July 24, 2018
Rite Aid & Albertsons
As pushback comes from Rite Aid investors over its acquisition by Albertsons, who argue the deal undervalues Rite Aid, the two companies are staging a public relations campaign. The deal, announced in February and heading to a vote next month, would create a new company with over $82.00 billion in revenue. Rite Aid investors are expected to hold a roughly 29% stake in the new Company. Shares of Rite Aid dropped by more than 20% following the announced deal but have since begun to recover, increasing about 10% in the last week. To sway investors, the companies have focused on the benefits that scale gives them. The companies argue that “increased size gives increased ability to bargain with food and consumer companies as retailers focus on competing on price. It could also give Albertsons and Rite Aid a greater ability to find $375.0 million in cost savings that would help the two invest in necessary technology for the future.” The companies also project potential revenue opportunities of $3.60 billion.
Meanwhile, Albertsons announced that its outside counsel received a letter from a law firm purporting to represent in excess of 45% of the outstanding principal amount of Safeway Inc.'s 7.25% Senior Debentures due February 2031. Safeway is a wholly-owned subsidiary of the Company. The letter asserts that the Albertsons/Safeway financing structure violates a covenant in the indenture governing the Safeway notes. As of fiscal year ended February 24, 2018, there was $576.6 million in Safeway 2031 notes outstanding. The alleged violation had to do with liens granted with the Albertsons/Safeway secured credit facilities that were entered into following their merger and replaced a Safeway secured credit facility. Albertsons argues that three and a half years since Safeway promptly disclosed in regulatory filings that it had incurred that secured debt, the minority noteholders have not, until now, suggested that the incurrence of the liens to secure such indebtedness breached the Indenture. Albertsons believes they were permitted liens as defined in the Credit Facilities indenture and stated “the only rational explanation for the Minority Holders’ current position and its timing is that the Minority Holders have contrived the issues raised as part of a misguided attempt to extract “hold-up value” from Safeway at a time when they know Safeway may incur additional indebtedness in connection with the proposed Rite Aid acquisition.”
Petco
Petco unveiled a new pet-care store concept called PetCoach in San Marcos, CA, which offers personalized pet services, products and experiences related to pet health and wellness. The new model brings Petco’s previously online-only, veterinary-led PetCoach platform to a brick-and-mortar setting. The store is focused on service and has a limited product selection. Petco acquired PetCoach in April 2017. Petco also is testing a membership program that for $9 a month gives customers access to several free veterinary visits per year and discounted rates on other items. Petco operates more than 1,500 Petco and Unleashed by Petco locations across the U.S., Mexico and Puerto Rico.
Tesco
Tesco reportedly plans to launch a new chain of discount stores that will run separately from its core flagship brand. The Company is looking to better compete with Aldi and Lidl in the U.K. According to published reports, as many as 30 units could open in the fall, with the possibility that the chain will be called Jack’s, a reference to Tesco founder Jack Cohen.
This follows a similar trend of shifting toward a discount model, whereby Sobeys announced in December 2017 that it will convert 25% of its 255 Safeway and Sobeys locations in Western Canada into the FreshCo discount banner over a four-year period.
Lucky's Market
Lucky’s Market, which is backed by an investment from Kroger, announced that it has signed leases for four new stores in Florida that will open over the next two years. The stores will be located in Venice, West Boca, Pensacola and Ormond Beach. Lucky’s is focusing its growth in Florida, expecting to operate 22 stores in the state by 2019, up from 13 today. Overall, the Company currently operates 30 stores and expects to grow to 35 by the end of the year.
AMCON
AMCON’s third quarter sales increased 4.9% to $349.0 million. Operating income was $1.5 million, up 54.9% from $961,800 in the prior-year period. Net income more than doubled to $785,050 from $385,050 last year. CEO Christopher Atayan commented, “We are actively seeking acquisitions in our Wholesale Segment which can benefit from our extensive platform of customer service. In addition, we are also looking carefully at a number of internal geographic growth opportunities as our customer base expands.” AMCON recently closed two health food retail stores, but in mid-July acquired eight leased retail health food stores located in Florida for about $2.8 million. The deal expands the Company’s strategic footprint in the Florida market but also increases its exposure to a highly competitive retail sector that has been pressuring the Company’s profitability for more than two years.
Natural Grocers by Vitamin Cottage
Natural Grocers by Vitamin Cottage will open a relocated store in Centennial, CO on July 26. The Company currently has close to 40 stores in the state.
Weis Markets
Weis Markets opened a new 54,000 square-foot store in Randolph, NJ. It is the Company’s sixth store in the state. The store features an expanded produce, organic, and prepared food departments, eight self-checkout scan lanes, a full-service pharmacy, and Weis 2 Go Online ordering.
