October 9, 2019
According to sources, Topgolf International Inc. is in talks with investment banks for an IPO planned for next year. Topgolf is looking to raise capital to support new venue growth in the U.S. and international markets. The Company operates 52 U.S. locations, three in Britain and one in Australia. Callaway has a minority investment in Topgolf, and in December 2017 valued its 14% stake at $290 million, but that value has since likely increased.
In other news, Topgolf plans to open its second location in the San Jose, CA market, a 72,000 square-foot three-story complex (click here to request a list of future openings). The official opening date is still to be determined, but reports suggest it could be either this fall or early next year. Following the San Jose store, another Bay Area location is planned for Burlingame, a 71,000 square-foot unit with a summer 2021 grand opening date. The first Topgolf opened in San Jose in 2018. On October 4, Topgolf opened its first Richmond, VA store, a $25.0 million, 55,000 square-foot facility. It competes with Drive Shack, which opened a similar facility in nearby Goochland County on September 20. Similarly, Topgolf plans to open a store in Durham, NC, while Drive Shack opened a location in Raleigh, NC over the summer. The opening date for the Durham Topgolf is to be determined.
On October 2, the Court issued an interim order authorizing Forever 21, DIP to access: (1) up to $275.0 million under a revolving DIP Facility provided by JPMorgan Chase Bank, N.A., subject to a “creeping roll-up” of $194.5 million outstanding under the prepetition ABL facility, and (2)$60.0 million under a $75.0 million DIP Term Loan, provided by TPG Sixth Street Partners. The Court also authorized the Debtors to use cash collateral. A hearing on final approval of the DIP Facility and DIP Term Loan is scheduled for October 28. The Company has 178 stores it will consider for closing as part of GOB sales, which have already commenced and are scheduled to conclude by December 31. The Debtors do not anticipate closing all 178 units; the number will depend on the amount of rent concessions and other operational improvements that will be negotiated with landlords. If the Debtors decide to close any additional stores, the related GOB sales may continue into 2020. Click here to request a list of Forever 21 store closings.
Bed Bath & Beyond's second quarter revenues declined 7.3% to $2.72 billion, driven by a 6.7% drop in comps and a net reduction of 26 stores over the last year. The comp decline reflects a decrease in the number of store transactions, partially offset by an increase in the average transaction amount. Physical store comps declined in the high single-digits, while digital comps fell slightly. EBITDA fell 11.2% to $158.9 million, and EBITDA margin eroded 30 basis points to 5.8%. With respect to inventory, the Company previously disclosed plans to aggressively reduce up to $1.00 billion of inventory over the next 18 months. Management discussed during its earnings call that in the short term, more than $350.0 million of inventory will be removed from stores before the 2019 holiday season. This will be accomplished with a series of markdown and clearance events as well as with the assistance of an independent liquidator, all to be managed thoughtfully to prevent cannibalization of sales. Additionally, the Company reported progress on the rapid refresh of almost 160 high-volume/high-profit Bed Bath & Beyond stores to improve store traffic, drive sales, and reset the store experience, and expects most of the updates to be completed ahead of the 2019 holiday season. Broader store renovation plans to upgrade and refresh the majority of stores will require a multi-year effort, with the first wave beginning in early fiscal 2020.
Click here to request a list of Bed Bath & Beyond closings.
Additionally, while the Company's near-term priorities are primarily focused on Bed Bath & Beyond, a review of the strategic alignment of all the other business concepts is well underway. As previously announced, the Company is working with outside advisers, including Goldman Sachs, to assess how to better realign and realize greater value from certain of these assets. As part of this strategic review, a range of options is being evaluated, including outside interests in several of their brands. While the Company has made no final decisions, they believe there is significant unlocked value from potential sale leaseback and business concept transactions.
Finally, management noted during its earnings conference call that as part of the Company’s ongoing fleet optimization efforts, fiscal 2019 estimates for store closures were increased from 40 to 60 total stores, including approximately 40 Bed Bath & Beyond units and 20 “other concept” stores. The timing of the planned closures will be weighted towards the fourth quarter. The Company also looks to capitalize on heavy lease expiration cadence over the next couple of years, with more than 400 leases expiring across all concepts.
