September 5, 2019
Transform Holdco (New Sears) is closing 100 Sears and Kmart stores through December (click here to request a list). Although the Company did not issue an official release, management has confirmed the closures, according to reports. The Company had previously announced the closure of 26 Sears and Kmart locations (5 Kmart and 21 Sears) in late October. “New Sears” acquired 425 stores from Sears Holdings out of bankruptcy and with these closures will have just 299 locations remaining. As part of the rationale for the acquisition, the Company stated that it was acquiring the top-performing 425 stores in the Sears Holdings portfolio. In less than a year it will have closed at least 126 of those locations. The Company also expects to complete its acquisition of Sears Hometown business in October
Lidl and Aldi will both be opening new stores on September 10 across the street from each other on Route 9 in Lacey, NJ. The Lidl is also located next to a Walmart, with ShopRite nearby as well. It is Lidl’s fifth store in New Jersey. Last year, the Company opened stores in Eatontown, Hazlet, Union, and Vineland. It also purchased Best Market, which has a store in Holmdel. Lidl has plans to open New Jersey stores in Brick and Howell, see below for Store Opening Map. Click here to request a complimentary sample list of Aldi and Lidl Future Openings.
Last week, Costco opened its first store in China and after just five hours was forced to close it due to safety concerns caused by massive crowding. The store reopened the next day. While this was Costco’s first brick-and-mortar foray into China, it originally entered the country in 2014 with an online store on Alibaba Groups’ Tmall online marketplace.
Walmart will close its underperforming Supercenter in St. Paul, MN on September 20. Prescriptions will be transferred to a nearby store in Roseville. There are three other Walmarts within 10 miles of the closing store. Click here to request a list of Walmart Future Openings.
In other news, Walmart announced it would stop selling ammunition that can be used in military-style assault rifles and discourage its customers from openly carrying guns in its stores. This news follows a mass shooting at a Walmart store in El Paso, TX last month that killed 22 people, and two people who were fatally shot by a disgruntled worker at a Walmart in Mississippi. The Company indicated that after it sells through its current inventory, which could take several weeks, it would stop selling certain short-barrel rifle ammunition and all handgun ammunition. The Company also plans to call on Congress to increase background checks and consider a new assault rifle ban. Walmart’s gun sales account for just 2% of the market, but its sales of ammunition comprise more than 20% of overall ammo sales. The retailer expects that market share will drop to 6% – 9%.
On August 30, Herb Philipson’s Army & Navy Stores, DIP received U.S. Bankruptcy Court approval for a liquidation sale to proceed at its stores in Rome, New Hartford and Herkimer, NY. To expedite the sales, the Court approved a request to waive certain requirements of New York law governing liquidation sales, particularly those requiring a license and relating to moving merchandise among stores. The GOB sales are expected to take three months.
L&W Supply, a unit of ABC Supply, opened a new location in Fishersville, VA that will sell wallboard, framing, acoustical ceilings, insulation, and other interior building materials to contractors in Harrisonburg, Lexington, and Charlottesville, VA. L&W Supply has eight locations throughout Virginia and 175 locations in 35 states. It opened new stores in Texas, Virginia and California in June; California, Idaho and Wisconsin in July; and an Arkansas unit in August.
Kona Grill, Inc. filed a motion seeking approval of an agreement to sell its remaining 24 domestic restaurants and two international franchise licenses in Dubai, U.A.E., and Vaughan, Ontario to The ONE Group Hospitality, Inc. for $25.0 million, plus the assumption of working capital liabilities of $10.8 million. The Debtors noted that the agreement with The One Group is for a greater amount of cash than the previous asset purchase agreement with Williston Holding Company, Inc., which was terminated on August 13. The sale proceeds will be distributed to the Debtors’ post-petition lender, KeyBank. The ONE Group operates several upscale restaurant banners including STK steakhouse, Bagatelle, Heliot Steak House, and Radio Rooftop. ONE Group’s management expects the integration of Kona and its existing operations will take one year and that the acquired restaurants will generate approximately $100.0 million in annual revenue. A hearing to approve the asset purchase agreement has been scheduled for September 24.