Hy-Vee
Hy-Vee will open a store in Plymouth, MN this fall, replacing a Cub Foods that closed last week. The Cub closure came just as it finished remodeling another location in Plymouth. Hy-Vee arrived in the Twin Cities metro area in 2015 and currently operates eight stores there, with plans for at least six more. The Company has another 17 stores in southern Minnesota.
Publix
Publix is testing in-store Kahwa café locations in Bradenton and Winter Garden, FL, and Charlotte, NC. The concept could appear in 130 stores across Publix’s southeastern footprint by the end of the year. The in-store cafés are “strategically” positioned toward the entrance of each location. Publix also offers in-store Starbucks at 23 locations in Florida, Georgia, North Carolina and Virginia.
K-VA-T
K-VA-T recently received approval for a new Food City in Erwin, TN. The Company will invest $11.5 million in the 44,000 square foot store, which will have a pharmacy and a Food City Gas & Go fuel center.
Safeway
Safeway signed a lease to open a 50,000 square-foot store in Waipahu, HI, in a former Sports Authority.
Applebee's
According to a court filing, RMH Franchise Holdings Inc., DIP, the second-biggest franchisee of Applebee’s restaurants, recently closed 13 of its 159 locations in seven states as part of its bankruptcy reorganization. RMD sought protection from creditors in early May through a Chapter 11 petition.
Krispy Kreme
Krispy Kreme, which is owned by JAB, plans to become a majority shareholder in Insomnia Cookies. Terms of the deal have not been disclosed. Insomnia Cookies has 135 locations and is valued at less than $500.0 million; it locates many of its stores near college campuses and delivers to students until 3 am. It also sells brownies and cold milk.
Marc's
Marc’s plans to open a new 50,000 square foot store in Kettering, OH next month, after investing about $2.5 million in capital improvements.
Walmart de Mexico
Walmart de México (Walmex) will acquire supermarkets from Gessa Corportate Group in Costa Rica, which owns Perimercardos, Super Compro, and Saretto. The deal will add 52 stores. Walmart already operates about 250 stores in Costa Rica. Terms have not been disclosed.
Target
Target opened a number of small format locations last week, bringing its total to 71 small-format stores nationwide. Locations include Denver, CO; Columbus, OH; Anaheim, CA; and Tallahassee, FL. The stores average 30,000 square feet, compared to a traditional Target’s 130,000 square feet. Target has said having a smaller footprint allows the stores to attract new customer in urban areas, dense suburban neighborhoods and near college campuses — places where a traditional Target store would not fit.
Amazon
Amazon is reportedly in early talks to invest in Indian pharmacy chain MedPlus Health Services, which runs over 1,500 MedPlus pharmacies in India. It also operates online store MedPlusMart, lab testing centers MedPlus Pathlabs, and surgical equipment distribution business RiteCure. Last month, Amazon entered the pharmacy space with its purchase of online drugstore Pillpack in the U.S. Amazon expects groceries and household products to account for over half of its business in India in the next five years. In other news, Amazon will open a new 600,000 square-foot fulfillment center in Spokane, WA.
Costco Canada
Costco Canada is launching Costco Grocery, the Company’s first online grocery site in Canada. The service is available to members in southern Ontario with online orders processed through its Costco Business Centre, which opened in Toronto last year. According to the retailer, “hundreds” of grocery items including health and beauty items as well as vitamins and supplements, will be available through the service that offers a “two-day delivery guarantee,” with no charge for orders exceeding $75. While Costco said it does plan to expand the delivery zone across Ontario and into Quebec, there are no timelines set. Costco Canada currently operates 99 warehouse clubs across the country, with a new warehouse set to open in Toronto on July 25.
Ross Stores
Ross Stores opened 22 Ross Dress for Less stores and eight dd’s Discount stores across 12 states and Washington D.C. in June and July. The new locations are part of the Company’s plan to add about 100 new stores this year, including 75 Ross and 25 dd’s locations. The Company is expanding into new markets like the Midwest and existing markets like California, Texas and Florida, see below for Store Openings Map. In June, dd’s expanded into its newest state, Delaware. Ross currently operates 1,680 stores in 38 states, Washington D.C. and Guam.
Sports Direct International
Sports Direct International announced that consolidated sales for the 52 weeks ended April 29 increased 3.5% to £3.36 billion. Gross margin fell 130 basis points to 39.7%, while EBITDA increased 12.2% to £306.1 million, and free cash flow improved 26.7% to £326.2 million. Net debt increased to £397.1 million from £182.1 million at the same time last year as a result of share repurchases, strategic investments and capital expenditures. While the Company did not separately break out the results of Bob’s Stores or Eastern Mountain Sports, the two units incurred a loss in the year ended April 29, 2018, partly due to implementing Sports Direct’s systems, processes and management procedures. Management said it expects implementation challenges to continue in fiscal 2019. Accounting adjustments related to the purchase of Bob’s Stores and Eastern Mountain Sports contributed to a decrease in consolidated gross margin. Consolidated EBITDA for fiscal 2018 includes £9.2 million of losses from operations and £17.5 million of losses due to accounting adjustments related to the Bob’s Stores and Eastern Mountain Sports businesses. As of April 29, 2018, Bob’s Stores and Eastern Mountain Sports operated 30 and 19 units, respectively.