Publix will open its 12th GreenWise Market concept store in St. Augustine, FL in 2021. GreenWise is a specialty, natural and organic store featuring items for the health-conscious and gourmet foodies. Publix has noted that it does not expect the brand to be a primary grocery store for the majority of its customers but rather a source for specialty items. The Company has opened three of these 25,000 square-foot stores, with three more planned to open before the end of the year. The Company also has two first generation GreenWise Market stores in Boca Raton and Tampa, FL. Publix continues to look for additional GreenWise Market locations throughout its operating area. Click here to request a list of Publix future openings.
Meijer is expanding its pet departments to offer a wider assortment of products; it has recently added another aisle at its 246 Supercenters to make room for expanded pet food offerings. At 40 Meijer supercenters, the pet departments are now relocated to the back corner and offer a specialty store feel. This represents a 30% increase in space compared to their other stores. A handful of Meijer supercenters have VetIQ Petcare clinics that offer basic veterinary walk-in services. These clinics are located at the front of the Supercenter with a separate exterior entrance that keeps the pets outside of the store. Click here to request a list of Meijer future openings.
Walmart is selling online fashion retailer ModCloth, which it acquired in 2017, to “brand investment platform” Go Global Retail. Terms of the deal, expected to close later this year, were not disclosed. Walmart acquired ModCloth as part of a move to increase its brand portfolio and target younger, higher-income shoppers. Around the same time, it also acquired Jet, Moosejaw, Shoebuy, and Hayneedle. According to published reports, Modcloth, along with some of the other acquired brands, have yet to turn a profit.
In a further sign of the fierce online competition Walmart is facing, sources indicate that Bonobos plans to lay off some staff to cut e-commerce losses. The men’s apparel retailer, owned by Walmart, is cutting some staff as its parent works to narrow losses in its unprofitable U.S. e-commerce unit. A few dozen workers are being let go, out of roughly 600 people.
In other news, Walmart will close its Neighborhood Market in Cypress, TX on November 1. The store’s pharmacy will close on October 18, and prescriptions will be transferred to the Walmart Supercenter in nearby Tomball. Meanwhile, Walmart is closing some stores in other markets around the same time. A Neighborhood Market location in Sacramento, CA will also close November 1, and a Walmart Supercenter in the Philadelphia area will close by October 25. Earlier this year, it was reported that Walmart was quietly closing at least 17 stores across 11 U.S. states and Canada (click here to request a list of openings and closings). Walmart will begin several healthcare pilot programs for its U.S. employees starting January 1 as it looks for ways to cut healthcare costs. Walmart will pilot a program that will connect patients with local doctors, eliminating the need for its workers to rely on word of mouth or social media to find a doctor. The pilot programs will be held in parts of Arkansas, Florida and Texas.
REI debuted a new store concept in a nearly 25,000 square-foot location in North Conway, NH. The store differs from traditional REI locations (typically close to population centers) in that it is designed to launch outdoor activities and equipment rentals closer to where people visit, in this case the White Mountains. REI has eight other locations in New England, including four in Massachusetts, three in Connecticut, and one in Rhode Island. The Company plans to open its first store in Vermont, in Williston, in November. Click here to request a list of REI future openings.
Amazon’s Whole Foods will open a new 34,500 square-foot store in Beverly, MA on October 18.
On September 28, Dollar General opened its 16,000th store, in Panama City, FL.
Target launched its previously announced in-store and online partnership with The Walt Disney Company, opening in-store Disney shops in 25 Target locations and online. The dedicated spaces feature an expanded Disney assortment of more than 450 items, including more than 100 products that were previously only available at Disney retail locations. Featuring a “shop-in-shop” layout, the Disney stores in Target average 750 square feet and are located adjacent to children’s clothing and toys. Forty additional locations are expected to open by October 2020.
Meanwhile, Target’s merchandise, digital capabilities, and fulfillment services are expected to help with the relaunch of the Tru Kids brand of Toys ‘R’ Us online and in stores, which began today. Customers can opt the “Buy now at Target.com” option to complete a purchase on the Target website. In the Toys ‘R’ Us stores launching later this fall in Houston and Paramus, NJ, Target will fulfill orders for items that are not available.
