November 24, 2021
CVS Health announced last week it will be closing approximately 900 of its 9,955 stores (includes 1,845 within other retailers, like Target). Perhaps more significantly, CVS said it was dividing its retail stores into three distinct models; (i) sites dedicated to offering primary care services; (ii) an enhanced version of HealthHUB locations; and (iii) traditional CVS Pharmacy stores. Even before the pandemic, both CVS and Walgreens had shifted their respective retail business to play a larger role in the healthcare sector, as they were facing increased competition from online competitors in the front-end, and reduced pharmacy reimbursement rates. This was only accelerated by the pandemic, including their part in providing vaccinations, and consumers increased acceptance of alternative and virtual healthcare. Since its 2018 acquisition of Aetna, CVS’ store count has increased by only a few dozen. During the same time, Walgreens has closed about 600 locations, including many of the over 1,900 Rite Aid locations it acquired; it currently operates 8,965 stores. A CVS spokesman said the Company doesn't yet have a list of which stores are closing, a process that will begin early next year. CVS also announced that Michelle Peluso, currently chief customer officer, will become co-president of CVS's retail business in January along with Prem Shah, who joined in 2013 and last week was named CVS's first chief pharmacy officer. Neela Montgomery, current president of CVS Retail/Pharmacy, is leaving the Company. We are tracking the closings closely. Click here to request an update.
Starbucks and Amazon Go have partnered to launch a new store concept in New York City called Starbucks Pickup with Amazon Go. The new store concept utilizes the order feature in the Starbucks app and Amazon Go's Just Walk Out technology, alongside a modernized lounge that features individual workspaces and expanded tables with power outlets and USB ports. The new store offers the full Starbucks menu and a curated assortment of food and beverages in the Amazon Go market, including fresh-prepared salads, sandwiches, bakery items, and snack options. Starbucks and Amazon Go plan to open additional stores in 2022, with the next location planned for The New York Times building also in NYC.
BJ's Wholesale Club’s 3Q21 results rebounded nicely from a mediocre 2Q. Revenue jumped 14% and comps improved almost 6%. While the Company did not outperform 3Q20, when sales and comps were up 15% and 19%, respectively, it surpassed the 3Q19 pre-pandemic reporting. Grocery led all categories with a 6% comp improvement. Despite the stronger numbers, BJ's still lagged behind Target and Walmart's 3Q21 comp growth of 13% and 9%, respectively. On the bright side, digital growth regained some momentum, advancing 44% and 244% in 3Q and on a two-year stacked basis, respectively. BJ's membership is another success story, gaining about 8% during the quarter with higher tier memberships now making up about 34% of total members.
The Company did not add any clubs during the quarter, but anticipates opening five new clubs during the remainder of FY21. BJ's offered some limited guidance, expecting 4Q comps to be up low single-digits and about 50 bps of gross margin pressure for the full year. Click here for a list of future openings.
Our Hot Market Report takes a closer look at the Miami, FL 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.
Dollar Tree's 3Q21 performance slowed as revenue grew 4% and comps expanded a modest 1.6%. Traffic declined during the quarter, as the comp improvement was all ticket driven. The Company also fell below 3Q19's comp of 2.5%. Dollar Tree is feeling the effects of supply chain disruptions as it relies heavily on imported goods. Merchandise and freight costs increased a combined 375 bps, slightly offset by lower shrinkage, driving gross margin down 365 bps. To offset these pressures, the Company announced it will increase its current $1 price point to $1.25 in about 2,000 stores with the goal of implementing the hike in all Dollar Tree stores by the end of 1Q22. The Company has tested the increased price point, and it appears to be meeting little resistance.
During the first nine months of FY21 the Company opened 365 new stores, relocated 66, and closed 79. Additionally, the Company completed 1,250 Family Dollar store renovations to either Combo stores or the new H2 format. For FY21, the Company plans to open 600 new stores (400 Dollar Tree stores and 200 Family Dollar). Capital expenditures are projected to be about $1.10 billion.
Dollar Tree stock reached a record high of $142.39 earlier this week. It had surged more than 19% over last week after it was reported that activist investor Mantle Ridge had taken a stake of at least $1.80 billion in Dollar Tree. Mantle Ridge is hoping to improve the Family Dollar business and rework its approach to pricing. Click here for a sample list of openings.
