October 5, 2022
Bed Bath & Beyond’s 2Q22 performance was as disappointing as expected, with negative $168 million of EBITDA, and comps down 26%. Full-year comps are still projected to decline in the 20% range, meaning comps in the negative low-teens for 2H22. The Company closed a net 44 stores over the past year; it plans to close a minimum of 100 stores from its new 150 store closure program by the end of FY22. Buybuy Baby is still a focus going forward, with 14 new stores expected to open in the second half despite pausing other remodeling work. Comps at Baby have eased, falling in the high-teens after rising high-teens last year. Though 3Q generally requires cash to build inventory for the holiday season, the Company anticipates breakeven operating cash flow by the end of FY22. This will be supported by store closures and liquidation of excess inventory, with a profit still not expected.
According to sources, financing advisor Perella Weinberg Partners is working with holders of Bed Bath & Beyond’s 2024 notes ahead of debt talks expected to be held with the Company. The bonds are currently priced in the $14 - $30 range, thus a refinancing at current rates could reduce that debt balance by nearly $1 billion or more if exchanged for equity.
The second half will be vital for the Company in cleaning out unwanted inventory, and rebalancing with the desired national brands to gain traction with its customers and performance if the turnaround has any chance to succeed. Click here to request a list of Bed Bath & Beyond future store openings and closings.
United Natural Foods is increasing its investment in its Shoppers Banner, recently announcing it is reacquiring three former store locations and remodeling two existing store locations. Two of the new Shoppers stores, located in Capitol Heights, MD and Baltimore, MD, opened this week, and the third in Landover, MD will open in November. Additionally, Shoppers is scheduled to complete remodels at stores in Forestville, MD in early October. The remodels include updated refrigerated and frozen cases, self-checkout lanes, and new signage. UNFI currently operates 19 supermarkets under the Shoppers banner in Maryland, northern Virginia and Washington.
Meanwhile, UNFI opened a 125,000 square-foot refrigerated distribution center in Londonderry, NH, further supporting customer growth across the Northeast and relieving pressure at its Chesterfield, NH and Dayville, CT distribution centers.
Walmart opened a 1.1 million square-foot Next Generation fulfillment center in Joliet, IL. The first of four planned next-gen FCs, Joliet will start operations ahead of the holiday season to support next or two-day shipping to customers in Illinois, Indiana and Wisconsin. Walmart FCs store millions of products sold on Walmart.com, which are picked, packed and shipped directly to customers. Also, the new state-of-the-art FCs will fulfill Marketplace products shipped by Walmart Fulfillment Services (WFS) and the Company’s end-to-end fulfillment service for third-party e-commerce sellers. Earlier this year, Walmart announced four next-gen FCs, expected to streamline a manual 12-step process into five steps, namely unload, receive, pick, pack and ship.
Village Super Markets’ sales fell 1.6% in 4Q22, due to an extra week in 4Q21. Excluding the impact of the extra week, sales increased 5.6%, driven by a 5.1% increase in same store sales, which reflected increased sales in NYC, higher transaction counts and inflation, and the opening of a Gourmet Garage in the West Village of Manhattan in April. Digital sales increased 7% in 4Q and 2% for the year. 4Q operating income was $18 million, up from $13.8 million last year. The increase reflects lower operating and administrative expenses due primarily to lower labor costs and fringe benefits, decreased supply spending, lower legal and consulting fees and less advertising spending.
Village Super Markets operates 34 grocery stores in New Jersey, New York, Maryland and Pennsylvania under the ShopRite and Fairway banners as well as four Gourmet Garage specialty markets in New York City.
Amazon plans to spend nearly $1 billion on pay increases for its frontline workers in the U.S. With pay increases starting in October, the average starting wage for employees in its customer fulfillment and transportation operations will go from $18 to more than $19. The full range runs from $16 to $26 per hour, depending on position and location. Amazon has also expanded a program dubbed “Anytime Pay” that allows instant and flexible access of up to 70% of eligible earned pay rather than relegating pay to a weekly or bi-weekly schedule.
Meanwhile, International Brotherhood of Teamsters, one of the country’s largest labor groups, has set up a division dedicated solely to organizing Amazon workers.
Amazon is reportedly looking to close all but one of its U.S. call centers and shift hundreds of office employees to remote work to save on real estate. The call centers currently planned for shuttering are in Kennewick, WA; Lexington, KY, and Phoenix, AZ. The call center that remains open will most likely be in Huntington, WV or Houston, TX. The cost-cutting comes after Amazon quickly expanded its warehouses and logistics operations when consumer demand jumped during the early stages of the pandemic. Customer support employees are said to comprise a small fraction of Amazon’s over 1.5 million workers.