Amazon has reportedly signed a lease for more than 8,000 square feet in Washington D.C. for one of its retail concepts. Amazon has been testing out several brick-and-mortar retail concepts in the U.S., including Amazon Bookstores, Amazon Go, and Amazon 4-Star. As announced in last week’s issue of this publication, the Company is also reportedly looking to open a new grocery concept and has signed a number of leases for the project.
Hy-Vee will open its second Minnesota Wahlburgers restaurant franchise in early 2020 in Maple Grove. The first Minnesota location opened in 2018 at the Mall of America in Bloomington. In 2017, Hy-Vee announced that it plans to build, own and operate 26 Wahlburgers restaurants. Its first three Wahlburgers opened in 2018 in West Des Moines, IA; Olathe, KS; and the previously mentioned Mall of America. A location in Brookfield, WI opened on September 24, and a location in Milwaukee is scheduled to open in late 2019. Hy-Vee also offers Wahlburgers-branded menu items in its full-service Hy-Vee Market Grille restaurants in the Twin Cities and Des Moines markets.
Save Mart opened a flagship store on October 2 in Modesto, CA. The Company said the prototype location will serve as a “test-and-learn” innovation center where new programs will be piloted and, where appropriate, introduced at other stores. For example, the store features a Bakery Bar and a fast-casual restaurant called “The Tipping Point,” with food delivery available through DoorDash. Save Mart operates 207 traditional and price-impact stores under the Save Mart, Lucky, FoodMaxx and MaxxValue Foods banners. The flagship location is “on the larger side” of its typical footprint of 20,000 to 60,000 square feet.
Hot Market Report- Baltimore, Maryland
The Baltimore Metro Area, which consists of seven counties in Maryland, is the 21st largest U.S. metropolitan area. With 2.8 million residents as of 2018, the area’s population grew 3.4% between 2010 and 2018. Traditional supermarkets, under the banners Giant, Food Lion, Safeway, Weis, Harris Teeter, Shoppers, and ShopRite, operate more than 150 stores and hold over 60% of Baltimore’s total market share. Our report takes a closer look at the Baltimore real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, and demographics.
Ahold Delhaize’s Hannaford Supermarkets has proposed a new 53,000 square-foot store in Fayetteville, NY, about seven miles east of Syracuse, which would be its most western store opened to date.
Kroger is reportedly laying off hundreds of employees across its store base, focusing on middle management cuts. A spokesperson for Kroger recently stated, “As part of ongoing talent management, many store operating divisions are evaluating middle management roles and team structures with an eye toward keeping resources close to the customer.” All 22 of its divisions across 35 states are being assessed. As of February 2, Kroger employed approximately 453,000 full-time and part-time employees.
Click here to request a list of Kroger future openings and closings.
Meanwhile, Kroger announced that it is discontinuing the sale of e-cigarettes at all stores and fuel centers due to the health risks associated with these products. The Company will exit this category after selling through its current inventory.
On October 1, Grocery Outlet announced that BofA Merrill Lynch and Morgan Stanley, the lead book-running managers in the Company’s recent public sale of 19.8 million shares, are waiving a lock-up restriction with respect to 721,443 shares of the Grocery Outlet’s stock held by its officers or directors, which was effective October 3, and 933,000 shares held by H&F Globe Investor LP (an entity affiliated with CEO Eric Lindberg), effective today. The shares held by H&F will be donated to charitable organizations.
Grocery Outlet also announced that certain selling stockholders, including H&F, have commenced an underwritten public offering of 13 million shares. H&F also intends to grant the underwriters a 30-day option to purchase up to 1.95 million additional shares of the Company’s stock. Grocery Outlet is not selling any shares in the offering and will not receive any of the proceeds but will bear the costs associated with the sale.
Meanwhile, the Company announced preliminary results for its third quarter ended September 29. It reported sales growth of 13.1% to $652.5 million, and comp growth of 5.8%, driven by increases in the number of transactions and transaction size. It anticipates operating income of $20.4 million – $21.4 million, net income of $8.9 million – $9.6 million and, adjusted EBITDA of $42.0 million – $43.0 million. The Company opened eight new stores and closed one store during the quarter. As of September 28, the Company operated 337 stores.
Best Buy plans to close its store in Homestead, PA on November 2. The Company has closed 18 stores over the past year, including 13 large-format stores. Best Buy operated 995 large-format stores nationwide, as of the end of the second quarter, including 36 in Pennsylvania.
