July 7, 2021
Bed, Bath & Beyond’s 1Q21 net sales of $1.95 billion were 49% above 1Q20, taking into account a 24% impact from the divestiture of non-core banners. Core banner sales growth of 73% and gross margin of 34.9% beat earlier guidance of 65% to 70% and 34%, respectively. Core banner sales were down 6% from 1Q19 but were impacted by 9% related store closures; otherwise comps were up 3% from 1Q19. 1Q net sales were comprised of 38% digital penetration; 31% of the digital demand was fulfilled from stores with BOPIS representing 14% and ship from store in the same-day delivery accounting for 17%. The favorable results prompted the Company to raise FY21 net sales and EBITDA guidance. It now expects sales of $8.20 billion – $8.40 billion ($8 billion – $8.20 billion, previously) and adjusted EBITDA of $520 million – $540 million ($500 million – $525 million previously); this projects to about a 6.4% EBITDA margin. Gross margin increased 820 bps, primarily driven by a favorable product mix from Owned Brand launches, where penetration rose from about 10% to the high teens during 1Q21, on the way to its 20% goal for 2021 and 30% by 2023, as well as a more normalized mix of digital sales coupled with a strong recovery of in-store sales growth. FY21 comps are projected to be in the low-single digits. The Company anticipates spending $400 million on capex during FY21. During 1Q21 no new stores were opened, but 16 Bed, Bath & Beyond stores were closed with another 40 expected to close through FY21 for a total of 200 closures. The Company invested $138.7 million in share repurchases during 1Q21 and anticipates $325 million in repurchases for the full year. At the end of 1Q21, total debt was down 31.4% to $1.18 billion and net debt was just $55.3 million. The Company ended 1Q21 with total liquidity of $1.83 billion. Click here to request a list of future store openings and closings.
On June 21, L Brands filed a registration statement with the SEC to separate its Victoria’s Secret business into an independent public company. Victoria’s Secret intends to issue $1 billion in debt with the proceeds used to fund a cash payment to L Brands as part of the separation deal, which is expected to be completed in August. Last week the Company priced and upsized $600 million in Senior Unsecured Notes due 2029 at 4.625% (and up from $500 million initially); the offering is expected to close on July 15, 2021. The Company is also negotiating a $400 million First-Lien Term Loan B with a maturity date in 2028 and an interest rate of LIBOR plus 3.25%. This facility is expected to close at or about the time of the separation. Click here to request more information.
Neiman Marcus denied a published report saying it is in conversations to sell its Bergdorf Goodman brand. The report had said the Company was talking to banks about financing for its Manhattan, NY location, including a possible sale. Neiman Marcus responded by saying, “We have no intention nor are we looking to sell Bergdorf Goofman at this time. We are strategically investing in our business and our brands with the intention of growing and strengthening the Company.” The published report said former Barneys New York landlord Ashkenazy Acquisition Corp. is interested in buying Bergdorf, and WeWork founder Adam Neumann is interested as well, in partnership with Sam Be-Avraham, who attempted to buy Barneys two years ago.
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H.E. Butt grocery reopened a Central Market store in Dallas, TX, following a 20-month rebuilding and restoration process. The store had been closed due to significant damage from tornados that swept through North Dallas in October 2019. Click here to request a list of future store openings.
Last week, Ampex Brands, a 7-Eleven and Yum! Brands franchisee, announced the acquisition of bakery-café chain Au Bon Pain from JAB Holding-owned Panera Bread. The deal includes approximately $60 million in assets. Ampex Brands acquired all 171 locations of the bakery-café chain, along with the franchising rights to an additional 131 locations; the deal is expected to grow the franchisor’s annual revenue by 10%. Ampex Brands already owns and operates more than 400 Pizza Hut, KFC, Taco Bell, Long John Silver’s and 7-Eleven units. With the acquisition, Ampex has appointed former Pizza Hut senior franchise growth leader Ericka Garza as brand president.
Walgreens reported stronger sales and operating profit in 3Q21, and raised its FY21 outlook, but investors weren’t impressed, pushing its stock down 7% last Thursday when it released earnings. Investors are still waiting to hear more about the Company’s long-term retail strategy from new CEO Rosalind Brewer, who will disclose details this fall. U.S. retail sales grew 5.1%, and operating profit jumped just over 50%, benefitting from COVID-19 vaccinations as well as lapping weak 3Q20 results that were impacted by the pandemic. U.S. stores saw improved foot traffic, especially in urban markets, with front-end comps up 1.7%. 3Q21 pharmacy script comps rose 9.8%, including a 600 bps benefit from vaccinations. Gross margin was stronger in both front-end and pharmacy, the latter benefitting from vaccinations. The Company administered 17 million COVID vaccinations in 3Q21, but this rate has peaked, with about 7 million vaccinations expected in 4Q21. As a result of this, and lapping tougher comparisons with 4Q20, earnings growth in the final quarter of FY21 is expected to subside. Still, management raised EPS growth guidance to 10%. FCF was strong, increasing to $3.30 billion from the improved profits and enhanced working capital initiatives, as Walgreens said it eliminated excess inventory and “extended payment terms.” One of the strategic initiatives the Company does intend to pursue is simplifying the role of pharmacist by modernizing and automating pharmacies. To that end, it operates two micro-fulfillment centers, in Phoenix and Dallas, supporting 550 pharmacies, which will increase over time to 1,000 pharmacies. Walgreens expects to deploy micro-fulfillment centers in nine new markets by the end of FY22. The Company also continues its Village Medical at Walgreens rollout, completing 46 to date, with plans to have more than 80 locations by the end of calendar 2021. Click here to request a list of future store openings.