A year after its successful pilot launch, Amazon will roll out the Amazon Community Lending program as a long-term offering to help fuel small business growth. In partnership with B.S.D. Capital, Inc. dba Lendistry, this program supports urban and rural small businesses in socially and economically distressed communities through short-term loans at competitive rates. Since its launch, the program has loaned more than $35 million to over 800 sellers. The program plans to loan more than $150 million in the next three years to small businesses selling in the Amazon U.S. store.
UFCW 1059, the union that represents 12,500 Kroger workers at 82 stores across Central Ohio, reached a tentative agreement with Kroger last week, potentially averting a strike that was authorized over two weeks ago, after the union’s rejection of the Company’s “last, best and final offer.” Members will vote today through Thursday on whether to ratify the new deal, with the results disclosed Friday morning, according to the union.
Kroger workers are reportedly outraged that union officials ignored their strike authorization and are forcing them to vote on the same contract they have voted down three times. According to the workers, contract “negotiations” between the union and Kroger have yielded a pro-Company contract that cuts real wages and imposes a regressive pay scale system allowing the Company to cut pay by slashing hours. UFCW 1059 claims these contracts are the best offer.
EG Group completed the first of its Tom Thumb to Cumberland Farms conversions in the Gulf Coast. Cumberland Farms has opened three stores, with 50 more projected to open by the end of the year. EG Group announced in February it would spend $50 million to rebrand 113 Tom Thumb c-stores in Florida, Mississippi, Tennessee, and Alabama to the Cumberland Farms banner. The initiative is expected to take two years to complete. EG Group acquired Cumberland Farms and its 567 convenience stores in October 2019.
Walgreens is expanding a pilot system and opening automated fulfillment centers where robots package prescriptions for patients. The Company first opened an automated micro-fulfillment center (MFC) focused on rapid fulfillment of customer prescriptions in the Dallas, TX area. As we reported in our 3Q22 report, the Company has four MFCs serving 1,100 stores, and it expects to have 11 in operation, serving 3,900 stores, by FYE22 and 22, serving over 8,500 stores, by FY24. The MFCs use automation technology from iA, which helps reduce costs and monitor inventory. Each MFC is estimated to cost $30 million and cover 40% to 50% of pharmacy scripts. The Dallas MFC reportedly fills 35,000 prescriptions for 500 stores every day, cuttingthe workload on pharmacists by about 25% and saves the Company about $1 billion annually. The changeover will let pharmacists engage in more profitable activities, like reaching out to patients and giving vaccinations. The nationwide shortage of pharmacists has prompted Walgreens to cut hours at one third of its 9,000 U.S. pharmacies and entice pharmacists with signing bonuses of as much as $75,000. Human pharmacists will continue manually filling prescription orders that involve controlled substances and/or are time sensitive. Click here to request a list of Walgreens' future store openings.
Rue21 hired Ducera Partners LLC to advise it on a possible restructuring, according to reports. The Company, which sells low-cost apparel for young women and men, recovered during the pandemic when its core customers benefited from stimulus payments; however, earnings reportedly dropped in FY22. The reports also state the Company is in talks to raise financing and plans to “address the challenges it faces without seeking protection under Chapter 11.” We note that it is unclear whether references to “restructuring” and “raising financing” reflect one or possibly two separate paths. Rue21 emerged from Chapter 11 protection in December 2017, after closing more than 400 stores and cutting $700 million in debt.
According to reports, Canadian movie theater chain Cineplex has approached lenders to Cineworld, DIP about reviving a potential merger with Cineworld’s Regal Entertainment Group in return for debt and stock backed by the merged business. Cineworld doesn’t have a clear path out of Chapter 11 yet, but it has the right to make its own restructuring offer to creditors before other alternatives can be proposed. A merger between the two companies had been under consideration before but on different terms. Cineworld agreed to acquire Cineplex in 2019 for roughly $3 billion until the spread of COVID-19 led Cineworld to terminate the deal. Cineplex is now looking to build support for a new merger structure, this time as the acquirer. It would need support from Cineworld’s top lenders, who will have to approve a Plan of Reorganization before it can exit bankruptcy. Creditors providing Cineworld’s DIP Facility could potentially take control of most of the Company when it emerges from bankruptcy, unless it chooses to back a separate plan.
Meanwhile, Cineworld’s 1H22 sales increased 420% to $1.51 billion due to the easing of COVID restrictions. Both gross profit of $424.5 million and operating profit of $57.3 million were positively impacted by steadily increasing admission levels, strong ticket prices and spend per person, which led to adjusted EBITDA improving to $364.2 million from negative $21 million last year.
