong, with comps gaining double digits. General merchandise (mostly discretionary items) was a pleasant surprise, with comps up 3% during the quarter. Online sales remained strong during the FY, and were up 43% in 3Q, which followed a 47% improvement in 2Q, and a 26% gain in 1Q. BJ’s still only generates a small percentage of sales online, which propel the large gains we see in its online offerings. Membership growth remains a bright spot with revenue up almost 9% and memberships up 6.6%; 38% of members maintain higher tier memberships. Management did not comment specifically on holiday spending, but indicated they expect the grocery category to remain strong during 4Q22 and anticipate overall comps in the 4% to 5% range. The stress on gross margin is expected to continue during 4Q but be slightly better than the 30 bps decline in 3Q. For the full year, comps should improve in the 5% to 5.5% range.
Last week, the Company opened a new location in Wayne, NJ, less than a mile away from an existing Costco. BJ’s now operates 234 stores in the U.S. Click here to request a sample list of future openings.
Giant Food opened a new store in Baltimore, MD featuring its latest store layout. The 44,000 square-foot grocery store includes full-service meat and seafood departments, large produce, natural and organic selections, a full-service floral department, and extensive prepared food offerings, including a sushi bar and made in-house smoked meat selections. It’s the Company’s sixth location in Baltimore.
Smart & Final is planning to open a new Smart & Final Extra! store in San Jose, CA on December 14. The Smart & Final Extra! banner features larger format stores that include both warehouse items as well as traditional grocery offerings. Smart & Final operates 254 Smart & Final and Smart & Final Extra! stores in California, Nevada, and Arizona.
Natural Grocers reported 4Q22 sales of $274.2 million, due to a $2.9 million increase in new store sales, partially offset by a $0.8 million decrease in sales from one store that closed during 3Q22 and a 0.2% decline in comps. The comp decline was comprised of a 2.6% drop in average transaction count, mostly offset by a 2.5% increase in average transaction size. Gross margin decreased 20 bps to 7.6%, primarily driven by lower product margin attributed to higher freight, distribution, and shrink expenses. As a result, adjusted EBITDA fell 23.8% to $13.6 million. During the quarter the Company opened two stores and relocated one existing store, ending with 164 locations in 21 states. For the year, three stores were opened and two were relocated. Looking ahead to FY23, the Company plans to open four to six new stores, relocate or remodel one or two stores, and generate comp growth of -2% to 1%. Click here to request a sample list of future openings and closings. Click here to request a sample list of future store openings.
Dillard's is planning to build a new 220,000 square-foot flagship store in Lubbock, TX. The new location will replace two locations Dillard’s currently occupies in the same mall and is expected to open in early 2024.
Kohl’s reported 3Q sales and earnings dropped, in part due to shoppers delaying holiday purchases, compared to the prior year period when more shopped early due to low inventory levels and the risk of stock outs. The hope is that consumers are reverting to pre-pandemic trends and waiting for better deals after Thanksgiving (see out General Interest story at the end of this publication). 3Q comps fell 6.9%, and gross margin decreased 260 bps due to increased freight costs, product cost inflation and elevated shrink. Kohl’s noted that with pressure from inflation, sales trends softened in October and into November. Management pulled its FY22 guidance, due to recently unpredictable demand trend and the unexpected departure of Michelle Gass as CEO, but the Company expects the holiday season to be competitive and highly promotional. Despite the declining operating trends, the Company continued to repurchase shares, completing a $500 million share repurchase program in November ($658 million through 3Q23). However, management said it is not planning to repurchase additional shares until its balance sheet is strengthened, towards its leverage target of 2.5x. Inventory was up 34% YOY, with Sephora inventory contributing five percentage points. Approximately 400 Sephora shops opened in 2022, for a total of 600, with plans for another 250 shops in 2023. The shops are about 2,500 square feet, while Kohl’s is working with Sephora to design a smaller footprint concept for the remaining 300 stores. The Company is targeting growing Sephora to a $2 billion business; it has already been highly accretive to operating margin. Management also continues to consider adding 100 new smaller format stores, including several in 2022 and 2023. After reviewing its options with various parties, management said it won’t pursue a large real estate deal. Regarding the CEO position, management isn’t looking for a new leader to change its strategy, which we question, as other than Sephora, its strategy has been muddled, leaving it with excess, slow moving goods, and cluttered stores.