In other news, Best Buy is looking to hire “thousands” of people to work in stores and select warehouse facilities this holiday season. Store hiring fairs will occur on October 10 and 11, and warehouse hiring fairs will be held on October 10 at locations in Atlanta, GA; Bloomington, MN; Chicago, IL; Chino, CA; Compton, CA; Findlay, OH; New York, NY; Nichols, NY; Ontario, CA; Shepherdsville, KY; and St. Louis, MO.
Gourmet grocer Dean & DeLuca has shuttered its flagship location in Manhattan. According to a notice posted on the door, the SoHo closing is only temporary and the store is expected to reopen soon. However, that is far from certain as the chain has been struggling amid slow sales and escalating competition. Over the summer, it was reported that Dean & DeLuca was failing to pay vendors, some of which have taken to the courts to try to recoup their losses. In September, Dean & DeLuca suddenly closed its midtown location in the New York Times building.
On October 1, Canadian Tire Corporation confirmed that it closed on the previously announced acquisition of Party City’s Canadian business for $174.4 million, including $40.0 million in inventory. Party City has 65 Canadian retail stores in seven provinces. Party City’s product assortments will be made available nationally across 500 Canadian Tire Retail stores and online. In connection with the sale, Party City and Canadian Tire have also agreed to a long-term wholesale supply agreement, with an initial term of 10 years. Under the terms of the supply agreement, Party City’s wholesale business, Amscan Inc., will provide Canadian Tire with consumer products; the Company expects to effectively double Amscan’s average annual wholesale shipments into the Canadian marketplace during the term of the agreement.
Von Maur plans to open an 85,000 square-foot store in Madison, WI in the fall of 2021. It will be Von Maur’s second Wisconsin location. The Company operates 35 department stores and 39 specialty stores (under the banner Dry Goods), primarily in the Midwest. Last year, it opened 12 Dry Goods stores and one full-line location in Minnesota (its second in the state). This year, the Company plans to open two full-line stores, including one in Grand Rapids, MI (its third Michigan location) on October 12, and 19 new Dry Goods locations.
Big 5 Sporting Goods is closing a 12,000 square-foot store in Redwood City, CA in January 2020, when its lease expires. The closing comes roughly one year after competitor Sports Basement moved in next door (November 2018), replacing Toys “R” Us and Babies “R” Us. The manager of the property, Crosspoint Realty Services, wants to bring in a different type of business at the Big 5 location. Big 5 plans to find another Redwood City location; it currently operates more than a dozen locations in the San Francisco Bay Area.
Reports indicate that Gander Outdoors locations in Eden Prairie and Bemidji, MN are closing. Last month, Gander Outdoors announced plans to close, sell or repurpose up to 37 locations nationwide due to chronic underperformance of the unit and a refocus on RV sales, services, and parts (click here to request a list of closings). Neither of the two stores sell RVs.
Walgreens has announced a partnership with Novant Health in which it is acquiring nine of Novant’s retail pharmacies, and Novant Health will be opening retail clinics inside Walgreens stores in Winston-Salem, Charlotte and Brunswick County, NC. The clinics will be branded “Novant Health Express at Walgreens” and be staffed with Novant Health physician assistants and nurse practitioners. The first locations are set to open in the first half of 2020, with the rest to follow over the course of two years. Once the acquisition closes, Novant Health patients will be able to receive their prescriptions at the acquired locations or any Walgreens store. Novant Health will continue to operate its specialty pharmacies.
On October 2, The Cheesecake Factory closed on the acquisitions of North Italia and Fox Restaurant Concepts (FRC), including Flower Child, from Samuel Fox and the other owners of FRC, for $308.0 million. An additional $45.0 million will be due over the next four years, and the transactions also include an earn-out provision based on the financial performance of the FRC brands outside of North Italia and Flower Child. The Company previously invested $88.0 million in the North Italia and Flower Child concepts over the last three years in anticipation of their purchase.
North Italia has 21 stores in operation, and management plans to grow it 20% annually, with 4 – 5 openings in 2020. Growth plans for the Company’s other concepts (Social Monk Asian Kitchen, Grand Lux Café, RockSugar) appear to be on hold for now.