Camping World announced on Monday that management and its board approved a plan to strategically shift away from locations where the Company does not have the ability or where it is not feasible to sell and/or service RVs. The Company is in the early stages of evaluating the sale, repurposing, relocating or closing of 27 of its 37 (Gander) outdoor retail locations that do not sell and/or service RVs. The actual number of stores the Company sells, repurposes, relocates, or closes may change. The Company is also evaluating the impact on its supporting infrastructure and operations, and expects the majority of the activities contemplated will be completed by year-end. Currently, the Company operates 165 locations that sell and/or service RVs, in addition to the 37 locations that do not sell and/or service RVs. At certain locations that do not sell and/or service RVs, the Company is in the process of attempting to acquire and/or obtain the developmental consents, approvals and permits necessary for the sale and/or service of RVs. The Company recently sold 13 Uncle Dans and Rock Creek specialty retail locations.
According to published reports, in a letter dated August 27, Target told its suppliers that “they’ll have to bear the cost of the trade war with China alone from now on.” Target said it expects vendors to “develop the appropriate contingency plans so that we don’t have to pass price increases along to our guests.” In other news, Target announced that its Drive Up service is now offered in all 50 states. In less than two years, Target has brought Drive Up to nearly 1,750 stores; its most recent launches include Alaska, Hawaii, Washington, Oregon, Idaho, North Dakota, South Dakota, Montana, and Wyoming.
Hy-Vee is continuing its expansion in the Twin Cities, with the opening of a Fast & Fresh store in Lakeville, MN last week, its 11th store in the metro area. The store combines groceries, grab-and-go meals, and a gas station in an 8,700 square-foot space. The Company will open a 92,000 square-foot store in Maple Grove this fall and will include a separate Fast & Fresh Express. Next year Hy-Vee will add a 74,000 square-foot store in Spring Lake Park. The Company will also begin construction next year on a large store in Blaine that is slated to open in 2021. When it entered the Twin Cities in 2015, the Company aimed to roll out four new stores a year in the market. Its goal was to make the Twin Cities its largest market, surpassing Kansas City. Click here to request a list of Hy-Vee Future Openings.
H.E. Butt will open its first store in Lubbock, TX in late 2020. The 120,000 square-foot location will feature a fuel station with a car wash, and a BBQ restaurant with drive-through and indoor and outdoor seating.
Amazon’s Whole Foods remains on track to bring a new, 30,000 square-foot store to Fairfax, VA, despite initially intending to open a 365 store. Reports indicate it could be testing a new grocery concept there after the Company scrapped plans in January to open any additional 365 stores. No details have been disclosed, but it is one of two expected to open under the new concept.
Strategic Sales Insights Report
As one of the largest food cooperatives in the U.S., Wakefern (combined with its member-owned stores) maintains a top two market position in most of its major Northeastern markets, including New York and Philadelphia. Both its ShopRite and Price Rite Marketplace banners have performed relatively well in the highly competitive region; however, the promotional environment has pressured margins and profits. Fiscal 2018 system retail and wholesale sales grew 1.6% to $13.20 billion and $16.50 billion, respectively, albeit comps remained flat. The Company attributed sales growth to the four ShopRite stores and two Price Rite Marketplace stores opened during the year. In addition to store growth, Wakefern has been remodeling its Price Rite Marketplace value banner, after changing the chain’s name to Price Rite Marketplace in 2018. At the ShopRite banner, the Company is refining its private label brands, with an aim to have private brands make up 30% of total sales in the next five years, up from 13% currently (average is about 25% among major grocery retailers). Our report takes a close look at the Company’s operational and competitive status, including market position, real estate and sales trends, and provides visual competitive analyses as well as key real estate metrics like store count, average sales per store and sales per square foot.
Kroger is reportedly receiving $5.7 million in incentives to build a 335,000 square-foot automated distribution facility in south Dallas, TX. The facility will be one of 20 “customer fulfillment centers” (CFCs) Kroger plans to build around the U.S. with Ocado. Kroger’s first two CFCs are being built in Monroe, OH and Groveland, FL. Two additional sites have been named in Forest Park, GA and an undisclosed location in the mid-Atlantic region. The Dallas facility is reportedly expected to open in 2021.