Macy’s also reported lower sales and earnings, but not as sharp a decline as Kohl’s with comps down 3.1%. Reflecting the bifurcated consumer trends, Macy’s banner comps fell 4.1%, while the more luxury-oriented Bloomingdales comps rose 5.3%. Like Kohl’s, Macy’s reported a slowdown in spending beginning in October, although store traffic remained consistent. This trend continued into November, while recent trends are starting to improve. However, it maintains a stronger inventory position, which was up just 4%. 3Q22 gross margin was 38.7%, down 230 bps, driven by a decline in merchandise margin, reflecting an increase in promotional and clearance markdowns to sell lower moving categories at Macy's, including casual apparel, soft home and warmer weather seasonal goods. CEO Jeff Gennette said in an interview that consumers are still in good financial shape and all signs point to them spending during the holiday season. But he added that it was unclear whether the later start to holiday shopping this year could presage the beginning of a broader slowdown. Macy’s reaffirmed its FY22 sales guidance, indicating low single digit negative 4Q comps, and raised its adjusted EPS guidance. The Company expects to announce less than 10 store closures in January, consistent with its prior decision to delay the closure of full-line stores. The Company also converted space in 35 stores to serve as mini DCs.
Yankee Candle is opening six pop-up shops across the U.S. for the holidays. The locations will offer exclusive promotions to shoppers. Yankee Candle is a subsidiary of Newell Brands and sells products through mass and specialty retailers, online, and in its namesake brick and mortar stores.
Cato reported both sales and comps up 3%, despite having seven fewer stores than last year. Gross margin fell 960 bps to 30%, from increased markdowns and higher freight and distribution costs. SG&A margin improved 150 bps on sales leverage and reduced incentive compensation expense, partially offset by increased store payroll expense from longer store hours coupled with higher wages. Overall, an operating loss of $6.8 million contrasted with operating income of $3.4 million in the same period last year. Cato's balance sheet remains strong, although cash was down almost 29%. Like other retailers, Cato carries excess inventory, which was nearly 30% above 3Q21 levels.
Management will continue to give up margin into 4Q to reduce inventories. As of October 29, 2022, Cato had no debt, $146 million in cash, and an estimated $35 million in untapped revolver availability. During 3Q, the Company opened seven new stores, closed two, and ended the quarter with 1,317 stores in 32 states.
The Children's Place 3Q22 sales fell 8.8%, with comps declining 10% for the quarter, due to the impact of the slowdown in consumer demand due to inflationary pressures, permanent store closures, lapping of the child tax credit, and a record Back to School season last August. Overall, Company-provided operating income of $59.1 million was slashed in half from last year. Total debt was up 25.6%, to $315 million at quarter end. As of October 29, 2022, the Company had cash of $19 million and $77 million in estimated revolver availability. The Company ended the period with 658 locations, down from 703 a year earlier. Since the Company’s fleet optimization initiative was announced in 2013, it has permanently closed 541 stores. The Children’s Place is now planning to close 40 – 50 stores this year, with the majority during 4Q22 (14 have been closed YTD). The Company reduced its top and bottom-line expectations for 4Q22 and FY22 due to the combination of an increasingly challenging macro-economic environment and continued supply chain cost pressure. Management expects FY22 sales of $1.71 billion – $1.72 billion, down slightly from previous guidance of $1.73 billion, and a low double-digit decline compared to FY21. Operating margin is expected to be 4.7% – 4.8%, versus 7.5% expected previously; a decline of 75% for the year.
Checkers & Rally’s signed three multi-unit development agreements that will bring 40 new restaurants to California, Tennessee, and Maryland. The California 10-unit agreement is with new franchisee Marcus Frisco and will focus on opening units in new and existing markets in Southern California. In Tennessee, current franchisee Michael Rezi will add 15 units statewide, including in the Nashville, Spring Hill, and Cookeville markets. For Maryland, SBA Management plans to open 15 units, with anticipated locations in Baltimore, Glen Burnie, Jessup and Washington D.C. With these deals, the Company has now signed 32 agreements in 2022, representing a total of 72 new restaurant units. Looking ahead, Checkers & Rally’s also announced that it is considering further expansion opportunities in California, Virginia, Arizona, Wisconsin, Connecticut, and North and South Carolina to bolster new and existing franchise portfolios. Click here to request a sample list of future openings.