Sports Direct announced it has entered into new leases on the majority of its House of Fraser stores in the U.K. and that it is “working rapidly” to invest in the chain. The Company’s statement came after a published report suggested that Sports Direct was planning to shut down almost all House of Fraser stores after the holiday season. The report also suggested that Sports Direct was either not paying rent or preparing to end the leases on most of its 50 locations. However, the Company has strongly rejected this report, saying the report was referencing “leases between the landlord and the old House of Fraser company and have nothing to do with Sports Direct Group including the new House of Fraser group.” Sports Direct acquired House of Fraser out of administration (bankruptcy) for £90.0 million in August 2018.
On October 3, Barneys New York, DIP received an extension from its lenders, Brigade Capital Management and B. Riley Financial, to find a buyer. Published reports indicated that a group led by fashion trade show executive Sam Ben-Avraham has emerged as the lead stalking horse bidder to acquire Barneys; the extension, until October 11, provides more time to close a deal. Authentic Brands Group has also expressed an interest in buying Barneys’ intellectual property if the Chapter 11 case results in a liquidation. Reports say Barneys is looking to reach an agreement with its landlord, Ashkenazy Acquisition, that will allow it to keep its Madison Avenue, NY and Beverly Hills, CA flagship locations open. The Madison Avenue rent nearly doubled this year to $30.0 million, which is what ultimately led to Barneys’ bankruptcy filing, amid a slowdown in luxury spending.
The Court entered an order approving the sale of Avenue Stores, DIP’s e-commerce business assets, including intellectual property, customer lists, and various inventory, to City Chic Collective USA Incorporated. City Chic was the successful bidder at an auction on October 4. The price was $17.2 million, including assumed liabilities.
The Court in the Sears Holdings Corporation, DIP case issued an order confirming the liquidating Chapter 11 Plan, according to reports, despite the fact that there is currently a deficit of between $36.5 million and $104.5 million with respect to the full payment of administrative expense claims. The Plan, which received the support of the Creditors’ Committee, will become effective once funds are available in the bankruptcy estate, including the assumed recovery of about $50.0 million in estimated preference payments. Administrative creditors will receive a deferred payment or they can opt to take a smaller payment sooner. Professionals in the case have already earned about $150.0 million, but an additional $50.0 million in unpaid fees will also be deferred. A potentially significant but contingent source of funds to the estate includes lawsuits against Edward Lampert, his hedge fund ESL Investments Inc., the Company’s former officers and directors, and also Transform Holdco (New Sears).
Beginning January 1, Schnucks Market will end the sale of all tobacco products, including cigarettes, cigars, chewing tobacco and snuff. The Company will sell through its existing inventory through the end of the year. The Company also will continue its practice of not selling e-cigarettes or vaping products. Schnucks says it will announce additional health and wellness initiatives in the coming months and throughout 2020
DoorDash and Postmates are increasingly targeting supermarket, convenience store and retail drug businesses for future growth. There is a long list of competitors to contend with, including self-delivering retailers, Instacart, UberEats, Target’s Shipt, and last but not least Amazon. Just last week, Walgreens announced it is partnering with Postmates to provide delivery for over-the-counter medications, health and wellness, beauty, and grocery products from 174 Walgreens and Duane Reade locations in Manhattan and Brooklyn. 7-Eleven stores and Walmart also contract with Postmates for deliveries. Walmart products are also available for delivery on DoorDash and some regional services. DoorDash in August signed an agreement with e-commerce platform Mercato to make same-day deliveries from about 750 independent grocers in 22 states.
The Michaels Companies is partnering with UPS to make it easier for customers to ship and receive packages. The Company completed a rollout of the UPS Access Point network to its more than 1,100 U.S. retail locations. Stores will now offer one-stop package pickup and pre-labeled drop-off services aimed at e-commerce buyers and sellers. The two companies began a pilot program in Austin, TX in late 2018 and added Atlanta, GA and Dallas, TX as test markets in 2019. UPS also partners with CVS Pharmacy and Advance Auto Parts.
PriceSmart’s September merchandise sales increased 1.2% to $246.6 million, negatively impacted by $5.1 million due to foreign currency exchange rate fluctuations. Comps increased 0.9%. The Company opened two new warehouse clubs over the past year, bringing its store count to 43.