Burlington Stores’ 3Q21 sales increased 38% and comps rose 16% compared to 3Q19. Gross margin contracted 370 bps, as higher shipping costs outpaced lower markdowns. Burlington has resumed its aggressive expansion with 101 new stores expected to open in FY21 and commented that it intends to accelerate the pace of its new store opening program. The Company will also be closing or relocating 24 stores. Click here for a sample list of openings and closings.
Dick’s Sporting Goods’ 3Q21 sales were $2.75 billion, an increase of 13.9% from 3Q20, and a 40% increase from 3Q19, driven by a 12.2% increase in same store sales and the net addition of five stores in the last 12 months. E-commerce sales increased 97% compared to 3Q19 and 1% compared to 3Q20; penetration has gone from 13% in 3Q19 to 19% for 3Q21. During 3Q21, the Company opened nine new stores, including three Dick's Sporting Goods, one Golf Galaxy, two Public Lands and three Outlet Stores. For the YTD21 period, the Company opened a total of 13 new stores, closed one store, and relocated nine stores. Click here for a sample list of openings and closings.
Click here to request a copy of this Special Analysis.
Fat Brands announced its intention to acquire the 23-unit, Phoenix, AZ-based Native Grill & Wings for $20 million from Wingtime, LLC, a subsidiary of Cybeck Capital Partners, LLC. The deal, which should be finalized in mid-December 2021, marks Fat Brands’ third wings concept (including Buffalo’s Café & Express and Hurricane Grill & Wings), and fourth acquisition in six months following the purchases of Global Franchise Group, Twin Peaks and Fazoli’s. With the acquisition, Fat Brands intends to expand Native Grill & Wings into new markets, and already has new locations in development.
On November 19, Topgolf opened a new store in Fort Myers, FL, its seventh location in Florida. The two-level venue features 72 climate-controlled outdoor hitting bays, an outdoor patio, rooftop terrace, and a private event space. The other Florida locations are in Miami (2), Orlando (2), Tampa, and Jacksonville. Meanwhile, construction is underway on a $20 million location in Knoxville, TN, due to open in the summer of 2022. Click here for a sample list of openings.
Cracker Barrel’s 1Q22 revenue rose 21.4% to $784.9 million. Compared to 1Q19 (the Company claims a more useful comparison), restaurant comps increased 1.4% and retail comps increased 17.6%. Comparable store off premise restaurant sales grew 168% compared to 1Q19 and represented approximately 20% of restaurant sales.
Looking ahead at FY22, Cracker Barrel expects commodity and constant mix wage inflation in the high single digits; capex of $120 million; and the opening of three new Cracker Barrel locations and 15 new Maple Street Biscuit Company locations. Click here for a list of future openings.
Click hereto request a copy of this report.
The last remaining Kmart in Michigan is closing this weekend, ending 59 years of business in the Company’s home state. At its peak, Kmart operated about 2,500 locations worldwide. Only six Kmart stores are expected to still be in business by the end of the year… if that. Click here for a list of closings.
Kroger now offers pickup service via Google Maps at more than 2,000 stores across 32 states. The service, which allows shoppers to add their order to the popular mapping tool and receive a reminder when it's time to leave, has grown since its pilot kicked off in June. Click here for a sample list of openings and closings.
Natural Grocers by Vitamin Cottage’s 4Q performance remained elevated with comps increasing 2.5% and sales increasing 3.2%. EBITDA also expanded 30% to $17.8 million. Looking forward, for FY22, the Company expects comps of between nil and 2% gains and to invest between $28 million and $35 million in capital expenditures to open between four and six new stores and to relocate / remodel another three to four. The Company’s balance sheet remains strong with net debt to TTM EBITDA <1x. Click here for a list of future openings.
Panera Bread opened its first “Next-Generation” bakery-cafe design in Ballwin, MO. The store implements a greater focus on off-premises convenience alongside an elevated dine-in model. Click here for a list of future openings.
Shoe Carnival’s top line momentum continued in 3Q21, with sales and comps up 30%. Gross margin expanded 840 bps, despite higher supply chain expense, due to decreased promotional activity. In YTD21, the Company opened one store and closed seven locations. Management expects to close three additional stores by the end of the year, before moving to net store growth in 2022. Given ongoing momentum heading into 4Q, management again raised its financial outlook. FY21 sales are expected to total approximately $1.29 billion (compared to about $1.22 billion previously). Diluted net income per share is expected to be in the range of $5.00 to $5.10 (compared to $4.35 to $4.50 previously).
