Openings, Closings, & Other Key Industry Highlights

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August 22, 2018

 
 
 

Toys "R" Us

In the Toys “R” Us, DIP case, on August 20, the Court provided notification of: (i) the selection of the successful bidder and backup bidders following the auction of 123 Toys "R" Us and Babies "R" Us stores owned by Toys “R” Us Property Company II, LLC, (ii) the release of certain assets to third-party purchasers, and (iii) the opportunity to submit bids on the released assets. The 123 stores (click here to request the list) occupy 5.1 million square feet across 29 states. At the conclusion of the auction, the Propco II Debtors selected a commercial pass through entity (TRU Trust 2016-TOYS, Commercial Mortgage Pass-Through Certificates), acting through Wells Fargo Bank, National Association, as the successful bidder for the 123 stores, as displayed in Exhibit A. If the successful bidder does not close on the transaction, the Debtors also selected backup bidders for each of the assets. Additionally, the successful bidder agreed to release certain of the assets to third-party bidders. The released assets include stores which are part of two “package bids,” as well as five stores which were individually released.

Parties previously qualified to participate in the auction may submit a bid to purchase released assets which are part of either of the “package bids” listed in Exhibit B. Bids for the following will not be considered: (i) individual properties included in a “package bid,” and (ii) bids for any of the five individually released assets.

 

Lowe's and Orchard Supply

Today, in connection with the release of Lowe’s second quarter earnings, two material announcements were made. First, the Company has appointed David Denton as its EVP and CFO and he will replace Marshall Croom, who announced his intention to retire in June 2018 but will remain in the position until Mr. Denton joins. Mr. Denton currently serves as EVP and CFO of CVS Health Corporation and will join Lowe’s shortly after closing the CVS acquisition of Aetna, which is anticipated in the second half of fiscal 2018. Mr. Denton has served in executive positions of increasing seniority at Lowe’s since 2007.

Additionally, management also noted that as part of a strategic reassessment, the Company will be exiting its Orchard Supply business and expects to close all 99 stores as well as the distribution center, by the end of fiscal 2018. Lowe’s has appointed Hilco Merchant Services, a real estate advisory company to help manage the process. During the second quarter, the Company recorded a $230.0 million non-cash asset impairment charge, and estimated that net cash outflow associated with the store closures will be between $290.0 million and $375.0 million. 

Following the exit of the Orchard Supply business, Lowe’s announced that it will focus on its core home improvement business. 

 
 
 
 

 

Sears Holding Corporation

August 14, ESL Investments, Inc. (ESL) submitted a non-binding proposal to the Special Committee of the Board of Sears Holdings Corporation to acquire the Kenmore brand and the Home Improvement business of the Sears Home Services division (SHIP). Additionally, ESL provided an update on plans with respect to the Parts Direct business of the Sears Home Services division (Parts Direct), and re-emphasized its belief that these transactions should be undertaken together with tender and exchange offers designed to allow Sears to “reduce its debt, extend its maturity profile and alleviate its liquidity challenges.” In reality, the debt reduction will be minimal, the maturity profile likewise will not be significantly altered and ultimately $400.0 million would hardly alleviate the Company’s liquidity issues. ESL proposes a cash acquisition of Kenmore based on a cash-free, debt-free enterprise value of $400.0 million, subject to adjustment at closing.

Sears board’s four independent members must decide whether to sell Kenmore. Last week, Mr. Lampert wrote the board to specify his price and say he was “prepared to move as quickly as possible.” He said he was hoping to sign a deal as soon as August 24. Mr. Lampert is trying to move quickly because Sears has $133.0 million of debt coming due in October, and it could use the money from a Kenmore sale to help repay those loans. On the other side, Sears’s board might not want to rush into a transaction that could be viewed as self-dealing. Critics have already accused Mr. Lampert of walking away with the valuable pieces of Sears.

On the news, the Company’s stock fell about 28% last week to close at $1.32 on Friday. The decline continued Monday, with the price falling to a new all-time low of $1.22. The selloff could be driven by Mr. Lampert's letter to the board, which highlighted the cash crunch the Company is currently experiencing. Kenmore is also one of the last valuable assets the Company still holds.

 

Amazon

Amazon is reportedly getting into a bidding war to acquire the Landmark Theatre chain from a group backed by billionaire Mark Cuban.This represents yet another potential move by Amazon into the bricks-and-mortar world.

Amazon is also reportedly in talks with European insurers regarding the creation of a U.K. price comparison site. It is unclear what insurance products would be sold on the site, and there are no imminent plans to launch a site.