Earning Reports
Costco’s fourth quarter sales increased 7% to $47.50 billion. Total Company comps (excluding impacts from gas prices, foreign exchange, and a previously disclosed accounting change concerning revenue recognition) rose 5.1%, consisting of growth of 5.2% in the U.S., 4.7% in Canada, and 2% in Other International. E-commerce sales increased 21.9%. Net income rose 5.2% to $1.09 billion, negatively impacted by a $123.0 million pre-tax reserve to SG&A, from a product tax assessment. For the full year, sales rose 7.9% to $152.70 billion, and comps increased 6.1%. E-commerce sales were up 23.3%. Click here to request a list of Costco future openings.
Ascena Retail Group’s fourth quarter sales decreased 4.3% to $1.45 billion, and consolidated comps were flat but declined 2% excluding Dressbarn. Comps increased 1% at Premium Fashion but dropped 5% at Justice, and 4% at Plus Fashion. Comps increased 12% at Dressbarn, which is in wind-down mode. Gross margin eroded 380 basis points due to markdowns at all of the Company’s brands to address heightened inventory levels. As a result, quarterly EBITDA fell 45.8% to $72.1 million. Fiscal 2019 EBITDA dropped more than 50% to $157.1 million, with EBITDA margin falling 280 basis points to 2.9% (well below the apparel sector average of 9.4%). During the quarter, the Company closed 75 locations, including 45 Dressbarn stores. Management commented that it expects to close all Dressbarn locations by December 31; it has received consent from the vast majority of landlords and is still in negotiations with others. Click here to request the complete list of closings.
United Natural Foods (UNFI) announced results for its fourth quarter and fiscal year ended August 3. Quarterly sales increased 147.2%, reflecting the October 2018 acquisition of Supervalu (SVU), increased sales to Whole Foods, and an extra reporting week in the quarter. Legacy UNFI sales increased 2.8% when excluding the contribution from SVU and the additional week in the quarter. Fourth quarter and full-year EBITDA were below expectations, which is significant as guidance was already revised down multiple times. The Company also provided soft EBITDA guidance for fiscal 2020 of $560.0 million – $600.0 million, and further noted that “it does not believe it has a path to achieve the net sales or adjusted EBITDA dollar ranges for fiscal 2022 provided in January.” Overall, it was a very rough first year after acquiring SVU in October of 2018. Regarding the retail divestures, two banners remain, Shoppers Food Warehouse (52 stores) and Cub Foods (44 owned stores and 29 franchised). The Company is working on several deals for Shoppers stores (not the whole banner), each of which involves multiple stores, and anticipates completing the sales early in calendar 2020. We expect the remaining stores to close. The Company also plans to announce news regarding Cub in early calendar 2020, with a closing later in the year. It expects to retain distribution to Cub but not Shoppers. In addition, the long-planned UNFI/Supervalu warehouse closure in Tacoma, WA will affect 280 employees, and layoffs began Saturday. UNFI has been planning to close five of its distribution centers, including the 944,000 square-foot Tacoma location, since February. It will consolidate operations into a 1.2 million square-foot facility in Centralia, WA (opened in June) and an expanded 800,000 square-foot facility in Ridgefield, WA. Other sites affected in UNFI’s consolidation plans include a 323,000 square-foot warehouse in Auburn, OR and a 923,000 square-foot warehouse in Portland, which will be shuttered.
Village Super Market reported fourth quarter sales of $418.4 million, 1.1% higher than last year. Sales increased due to the opening of the Bronx, NY store in June 2018 and the acquisition of Gourmet Garage on June 24, 2019, partially offset by a comp decrease of 0.9%, which management attributed to the impact of three competitor store openings. Net income rose 11.9% to $6.7 million and included a tax benefit of $777,000 related to a favorable settlement of a tax audit. For fiscal 2019, sales rose 1.8% to $1.64 billion, comps fell 0.5%, and net income increased slightly to $25.5 million. Village Super Market is a member of the Wakefern cooperative and operates a chain of 30 supermarkets under the ShopRite name in New Jersey, New York, Maryland and northeastern Pennsylvania and three specialty markets under the Gourmet Garage name in New York City.