Meijer’s Bride Street Market store located in Grand Rapids, MI has expanded its assortment of locally made products by 33% since opening in August 2018 and now carries more than 5,000 local products. Meijer is experimenting with the new, smaller 37,000 square-foot format, which is primarily a grocery store.
Qdoba Restaurant Corporation will expand in Canada through an agreement with Burgess Enterprise that includes the development of five restaurants around Northern Ontario. The Group’s first QDOBA restaurant is set to open in Sault Ste. Marie in early 2020.
Homeland plans to open a new supermarket and headquarters building in northeast Oklahoma City, OK. The 30,000 square-foot supermarket is expected to open in late 2020 or early 2021. The development plan includes a new 35,000 square-foot national corporate headquarters that would be adjacent to the new store. Homeland is a banner of HAC, Inc., which is a variable interest entity of Associated Wholesale Grocers.
Tops Friendly Markets has partnered with SPoT Coffee Ltd. to open SPoT Express cafés in select stores. A SPoT Express store will be installed in Tops’ store in Buffalo, NY and another in a newly renovated Tops in Amherst, NY.
On August 28, Hudson’s Bay Company and Le Tote, Inc., announced they have entered into an agreement for Le Tote to acquire Lord & Taylor. Under the terms of the agreement, Le Tote will acquire the Lord & Taylor brand and related intellectual property while assuming operations of 38 stores, Lord & Taylor’s digital channels and the associated inventory. HBC will receive C$99.5 million (US$75.0 million) in cash upon the transaction’s closing and a secured promissory note for C$33.2 million (US$25.0 million) payable in cash after two years. In addition, HBC will receive an equity stake in Le Tote, two seats on the Company’s board and certain rights as a minority shareholder. HBC and HBS Global Properties, HBC’s real estate joint venture, will retain ownership of all owned and ground-leased real estate assets related to Lord & Taylor. For at least the initial three years, HBC has agreed to maintain economic responsibility for the rent payments owed by Lord & Taylor at the locations operated by Le Tote. Net of HBC’s distributions from HBS Global Properties, HBC expects to continue to be liable for approximately C$77.0 million in Lord & Taylor total cash rent on an annual basis. In fiscal 2018, Lord & Taylor represented C$1.40 billion of HBC’s C$9.40 billion in retail sales. HBC’s 2018 adjusted EBITDA was C$462.0 million, which reflects a $119.0 million loss attributable to Lord & Taylor, inclusive of allocated corporate expenses. Starting in 2021, HBC and Le Tote will have options to reassess the Lord & Taylor store network. This may include HBC recapturing select locations to determine their highest and best use, including possible redevelopment into mixed-use properties with a variety of services, experiences, and retail offerings. Considering any redevelopment would be a lengthy process, HBC has proactively hired a team of professionals to lead the planning and execution of any potential redevelopment. For any recaptured or returned stores, HBC retains long-term rent responsibility, risk and costs for redevelopment. Le Tote is in the process of securing financing for the full purchase price. The transaction is expected to close before the start of the 2019 holiday season, subject to satisfaction (or waiver) of closing conditions. If committed financing has not been obtained within 45 days following signing, HBC has the right to terminate the agreement.
Earning Reports
Dollar Tree’s second quarter sales increased 3.9% to $5.74 billion. Comps rose 2.4% at both Dollar Tree and Family Dollar segments; the third consecutive quarter of positive performance for Family Dollar. Operating income was $268.9 million, down from $382.5 million last year.
During the quarter, the Company closed 296 Family Dollar stores (part of the previously announced store optimization program) and closed 9 Dollar Tree stores; 106 were also re-bannered from Family Dollar to Dollar Tree. Dollar Tree increased its sales guidance slightly for the year based on a 1.3% increase in selling square footage growth (1% previously). The Company also indicated that without mitigation, the new tariff increases would cost the Company approximately $26.0 million.
Dollar General reported second quarter sales growth of 8.3% to $6.98 billion. Comp growth of 4% was driven by increases in both average transaction amount and customer traffic and included growth in the consumables, seasonal, and home categories, partially offset by a decline in the apparel category. Operating income increased 5.9% to $577.8 million, compared to $545.5 million last year.