 

McDonald's

On August 14, McDonald's announced that the Company and its franchisees are investing $6.00 billion to modernize most of its U.S. restaurants by 2020. The restaurant upgrades will include updated dining rooms, digital self-order kiosks, remodeled counters, digital menu boards inside and at the drive through, new designated parking spots for curbside pick-up, expanded McCafe counters, and larger display cases. McDonald's has also introduced McDelivery with Uber Eats at more than 5,000 U.S. restaurants.

 

Google

Google reportedly is looking at a location in Chicago’s Fulton Market for its first permanent retail store, which could showcase its hardware products. The two-story space totals 14,000 square feet and would be several blocks away from the Company’s Midwest headquarters. Until now, Google’s been opening the occasional pop-up and stores within stores in the U.S. and UK, sectioning off space to demo Chromebooks, smart speakers, and phones. Previously, it spent millions renovating a 5,000-square-foot retail space in New York’s SoHo district before ultimately abandoning those plans and leasing the space out instead.

 

Vail Resorts

On August 15, Vail Resorts closed its acquisition of Stevens Pass Resort in Washington from Ski Resort Holdings, LLC, an affiliate of Oz Real Estate. The final purchase price, after adjustments for certain agreed-upon terms, was $64.0 million. The acquisition is the first of two acquisitions announced in June 2018 to be finalized. The second, separate transaction for Triple Peaks, LLC, the parent of Okemo Mountain Resort in Vermont, Mount Sunapee Resort in New Hampshire, and Crested Butte Mountain Resort in Colorado, is expected to close later this summer. After the two transactions close, Vail Resorts plans to invest $35.0 million over the next two years across the four resorts. 

 

Dine Brands Global

Dine Brands Global said that Legacy Apple LLC expanded its franchisee portfolio through the acquisition of eight Applebee's restaurants in mid-Tennessee. Legacy Apple, a 20-year Applebee's franchisee, now operates 41 Applebee's restaurants in Iowa, Illinois, Nebraska, South Dakota, Kentucky and Tennessee. Financial details were not disclosed. 

 
 
 
 
 

Restaurant Brands International

Restaurant Brands International’s Popeyes brand and Kuya J Holdings Group announced an exclusive master franchise agreement to develop and grow the Popeyes brand in the Philippines. Terms were not disclosed. The companies did not say how many Popeyes restaurants are to be established under the agreement.

Store Activity

Natural Grocery by Vitamin Cottage

Natural Grocers by Vitamin Cottage will open a new store in Salida, CO on October 31. The new store will offer 100% organic produce, along with a wide assortment of other natural products. The Company currently operates 37 of its 140 stores in Colorado, or about 25% of its store base, see below for store concentration map.

 
 
 

 

Whole Foods

Whole Foods will open its second store in Charleston, SC on August 29. The 40,000 square-foot store will feature expanded prepared foods; a coffee, beer and wine venue; a juice bar; and indoor and outdoor seating.

Meanwhile, on August 16 Whole Foods opened a new location in Kirkland, WA. The 43,000 square-foot store is its 10th in the state. 

WinCo

WinCo is expanding into Montana for the first time, with two stores located in Helena and Billings. Construction began on the 84,000 square-foot store in Helena earlier this summer. The Company is known for its bulk-bin food department. The Helena store will stock more than 700 food items in bulk. According to Nielsen, as of July 2018, current market leaders in Billings include Walmart with a 45% market share and three Supercenters, and Albertsons with 41% of the market and six stores. Reese & Rays, Natural Grocers, Lucky’s Market and Fans all operate single stores in the market as well.

 

Lidl

Lidl is opening two new stores in the Washington, D.C. area next month, including its first in Maryland. The new stores are located in Bowie, MD, and Dumfries, VA, and will bring the Company’s store count to eight in the region. The news comes as Lidl has pulled back on its original U.S. expansion plans amid mixed performance results. To date, the Company has opened 53 stores, roughly half of what it had originally intended to open by the end of summer 2018. Lidl is still evaluating its strategy going forward; stores continue to open but the Company also continues to pull out of planned sites.

 

K-VA-T

K-VA-T will close a Food City in Chattanooga, TN on September 4. The store's lease expires later this year and the Company was unable to secure a suitable replacement location. The Company plans to continue to evaluate possible new locations in the greater Chattanooga market moving forward. K-VA-T operates 132 stores throughout Southeast Kentucky, Southwest Virginia, East Tennessee, and North Georgia.