Starbucks opened its 23,000 square-foot Starbucks Reserve Empire State Building store in Manhattan last week. The three-story location will feature immersive hands-on workshops and guided tasting flights, as well as new coffee beverages, craft cocktails, and an extended artisan menu of Princi food only available at that location. Earlier this year, the Company opened its largest-ever location, a 35,000 square feet store, in Chicago’s Magnificent Mile neighborhood.
The Buckle reported 3Q22 revenue was up 4% to $332.3 million. The Company attributed the sales increase to a 6% rise in sales in the men’s segment; on a combined basis, accessory sales were up 15.5%, while footwear sales were down about 17%. These two categories accounted for approximately 9.5% and 7.5%, respectively, of 3Q22 sales, compared to 8.5% and 9.5%, respectively, in 3Q21. Overall, comp store sales for the quarter increased 3% and online sales increased 8.8% to $55 million.
During the quarter, Buckle opened one new store, completed three full remodels, two of which are relocations into new outdoor shopping centers, and closed one store; YTD, the Company opened three new stores, remodeled 16 existing stores, and closed two underperforming locations. For the remainder of the year, Buckle is planning to complete eight additional full remodel projects and open one additional new store. Capital expenditures are expected to be $26 million – $30 million for the year, which includes both planned store projects and IT investments.
Rite Aid launched a new pilot program, which is part of the Company’s previously announced plan to bring new, smaller-sized stores to communities considered ‘pharmacy deserts.’ The format, operating under the new banner Rite Aid Pharmacy, will occupy approximately 3,000 square feet, which is significantly smaller than the average 11,000 to 15,000 square-foot standard Rite Aid outlets. The first banner location, opened in the town of Craigsville, VA, with a population of 1,000 people, features a full-service pharmacy and a retail assortment of health and wellness products. The Company is planning to open two more Rite Aid Pharmacy locations in Virginia by early 2023.
In 3Q22 (ended October 1), Ace Hardware’s consolidated revenues totaled $2.23 billion, an increase of 10%; total wholesale revenues were $2.04 billion, an increase of 10.8%. Growth was seen across several departments with holiday, paint and outdoor power equipment showing the largest gains. Total retail revenues were $193.4 million in 3Q, an increase of 2.3%. Net income was up 1.3% for the quarter, to $100.6 million. Inventory was up 18%, year to year, with about half of the increase due to vendor cost inflation, with the remainder due to the intentional build-up of inventory as a hedge against supplier shortages and to increase fill rates to Ace Owners. Management noted that the late arrival of spring weather in 2022 resulted in an overstock of patio and lawn and garden inventory that will be carried over into the 2023 spring selling season. Ace added 35 new domestic stores in 3Q, and 10 stores cancelled their membership. The Company’s total domestic store count was 4,841 at the end of the 3Q, an increase of 82 stores year to year. On a worldwide basis, Ace added 37 stores in 3Q, bringing the count to 5,682 at the end of the period.
Williams-Sonoma reported results for its third quarter ended October 30, 2022. Total sales grew 7.1%, with comps rising 8.1%; they were up 25% on a two-year stack. Comps were led by a 19.6% jump at Pottery Barn, offsetting a 4.8% drop at Pottery Barn Kids and a 1.5% decline at Williams Sonoma. Gross margin fell 220 bps, driven by higher shipping and freight costs with merchandise margin flat. EBITDA rose just 1% with EBITDA margin of 18.7%. The Company reiterated its FY22 financial guidance of mid-to-high single digit annual net revenue growth and operating margins in-line with FY21 but will not reaffirm FY24 guidance due to deceleration and choppiness of demand seen in 3Q and cost pressures anticipated through 1H23. During the quarter, the Company spent $234 million on capital expenditures with $350 million planned for the year. The Company had no debt again at quarter end, but due to over $1 billion in shareholder returns YTD, its net cash position fell to $113 million from $657 million last year. The Company also has approximately $488 million available under its $500 million revolving credit facility, expiring September 2026.
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