During the first half of the year, Dollar General opened 489 new stores, remodeled 653 and relocated 46. Dollar General’s DG Fresh initiative, which began in January and is aimed at improving margins through a wider selection in its Better For You offerings, is now in 3,500 stores and should be in nearly a third of its store base, or 5,000 locations, by the end of 2019. Dollar General began shipping from its first DG Fresh distribution facility in Pottsville, PA in January and has added two facilities in Clayton, NC, and Atlanta, GA. A fourth DG Fresh distribution facility in Westville, IN is scheduled to open in the next few weeks.
The Company updated full-year guidance and now expects sales growth of 8% (previously 7%), comps in the low-to-mid 3% range (previously 2.5%) and operating profit growth of 5% – 7% (previously 4% – 6%). The stock was up over 10% based on performance and the updated guidance.
Dollar General promoted Jeffery Owen to the position of COO, effective August 27. He most recently served as EVP of store operations. Steven Sunderland will succeed Mr. Owen as EVP of store operations.
Five Below reported robust sales growth of 20% to $417.4 million, and comp growth of 1.4%. Operating income increased by 18.4%, to $36.0 million, from $30.4 million. The Company opened 44 new stores during the quarter and added 141 stores year over year (20% increase), bringing its store count to 833. It plans to remodel a total of 50 stores this year, with about 35 complete as of the end of 2Q. The Company has a new distribution center in Georgia, with plans for another new DC in the Houston, TX area. Click here to request a list of Five Below Future Openings.
Big Lots’ second quarter sales increased 2.5% to $1.25 billion, with comps up 1.2%. Furniture was a key driver of growth. Net income was down significantly, from $24.2 million to $6.2 million, due to charges related to its strategic transformation plan. Operating income was $13.2 million, down from $34. 3 million last year. The Company continues to reposition stores, with its store count staying flat at about 1,415. Big Lots is continuing the rollout of its “Store of the Future,” which includes furniture featured front and center of the store; about 200 of its stores currently operate under the new format, with 460 expected to do so by the end of the year. Click here to request a list of Big Lots Future Openings and Closings.
The Company noted it will have exposure to tariffs that are on List 3, including some furniture items. CEO Bruce Thorn commented, “Going forward, despite the current tariff headwinds, we are confident we will be able to navigate through this environment to deliver a good outcome for 2019.”
Big Lots maintained its full-year guidance for adjusted EPS of $2.70 – $3.85 but lowered its comp guidance to “flat to slightly positive” from the previous estimate of a low single-digit increase.
The May 2018 acquisition of Jean Coutu helped boost Metro Inc.’s third quarter sales 12.8%, to C$5.23 billion; excluding C$965.4 million of revenue from Jean Coutu, sales were up 2.3%. Food same-store sales were up 3.1%, and food basket inflation was about 2.5%. On the pharmacy side, same-store sales were up 3.4%, with a 2.9% rise in prescription drug sales (number of prescriptions was up 2.7%) and a 4.3% increase in front-store sales. Metro is accelerating its technology investments to improve productivity and customer satisfaction. The Company expects to have self-checkout in 100 stores by the end of fiscal 2019, with 100 more stores planned in 2020.
Hot Market Report - Atlanta, GA
The Atlanta Metro Area consists of 29 counties, which are individually governed by boards of commissioners, city councils, and mayors. It is the ninth largest metropolitan area in the U.S. and had the lowest relative cost of doing business among the nation’s ten largest metro areas according to KPMG in 2017. The market is home to 5.9 million residents (2018), more than 150,000 business establishments, and its population has grown over 12% since 2010. Metro Atlanta is considered a top business city and a primary transportation hub of the southeastern U.S. and is home to 26 of the country’s largest Fortune 1000 corporations. The region ranked tenth in total GDP for fiscal 2016 (the most recent year available) at $276.00 billion. In addition, the metro area’s median household income is higher than the national average ($65,381 in Atlanta compared to $57,652 in the U.S. overall, in 2017). Our report takes a closer look at the Atlanta 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.