In the Chapter 11 case, the Company filed a motion seeking rejection of six additional unexpired leases; none of these locations maintain active theater operations. Rejecting the leases are anticipated to save $5 million. Meanwhile, the Court denied a motion by Cineplex to lift the automatic stay barring litigation against Cineworld during the bankruptcy proceedings. This temporarily suspends proceedings in the Ontario Court of Appeals, which was set to hear arguments in October to determine whether a lower court’s decision to award Cineplex nearly $1 billion in damages should stand.
H&M’s 3Q22 revenue increased 3.4% but decreased 4% in local currencies. By region, sales were up 3% in North and South America, 22% in Asia, Oceania, and Africa, and declined 22% in Eastern Europe due to the Russia-Ukraine war, and 9% each in Western Europe and The Nordics. Company-reported operating income of SEK 3 billion (excluding the one-time impact related to Russia) was slashed in half, compared to operating income of SEK 6.27 billion in 3Q21. To mitigate the impact from its Russia exit and challenging macroeconomic factors, H&M plans to cut costs and improve efficiencies for expected annual savings of approximately SEK 2 billion.
For most of the quarter, the Company’s stores in Russia were closed due to the war; stores in Belarus and Ukraine were closed for the entire quarter. At the end of 3Q22, 23 stores were temporarily closed in China due to COVID-19. H&M also closed 38 other stores during 3Q22, ending the period with 4,664 locations. For FY22, the Company decelerated its expansion plans to 89 new stores, compared to 94 new stores expected previously, primarily in growth markets; it will close 254, compared to 272 expected previously. The Company will also enter six new markets, including Company-owned stores in Ecuador, and Kosovo, and franchised locations in Guatemala.
Last week, Gordon Food Service opened a new 27,000 square-foot retail store in Memphis, TN. The store caters to home shoppers, restaurant owners and foodservice professionals; it is open to the public and does not require a membership. The Company operates more than 170 Gordon Food Service Stores in 12 states. In February 2022, the Company opened a new store in Huntsville, AL, its first in the state; it has plans to expand the footprint into Texas near the end of 2022.
The Buckle reported solid 2Q22 results despite macro and inflation headwinds, which have also negatively affected many competitors. Sales grew to $302 million due to comps increase and online sales of 1.6%, buoyed by higher prices (up an average 3.6% across all categories). The youth business, which targets the seven to 14-year-old age group, represented the fastest-growing category, up 38% YOY and comprising 3% of 2Q sales. The Company has four youth-only locations, and store remodels are dedicating more space for youth merchandise. Gross margin remained essentially flat, but SG&A margin continued to climb, primarily from increases in store labor expense. Overall, EBITDA retreated a modest 3% to $73 million, and EBITDA margin declined 130 bps. As of July 30, the Company had no debt, $284 million in cash, and $19.2 million of revolver availability. During the quarter, two new stores opened and seven remodels were completed. Subsequent to quarter end, management reported August comps and sales up 4.6% and 5.8%, respectively.
Costco will close its Springdale, OH store on November 16 and open a replacement store in nearby Liberty Township the following day. The new 160,530 square-foot club will anchor the $150 million Freedom Pointe development. Costco also has locations in Deerfield Township and Florence. Click here to request a list of Costco's future store openings.
Dick’s Sporting Goods is collaborating with Peloton to sell its bikes, treadmills and other products in Dicks’s stores, marking the first brick-and-mortar retailer to sell Peloton equipment. Peloton also operates its own namesake stores and recently struck a deal to sell its products on Amazon. Dick’s is aiming to have Peloton products, including Bike, Bike+, Tread, Guide, bike shoes, and exercise mats, for sale in more than 100 stores in time for the upcoming holiday season. The Company operates more than 700 sporting goods stores nationwide. Click here to request a sample list of future store openings.
Potbelly Corporation is continuing its aggressive “Franchise Growth Acceleration Initiative” with the signing of two agreements that will bring a total of 19 new shops to the Tampa, FL and Champaign-Springfield-Decatur, IL metro areas. Potbelly plans to reach 2,000 units, with at least 85% of those being franchised shops, over the next 10 years. The brand also plans to refranchise approximately 25% of its corporate shops.
Late last month, the Company amended its credit agreement to extend the maturity of its $25 million revolver from August 31, 2023 to December 31, 2023; as of the end of 2Q22 on June 26, 2023, Potbelly had $12.2 million in availability under the revolver. Earlier this year, Potbelly announced a strategic partnership with REEF, the largest operator of virtual restaurants, logistics and proximity hubs in North America.
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