Sherwin-Williams
Sherwin-Williams reported second quarter sales increased 27.8% to $4.77 billion, due primarily to the addition of Valspar’s sales, higher paint sales in the Americas, and selling price increases. The acquisition of Valspar was announced in June 2017 and finalized during the second quarter of fiscal 2018. In the Americas, sales increased 7.7%, and comps in the U.S. and Canada increased 6.8%. Consumer Brands sales increased 45% and Performance Coatings sales increased 80%, both due primarily to the inclusion of Valspar. Overall, operating income rose 11.9% to $403.6 million. Commenting on the second quarter, CEO John G. Morikis said, “The Company posted record results in net sales, gross profit, and profit before taxes in the second quarter, aided by the Valspar acquisition which continues to build momentum. Consolidated earnings per share expanded by 26.8% percent in the quarter, excluding acquisition-related costs and environmental expense provisions impacts in both years. Underlying demand remained solid across most of our end market segments during the quarter. At the same time, raw material costs continued to inflate during the quarter at a rate slightly higher than anticipated. We continue to focus on offsetting these escalating costs by controlling spending and implementing price increases.”
Abercrombie & Fitch
Abercrombie & Fitch unveiled a new concept store aimed at university students, the first of which is scheduled to open in August. The 3,350 square-foot campus shop will open at The Ohio State University and will serve as a “learning lab” in digital physical retail integration. The campus store is less than half the size of an average Abercrombie & Fitch, which is 7,000 square feet. A second campus shop is planned for the University of Southern California, also opening in August.
Brookstone
Published reports indicate Brookstone is evaluating bankruptcy financing of about $50.0 million – $60.0 million to fund its business if it files for Chapter 11 protection. The reports state that a Chapter 11 filing could occur shortly after the financing package is completed, although the situation remains fluid. A bankruptcy filing is not definite, and Brookstone is still exploring its options, including closing unprofitable stores. If the Company does seek bankruptcy protection, it would be its second, following a Chapter 11 filing in 2014 when Brookstone was sold to a Chinese consortium that pledged at the time to keep most of its 240 stores open. Currently, the Company operates about 100 mall-based stores and 40 airport locations. The Company’s airport locations are reportedly performing well and would not be part of planned store closures, if they were to occur. The reports state that Brookstone is in discussions with liquidators to close only the mall-based outlets.
Overstock.com
Overstock.com announced its entry into the real estate market with its launch of property management website Houserie. The site provides landlords and property managers a variety of services for managing single-home properties or multi-home complexes, including: potential tenant screening, communication with renters, organization of resident information, and rent payment management. Houserie was founded in May 2013 and was purchased by Overstock in February 2018. This marks the first phase of Overstock’s O Real Estate initiatives to assist customers with real estate needs. O Real Estate will support landlords and tenants by providing a portal for renting, buying and managing property, all in one place. The O Real Estate site is slated to launch in September.
Toys "R" Us
On July 23, the Court in the Toys “R” Us Property Company I, LLC Chapter 11 case entered an order authorizing the employment of Raider Hill Advisors, LLC as real estate advisor. The Company stated that “Raider Hill will lead the Propco I Debtor’s efforts to maximize the value of the portfolios of Propco I and its subsidiaries, which include approximately 284 properties in 46 states totaling 14.5 million square feet. The properties are comprised of former Toys “R” Us and Babies “R” Us stores, distribution centers, the Company’s corporate headquarters in Wayne, NJ, and surplus retail properties ancillary to the former store locations.” Please click here to see the list of properties. An auction has not yet been scheduled. The order largely overrules a previous objection by lenders to the terms of the Raider Hill engagement. On July 19, Toys “R” Us, DIP filed a motion for approval of a settlement agreement with an ad hoc group of lenders, the Creditors’ Committee, and an ad hoc group of vendors holding post-petition administrative claims. The settlement protects the lenders from future litigation in exchange for a cash payment to administrative claim holders (which would have otherwise gone to the lenders), as well as the potential for possible additional recoveries. Holders of administrative claims who do not opt out of the agreement will receive a baseline recovery of $180.0 million, including $160.0 million and the first $20.0 million of proceeds from the liquidation of Toys’ Delaware assets, after the Term DIP facility is paid in full; and an “incremental shared recovery,” if the lenders’ recovery exceeds 50% of the $1.00 billion they are owed. The parties agreed to use their best efforts to confirm a Chapter 11 Plan by September 30, the same date that the initial distribution to administrative claims holders is scheduled to be made.