American Eagle Outfitters reported second quarter sales increased 7.9% to $1.04 billion, and comps were up 2%. By brand, American Eagle’s comps decreased 1%, and Aerie’s comps increased 16%. Gross margin increased 10 basis points to 36.7% due to Japan license royalties, which contributed $40.0 million in sales for the quarter. Operating income rose 7.2% to $81.9 million. During the quarter, the Company opened six American Eagle stores and closed three underperforming units, ending with 939 American Eagle stores, including 158 Aerie side-by-side locations. Additionally, the Company opened 13 Aerie standalone stores and closed one unit, ending with 131 Aerie standalone stores. Internationally, the Company ended the quarter with 236 licensed stores compared to 223 last year. Click here to request a list of American Eagle and Aerie Future Openings.
Shoe Carnival’s second quarter sales slipped 0.1% to $268.2 million, and comps were up 1.4%. Gross margin decreased 60 basis points to 30.6% as merchandise margin was flat and buying, distribution and occupancy expenses increased 60 basis points. However, SG&A margin improved 80 basis points to 24.8%. As a result, operating income rose 5% to $15.7 million. The Company closed two stores during the second quarter, on top of two closed in the first quarter, ending with 393 stores in 35 states and Puerto Rico; for the second half, Shoe Carnival expects to open one new store and close two more stores.
Destination XL Group’s second quarter sales increased 0.9% to $123.2 million, primarily due to a $2.7 million increase in wholesale revenue, partially offset by a $1.8 million decrease in sales from closed stores. Comps were flat compared to the prior-year period, when comps increased 3.3%. E-commerce sales were 21.3% of retail segment sales, up from 20.5% last year. Gross margin decreased 200 basis points to 44.3% due to a 270 basis-point decrease in merchandise margin, partially offset by a 70 basis-point improvement in occupancy costs. As a result, adjusted EBITDA fell 18.4% to $7.1 million. The Company ended the quarter with 323 stores, including 229 DXL retail, 16 DXL outlets, 49 CMXL retail, and 29 CMXL outlets.
Ulta Beauty’s second quarter sales increased 12% to $1.67 billion, and comps were up 6.2%. The comp growth was driven by 5.4% transaction growth and 0.8% growth in average ticket. Gross margin increased 40 basis points to 36.4%, primarily due to improvement in merchandise margins, partially offset by investments in salon services. SG&A margin increased 90 basis points to 23.6%, primarily due to deleverage of corporate overhead related to investments in growth initiatives, and store labor. Operating income rose 7.3% to $208.0 million. During the quarter, the Company opened 20 stores and closed three underperforming locations. Ulta ended with 1,213 stores in operation, up 7.9% from last year. Looking ahead, Ulta lowered its comp growth expectations to 4% – 6%, from 6% – 7%. It also cut its EPS forecast to $11.86 – $12.06 from $12.83 – $13.03. CEO Mary Dillon commented, “We believe the industrywide challenges in the make-up category will continue in the near term, and as a result, we’ve adjusted our outlook for the rest of 2019 to reflect ongoing volatility in the category.” Following its earnings release, Ulta’s stock price declined 29.6% to $237.73 on August 30. Click here to request a list of Ulta Future Openings.
Tiffany & Co. reported second quarter sales decreased 2.5% to $1.05 billion, and comps fell 3%. In the Americas (44.4% of total sales), sales decreased 4% and comps were down 4%, which the Company attributed to lower spending by foreign tourists and, to a lesser extent, local customers. In Asia-Pacific (29.1% of total sales), sales decreased 1%, and comps were down 3%; in Japan (15.2% of total sales), sales were unchanged, and comps decreased 1%; in Europe (11.3% of total sales), sales declined 4%, and comps decreased 6%. Gross margin decreased 130 basis points to 62.7%, reflecting changes in sales mix toward higher price point jewelry. As a result, operating income was down 3.6% to $184.3 million. Tiffany opened three Company-operated stores during the first half of the year and closed two underperforming locations. As of July 31, the Company operated 322 stores (124 in the Americas, 90 in Asia-Pacific, 56 in Japan, 47 in Europe, and five in the United Arab Emirates).