The Children's Place recorded sales of $558.2 million during 3Q21, up 31.2% over 3Q20, and a 6.4% increase over 3Q19 with comps growth of 36.2%. The top line growth was primarily driven by improved pricing and more favorable product assortment. As of October 30, 2021, the Company had more than 99% of its stores open to the public in the U.S., Canada, and Puerto Rico. In line with the Company's continued store optimization strategy, the Company closed 47 stores in the YTD21, ending the quarter with 703 locations, down 13.1% from 809 in the prior year period. As a result of favorable lease negotiations, the Company is now targeting 275 store closures since the beginning of FY20, versus the previously announced target of 300 closures. Since the Company’s fleet optimization initiative was announced in 2013, it has permanently closed 496 stores.
Christmas Tree Shops is opening 19 pop-up Christmas Headquarters locations in addition to its legacy markets in the Northeast. The Company is using the pop-up concept as an opportunity to introduce its format to new customers. Stores offer a selection of holiday items for decorating, entertaining, and gifting, and will operate through January 3, 2022. Of the 19 locations, eight are located in Florida, where the Company operates just two permanent units. Another five are located in Illinois (no existing stores), two in North Carolina (joining two existing units), and one each in Georgia (2), Maryland (2), Ohio (1), and Pennsylvania (7).
In November 2020, Bed Bath & Beyond completed the sale of Christmas Tree Shops to Handil Holdings. New owner Marc Salkovitz said at the time the chain did not intend to expand beyond its 80 existing profitable stores primarily located in Massachusetts, New York, New Jersey, and Pennsylvania. However, in addition to one pop-up store in Sarasota, the Company is also opening a permanent 48,000 square-foot location in Sarasota, in a former Sports Authority.
Looking ahead over the next two years, the Company plans to abbreviate its name to CTS in an effort to address the challenge of operating a seasonal chain that sells home décor year-round. Ironically, the test stores being opened in adjacent markets are precisely seasonal shops focused on seasonal goods.
Franchise Group announced the acquisition of W.S. Badcock Corporation, a home furnishings company in the Southeast U.S., for $580 million. W.S. Badcock‘s store network includes 68 corporate and 315 independent dealer-owned stores under the “Badcock Home Furniture & More” brand. The stores sell furniture, appliances, bedding, electronics, and other home office and seasonal items. Badcock also operates three distribution centers and a consumer credit business that has about $550 million in gross receivables. During its fiscal year ended June 30, 2021, Badcock generated $901.9 million in revenue and $139.5 million in adjusted EBITDA. Click here for more info.
Reitmans (Canada) Limited announced that it will: (i) seek authorization from the Québec Superior Court on November 26, 2021 to file its Plan of Arrangement (similar to a Chapter 11 Plan of Reorganization in the U.S.) under the Companies' Creditors Arrangement Act (CCAA), and (ii) call a creditors' meeting to be held on December 21, 2021. Reitmans stated, “The Plan of Arrangement to be submitted to the Company's creditors for approval provides that Reitmans will distribute an aggregate amount of $95 million (the Settlement Amount) to creditors in full and final settlement of all claims affected by the Plan of Arrangement, including an initial payment of up to $20,000 per claim, plus a pro rata distribution of the remaining balance of the Settlement Amount.”
The Company further announced that it has entered into a binding commitment letter with BMO Bank of Montreal for a secured asset-based revolving facility of up to $115 million. Under the CCAA, the Plan of Arrangement must be accepted by a simple majority of the creditors of Reitmans whose claims are affected by the Plan and which represent at least two-thirds in dollar value of all such claims filed in accordance with the CCAA process, and who will vote at the meeting, and be approved by the Court. We note that under the CCAA there is no requirement for vendors to provide credit to the Debtor most CCAA orders provide that the Debtor will carry on business in the normal course and pay for post-CCAA goods and services on normal credit terms. Click here for more info.
Authentic Brands Group is delaying a planned initial public offering. Instead, ABG plans to sell significant equity stakes in its business to private equity firm CVC Capital, hedge fund HPS Investment Partners, and a pool of existing stakeholders, valued at $12.70 billion. This transaction is expected to close in December, at which point CVC and HPS will each retain a seat on the Company’s board. Looking forward, ABG will reassess its IPO in 2023 or 2024. The Company’s portfolio includes apparel retailers Forever 21 and Aeropostale, department store chain Barneys New York, men’s suit maker Brooks Brothers, and Sports Illustrated magazine. It expects to complete its purchase of Reebok early next year. Click here for more info.