 

Ahold Delhaize

Ahold Delhaize’s Giant Food Stores recently opened a 66,000 square-foot store in Feasterville, PA, replacing a former Feasterville location. The new store is about 25% larger than the original location and features an expanded produce department, more prepared foods and a Beer & Wine Eatery. This store is part of a $70.0 million investment Giant announced earlier this year to grow its store network across Pennsylvania by constructing six new stores, remodeling two locations and opening five new fuel stations over the next two year. 

Hy-Vee

Hy-Vee will close its Waseca, MN store on September 30. The building and parking lot are owned by a landlord rather than by Hy-Vee, and the store’s lease expires in November. The Company commented, “Unfortunately, despite numerous attempts to work with the property’s landlord, the lease on the building will not be renewed. This is not something we want to do, but the landlord has left us no choice.”

Meanwhile, Hy-Vee will open its second Wahlburgers franchise location in West Des Moines, IA, on September 11. The 7,100 square-foot Wahlburgers will be located near Hy-Vee’s corporate headquarters. Last year, Hy-Vee announced plans to build, own and operate 26 Wahlburgers restaurants.

 

Trader Joe's

Trader Joe's will open a new store in Germantown, TN early next month.

Aldi

Aldi will open its fifth store in Virginia Beach, VA on August 23. There are nine other locations in the South Hampton Roads area.

 

Sam's Club

A Sam’s Club that closed earlier this year in Matteson, IL will be transitioned into an e-commerce fulfillment center. It will be the Company’s second e-commerce distribution hub in the U.S. and will serve customers in a several hundred-mile radius of Chicago, IL. Sam’s Club expects to have the facility operational by the end of this year. The store was part of approximately 60 Sam’s locations that Walmart closed in January.

 

Walmart

Last week, Walmart opened a new $135.0 million distribution center in Mobile, AL. The new, 2.6 million square-foot storage and cross-dock facility will supply several regional distribution centers that support approximately 700 Walmart stores in Alabama, Mississippi and the surrounding areas.

Monday, Walmart completed its $16.00 billion investment in Indian e-commerce company Flipkart, giving it a 77% controlling stake in the firm. The investment includes $2.00 billion of new equity funding to help accelerate growth of the Flipkart business. The deal was announced in May and is the largest so far in the Indian retail space, and Walmart’s biggest acquisition.

Walmart is asking some of its beauty suppliers to consider sourcing products from outside China, as it looks for ways to mitigate the impact of proposed tariffs on Chinese imports. In an email sent to some beauty suppliers on August 7, Walmart asks if they have facilities outside China, and if not, whether they would consider investing in them, to broaden their sourcing ability. 

 

Wal-Mart de Mexico (Walmex)

Wal-Mart de Mexico (Walmex) plans to open gas stations alongside its Mexican stores, joining other private companies that are now competing with Pemex, Mexico’s former monopoly fuel seller. Retail and convenience store chains are beginning to tap into Mexico's retail gasoline market.

Walmex, said its "first phase" includes six sites installed in shopping centers or parking lots of its Walmart, Sam's Club and Bodega Aurrera stores. Walmex, with 2,395 stores across Mexico, did not say how many fueling stations it ultimately plans to open, or over what time period. 

 

Dick's Sporting Goods

Dick’s Sporting Goods is closing its Richmond, VA store, located at Stony Point Fashion Park, in September. The 84,000 square-foot, two-level store was originally a Galyan’s Trading Co. before Dick’s acquired the chain in 2004. It functions as one of three anchor tenants to the Stony Point mall. According to published reports, the closing comes as the store was due for a lease renewal, and the Company decided not to renew due to underperforming sales. The Company operates seven stores in the Richmond area, most of which are about 47,000 square feet in size. 

 

Conn's

Conn’s is opening a 37,500 square-foot HomePlus store in Virginia Beach, VA, its second Virginia store joining a location in Richmond opened last year. Later this fall, the Company plans to continue its expansion in Virginia with openings in Portsmouth, Hampton, and a second location in Richmond. This will raise the Company’s location count to 122 HomePlus stores across 14 states. Conn’s market presence extends from Colorado and New Mexico in the West to the Carolinas and now Virginia in the East. At the end of last year, the Company announced plans to open nine new stores this year on top of the three opened last year; it has since opened six locations this year.

In other news, Conn’s broke ground on a more than 650,000 square-foot distribution and customer pick-up center in Houston, TX that will supply as many as 45 stores, up from the Company’s current capacity of 20 stores. It is slated to open during the second quarter of fiscal 2019. 