The Michaels Companies reported second quarter sales decreased 1.9% to $1.03 billion, primarily due to the closure of 36 Pat Catan’s stores last year, partially offset by a comp increase of 0.3% and the operation of 11 additional Michaels stores during the quarter. Gross margin was 35.5%, up 10 basis points due to benefits from the Company’s ongoing pricing and sourcing initiatives and improved occupancy cost leverage. Adjusted EBITDA rose 1.7% to $115.4 million. The Company operates 1,262 Michaels stores, having opened four new stores and closed two underperforming locations during the quarter (click here to request a list of Michaels Future Openings and Closings).
Conn’s reported second quarter sales increased 4.3% to $401.1 million, and comps were up 0.4% (excluding markets impacted by Hurricane Harvey). Retail sales were up 3.3% to $306.3 million, primarily driven by new store growth, partially offset by a decrease in same store sales of 2.3%. The comp decrease was the result of a 9.3% decrease in markets impacted by Hurricane Harvey. Conn’s opened four new HomePlus stores during the second quarter, and two HomePlus stores and one distribution center subsequent to quarter end, bringing its total store count to 133 in 14 states. Credit segment sales were up 7.5% to $94.8 million, primarily due to the Company’s higher-yielding direct loan product, which resulted in a portfolio yield rate increase to 21.9%, from 21.3%. Overall, adjusted EBITDA rose 7.3% to $54.0 million, and adjusted EBITDA margin was 13.5%, up from 13.1% last year. Looking ahead, CEO Norm Miller stated, “With strong operating performance and financial results, I am excited to announce our plans to enter the Florida market next fiscal year. We believe that the state of Florida can support over 40 Conn’s HomePlus locations once fully penetrated. Positive momentum is accelerating across our business and we believe fiscal year 2020 is shaping up to be a year of strong earnings and operational growth.”
Best Buy’s second quarter sales increased 1.7% to $9.54 billion, due to a 1.6% increase in comps (on top of a 6.2% increase in the same period last year), partially offset by the closing of 18 stores (including 13 large-format stores) during the year. Domestic revenue of $8.82 billion rose 2.1%, driven by comparable sales growth and revenue from GreatCall, Inc., which was acquired in the fiscal 2019 third quarter, partially offset by the loss of revenue from store closures in the past year. GreatCall offers mobile products and connected devices tailored for seniors. Domestic online revenue of $1.42 billion increased 17.3% on a comparable basis, due to higher average orders and increased traffic. As a percentage of total domestic revenue, online revenue increased 210 basis points to 16.1%, up from 14% last year. EBITDA and EBITDA margin increased 9.6% and 50 basis points, respectively, due to more profitable revenue from GreatCall, and the leveraging impact of the higher sales base. TTM EBITDA margin of 6.5% was below our monitored industry average of 7.5%. Management updated its fiscal 2020 guidance to narrow the prior top-line range and raise the bottom-line range. The updated guidance factors in the following: (1) management's estimate of the impact of tariffs on goods from China, including the increase to 30% for “List 3” items and 15% for “List 4” items; (2) the Company’s better-than-expected first half earnings; and (3) general uncertainty related to overall customer buying behavior in the back half of the year. Full-year fiscal 2020 revenue is expected to be $43.10 billion – $43.60 billion, compared to prior guidance of $42.90 billion – $43.90 billion, with comp growth of 0.7% – 1.7%, compared to prior guidance of 0.5% – 2.5%. EPS is expected to be $5.60 – $5.75, up from prior guidance of $5.45 – $5.65.
Sportsman’s Warehouse reported second quarter sales increased 4.2% to $211.8 million, primarily from two new store openings during the quarter, and increased demand for firearms and ammunition due to legislative changes in some states in which the Company operates. Same-store sales increased 1.7%. Management also noted buy online, pickup in store sales from its new website grew 80%. Gross margin slipped 1% to 34.6%, but SG&A margin improved 0.8% to 27.4%. EBITDA fell 16.5% to $15.2 million, and EBITDA margin was down 1.7% to 7.2%. The Company ended the quarter with 94 stores in 24 states. It plans to open one more store during fiscal 2019, for a total of three new openings during the year, on top of five new stores opened last year.