Dine Brands International debuted its first virtual IHOP location in Toronto, Canada as part of its partnership with Ghost Kitchens Brands, which owns and operates a network of virtual kitchens across North America featuring items from more than 20 restaurants and consumer packaged goods (CPG) brands. Customers will have access to a selection of IHOP's offerings for takeout and delivery. Ghost Kitchen Brands' direct ordering platform and in-restaurant kiosks allow customers to mix and match meals and snacks in one order. Guests can also order IHOP directly for pickup or delivery through third-party delivery service providers. Dine Brands International said it plans to continue emphasizing growth in markets including North America, the Middle East, Asia, and Latin America.
On November 17, Sweetgreen announced the pricing of its IPO of Class A common stock at $28 per share. The Company is offering 13 million shares of its stock. The shares began trading on the NYSE on November 18, under the symbol "SG" and the offering closed on November 22. Click here for more info.
Urban Outfitters reported record 3Q22 sales of $1.13 billion, up 17% year over year and 15% from pre-pandemic 3Q20. The Retail channel (92% of 3Q22 sales) increased 16%, versus 3Q20 mainly driven by double-digit growth in digital channel sales, partly offset by a mid-single-digit decline in brick and mortar sales due to reduced store traffic. The Company added 40 net stores since last year. Wholesale channel sales (7% of total sales) fell 15% from 3Q20 on lower Free People sales to promotional wholesale customers. By banner, comps were up 7% at Urban Outfitters (37% of 3Q22 sales), 9% at Anthropologie (38% of 3Q22 sales), and 55% at Free People (23% of 3Q22 sales) compared to 3Q20. Product demand remains strong and markdowns were at record lows, which contributed to a 202 bps increase in gross margin. Overall, operating income was up 18% year over year, and 55% compared to 3Q20. Click here for a list of future openings.
Williams-Sonoma outperformed yet again in 3Q21, with sales up 16% compared to 3Q20. Comps rose 16.9% year over year, and 41.3% on a 2-year stacked basis. The Company reported solid performance across all banners with double digit growth in three of the four banners (Williams Sonoma comps were up 7.6%). Despite consumers returning to brick & mortar stores, e-commerce sales grew sequentially, representing 67% of total sales, up from 65% the previous quarter. Gross margin rose 370 bps driven by higher merchandise margins and occupancy leverage, as the Company pulled back on promotions and closed less profitable stores. Management noted that thus far in 4Q21 it continues to see strong sales and margins. The Company closed four stores during the quarter and 37 in the YTD period, ending 3Q21 with 577 locations. Turning to the balance sheet, the Company ended the quarter with $657 million in cash and no debt. Once again, the Company raised its FY21 outlook, with revenue growth now expected to be 22% – 23% and FY21 operating margin expected to be 16.9% – 17.1%. For the long-term, the Company is planning for annual revenue growth of mid-to-high single digits with operating margin at or above FY21 levels. Click here for a list of future openings.
Village Super Market will open a new ShopRite store in Atlantic City, NJ, an area that is considered a food desert. Village runs 29 ShopRite supermarkets in New Jersey, northeastern Pennsylvania, and Maryland as well as three Gourmet Garage specialty markets and five Fairway Market stores in NYC.
Cato’s sales and earnings continued to recover in 3Q21, but the Company is facing supply chain disruptions since a significant portion of its merchandise is from Southeast Asia. In 2Q21, management commented on late product deliveries restraining sales growth. 3Q21 revenues were up 14% to $208 million, driven by a similar increase in comps, however, sales remain 10% below pre-pandemic levels. The Company is also operating with 23 fewer stores than last year, of which six were permanently closed during the YTD21 period. As of quarter end, Cato had 1,324 stores in 32 states, down from 1,347 stores from last year. Gross margin widened to 49%, compared to 27% last year, and contributed to a recovery in EBITDA to $5.5 million. For the YTD period, Cato’s sales were up 42% to $588 million, on a 41% increase in comps, but remain 6% below YTD19 sales.
Management warned of lower product availability going into the 4Q21 holiday season due to worsening supply chain conditions; however, Cato's balance sheet remains strong. As of 10/30/2021, the Company had no debt, $204 million in cash, and an estimated $35 million in untapped revolver availability.