 

Lowe's

On August 23, Lowe’s Companies plans to open a 120,000 square-foot store in Overland Park, KS, with an adjacent garden center of nearly 32,000 square feet. Lowe’s is anchoring the new retail development replacing the Metcalf South mall that closed in 2014. The 30-acre site on which the new store is built previously included a Kmart store, among other buildings. The Company ended the first quarter with 2,154 stores.

 

 
 
 

 

Massey Hill Hardware

Massey Hill Hardware is closing its only store, in Fayetteville, NC, at the end of the month, after nearly seven decades in operation. Tim Gallant, a former employee, cited competition from Walmart, Lowe’s, Home Depot and Amazon contributed to the Company’s decline. 

Earning Releases

The TJX Companies

The TJX Companies’ second quarter sales increased 11.6% to $9.33 billion. Consolidated comps rose 6%, consisting of growth of 7% at Marmaxx, 3% at HomeGoods, 6% at TJX Canada, and 4% at TJX International (Europe & Australia). Net income was up 33.8% to $739.6 million, benefiting from U.S. tax reform.

During the second quarter, the Company increased its store count by 53 stores to a total of 4,194 stores. Square footage rose by 5%.

TJX raised its fiscal 2019 guidance to reflect its strong second quarter results. It now expects EPS of $4.83 – $4.88, which represents a 20% – 21% increase over the prior year’s $4.04. The Company’s full-year guidance includes an expected benefit of approximately $0.73 – $0.74 per share. This guidance assumes that wage increases will negatively impact EPS growth by 2%. Comps are expected to be up 3% – 4% on both a consolidated basis and at Marmaxx.

 

Nordstrom

Nordstrom’s second quarter sales increased 7.1% to $3.98 billion, reflecting a favorable shift of approximately 100 basis points primarily due to the impact of the new revenue recognition standard as it relates to the timing of the Anniversary Sale. This impact is expected to fully reverse in the third quarter of fiscal 2018. Comps were up 4%, with full-price comps up 4.1% and off-price comps up 4%. Gross margin increased 91 basis points to 35%, including a favorable shift of $30.0 million due to the impact of the new revenue recognition standard, higher product margins from continued regular price selling trends, and leverage on occupancy expenses. EBIT rose 13.4% to $246.0 million. To date this year, the Company has opened eight new stores, closed two underperforming locations, and relocated one existing store, ending with 372 stores in operation. As a result of the reversal of the benefit of the new revenue recognition standard, the Company updated its full year outlook, now expecting sales of $15.20 billion – $15.40 billion, down from prior estimates of $15.40 billion – $15.50 billion. Comps are now anticipated to rise 0.5% – 1.5%, down from prior expectations for comps to increase 1.5% – 2%. EBIT is now expected to be $895.0 million – $940.0 million, down from $925.0 million – $960.0 million. 

 

Kohl's Corporation

In late July, Kohl’s Corporation added Amazon return stations to 21 of its stores in Southeast Wisconsin, bringing the number of Kohl’s locations now accepting Amazon returns to just over 100. Kohl’s originally established Amazon return centers in 82 stores in the Chicago and Los Angeles areas last fall, with 10 of the stores also offering Amazon “smart home” shops selling Echo voice-activated virtual assistants, Fire tablets and Kindle readers. At the time, the partnership raised skepticism among industry observers, and the Company has yet to speak about how well the partnership is doing. But this latest expansion suggests both companies are happy with the partnership, and Kohl’s indicated that the Wisconsin stores will allow for further testing in the market where its headquarters is located. Kohl’s motivation for partnering with Amazon is to drive traffic to its stores. Kohl’s operates roughly 1,150 stores nationwide.

The Company reported second quarter results yesterday. Sales increased 4%, and comps were up 3.1%. Operating income rose 11.1% to $452.0 million. Michelle Gass, Kohl's CEO, said, “We are pleased to report that our sales momentum continued in the second quarter, resulting in a comp increase of 3.1%, our fourth consecutive quarter of positive comps. We saw strength across the business -- both our store and digital channels, all regions of the country, and our proprietary and national brands. Our men's and women's apparel businesses led the Company, followed closely by footwear. We also reported higher gross margin as a result of our ongoing focus on inventory management.” The Company now expects its fiscal 2018 EPS to be $4.96 – $5.36, compared to its prior guidance of $4.86 – $5.31. Excluding the loss on extinguishment of debt, fiscal 2018 EPS is expected to be $5.15 – $5.55, compared to prior guidance of $5.05 – $5.50.