Save Philly, led by local owners,opened the largest Save A Lot store in the Philadelphia, PA metro area, standing at 21,000 square feet. The Camden, NJ location (within metro Philly) is one of three locations recently acquired by Save Philly. The others two, which were acquired earlier this month, are located in Lebanon, PA, and Bridgeton, NJ.
Save A Lot also recently expanded its retail partnership with Yellow Banana LLC through the sale of an additional six Company-owned stores in Dallas, TX and Jacksonville, FL. The latest deal brings Yellow Banana’s total Save A Lot store count to 38 stores in five states.
Ahold Delhaize’s The Giant Company plans to open three more stores within the greater Philadelphia, PA area this December. The city's newest Giant store will open a 46,000 square-foot store on December 3, followed by a 72,500 square-foot store on December 10, and a 32,000 square-foot Giant Heirloom Market on December 16.
Foot Locker reported a 4% increase in 3Q21 sales, with comps up 2.2%, on top of 7.7% comp growth in the prior year period. Sales were up 13% compared to 3Q19. Gross margin expanded a substantial 380 bps due to less promotional activity. Capital expenditures totaled $50 million, primarily related to its store fleet. During 3Q, the Company opened 32 new stores, closed 80 locations (including 32 Footaction locations), and remodeled or relocated 29 stores. The Company also acquired 93 WSS stores. As of October 30, 2021, the Company operated a total of 2,956 locations. Subsequent to quarter-end, the Company completed the acquisition of 'atmos', an online-focused premium sneaker and apparel retailer based in Japan, for $360 million. For FY21, the Company expects sales growth in the high-teens range, with comps up mid-teens.
The Buckle’s 3Q21 sales increased 27.3% to $319.4 million, and comps were also up 27.3%. Online sales increased 9% and represented 15.8% of total sales, down from 18.5% last year. Gross margin improved 380 bps to 50.4%. Operating income jumped 51.9% to $82.2 million. The Company presently operates 441 stores in 42 states, down from 446 units a year ago. Click here for a list of future openings.
Advance Auto Parts’ 3Q21 sales increased 3.1% to $2.62 billion; comps were up 3.1%, or 13.3% on a two-year stack basis. Looking ahead, Advance Auto Parts now expects FY21 sales of $10.90 billion – $10.95 billion, up from prior guidance of $10.60 billion – $10.80 billion. Comps are projected to rise 9.5% – 10% from 6% – 8%. Meanwhile, the Company reduced its guidance for new store openings to a minimum of 30, down from 80 – 120, as the construction environment in California remains challenging due to the ongoing pandemic. Advance remains committed to converting 109 Pep Boys locations in California to Advance Auto Parts, as announced in March 2021.
Signet Jewelers finalized the acquisition of Diamonds Direct USA Inc. for $490 million in cash. This reflects approximately a 1.1x multiple on annualized revenue and approximately a 7.1x multiple on annualized EBITDA. Diamonds Direct currently operates 22 locations with mature stores having a median annualized revenue of approximately $18.5 million over the last twelve months.
Last week, Buheler’s Fresh Foods opened a new store in Galion, OH. It is the Company’s 14th location and stands at 21,700 square feet.
Walmart is partnering with DroneUp LLC to launch drone delivery operations at three stores in Northwest Arkansas. One store, located in Farmington, AR, is currently offering drone delivery to eligible customers. The other two stores, in Rogers and Bentonville, AR, are planned to launch in the coming months. The three stores will deliver items by drone in as little as 30 minutes. Walmart followed up on a pilot it ran with DroneUp in Fall 2020 to deliver at-home COVID-19 self-collection kits via drone by making an unspecified investment in the Company in June 2021.
Nordstrom announced a partnership with Fanatics under the “drop-ship model” where Nordstrom.com will handle sales and Fanatics will fulfill the shipping orders. The partnership provides Nordstrom with a new product category, licensed products from major sports leagues. Merchandise for men, women, and children includes Fanatics, Nike, Adidas, and Mitchell & Ness brands. While the deal is online only right now, Fanatics may eventually operate in-store shops within Nordstrom locations. Click here for a list of future openings.
Ace Hardware’s 3Q21 sales increased 1.4% to $2.03 billion. Retail sales were up 1.5% due to net new stores (30 added during the quarter), while e-commerce sales were down compared to the pandemic related surge last year. Click here for a list of future openings.