Dollar General, which currently offers fresh produce in more than 1,300 of its stores, plans to expand the offering in up to 10,000 locations, including a “meaningful” number of stores in U.S. Department of Agriculture defined food deserts. The expansion comes as Dollar General has entered into an operational partnership with Feeding America to provide access to food resources in rural and underserved communities. Approximately 75% of Dollar General stores serve communities of 20,000 or fewer. One of the Company’s top initiatives in recent years has been the addition of freezer and cooler space in new and remodeled stores to offer more refrigerated and frozen products. More recently, it has been adding fresh produce. Dollar General said its stores offering produce feature the top 20 items typically sold in grocery stores and approximately 80% of the produce categories carried by most grocers. Click here to request a list of future store openings and closings.
H&M’s 2Q21 revenue rose 62.3% to SEK 46.51 billion (US$5.42 billion) excluding VAT, and increased 75% in local currency but was still down about 4% compared to 2Q19, primarily impacted by the pandemic and store closures. Sales increased across all markets (notably more than tripling in the U.S.) except China, which posted a 23% sales decrease in local currency. Nonetheless, sales are still affected by reduced foot traffic due to continued restrictions and store closures; currently, around 95 stores are still temporarily closed. Cost-mitigation measures, coupled with gross margin improvement, resulted in EBITDA of SEK 9.46 billion for the quarter. Click here to request a list of future store openings and closings.
Gap announced last week that it plans to close all 81 of its Company-owned stores in the U.K. and Ireland by the end of September, following a strategic review. The Company will maintain its online presence in both countries. Gap has operated stores in the U.K. since 1987 and in Ireland since 2006. Gap also indicated it is in discussions in Italy for the potential acquisition of its Gap stores there, and is in negotiations with Hermione People and Brands, the retail branch of FIB Group, to take over Gap stores in France. Through franchises, Gap brand reaches customers in 35 countries with more than 460 stores, 14 standalone e-commerce sites, and more than 160 e-commerce sites. Click here to request a sample list of recent and future store closures.
Our Hot Market Report takes a closer look at the Washington D.C. real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, digital insights, and demographics. Click here to request a copy of the full report.
Genesco has been under fire by activist investor Legion Partners Asset Management, which is calling for a management and board shakeup ahead of a proxy vote. Last week, the retailer released a statement defending its ongoing strategy and claiming Legion “fundamentally misunderstands the dynamics of today’s footwear retail and branded market and implications for Genesco.” The retailer said that Journeys is looking to optimize its current store footprint, adding that Legion’s proposed plan to “expand further into several hundred malls and expand by hundreds of stores at a time when digital penetration is accelerating is completely at odds with the current market environment.” Genesco operates 1,455 retail stores throughout the U.S., Canada, the U.K. and the Republic of Ireland, principally under the names Journeys, Journeys Kidz, Little Burgundy, Schuh, Schuh Kids, and Johnston & Murphy.
Last week, Kroger announced an agreement with an intelligent automation and specialized software solutions provider to deploy, expand, and enhance the capabilities and capacity of Kroger’s existing Great Lakes distribution center in Delaware, OH. The facility, which is currently being renovated to add modern state of-the-art technology, is slated for completion this summer. The distribution center opened in 2003 and currently services 115 stores in central and northwest Ohio, as well as southeast Michigan and the Ohio River Valley region. During the renovation, the facility will be expanded by 130,000 square feet. Click here to request a list of future store openings and closings.
Fiesta Restaurant Group agreed to sell its Taco Cabana business (142 Company-owned in TX, 6 franchised in NM) for $85 million to Yadav Enterprises, a restaurant franchisee. Following the deal, Fiesta will be debt-free and will focus on its Pollo Tropical business in FL. Both banners have been struggling in recent years and recorded double-digit comp declines in FY20. The deal is expected to close in 3Q21.
Krispy Kreme announced the pricing of its IPO of 29.4 million shares at $17 per share. The shares began trading on the Nasdaq on July 1 under the ticker symbol “DNUT,” and the offering is expected to close today. The underwriters have been granted a 30-day option to purchase up to an additional 4.4 million shares at the IPO price. Krispy Kreme said it intends to use the proceeds, expected to be $565 million, to repay certain of its outstanding indebtedness under the Company’s term loan facility, to repurchase shares of common stock from certain executive officers at the price to be paid by the underwriters, and to make payments in respect of tax withholdings, with the remainder used for general corporate purposes. Click here to request a list of future store openings.
Medly Pharmacy announced last week it has agreed to purchase the Pharmaca pharmacy chain based in Boulder, CO. The acquisition is expected to close in 3Q21 and is subject to customary closing conditions. Pharmaca operates 28 stores in Washington, Oregon, California, New Mexico, Colorado, and Illinois. The acquisition will allow Medly to expand to almost 30 markets. Medly started in 2017 when it opened its first pharmacy in Brooklyn, then expanded into New Jersey, Pennsylvania, Florida, Maryland, Baltimore, North Carolina, Georgia and Texas. The Company offers free same-day delivery within a 50 to 80-mile radius of its pharmacies. Medly researches and applies discounts so that people make the lowest copayment, and accepts all major insurance providers, including Medicare and Medicaid. Last December, Medly announced its new 30,000 square-foot headquarters in Brooklyn, NY, which followed a $100 million funding round in July 2020. According to the Company, it has grown revenue from $1 million in 2017 to $200 million in 2020, which doubled since 2019.
BJ’s Wholesale Club opened its newest club in Seabrook, NH on July 2, marking the Company’s 222nd location. Click here to request a list of future store openings.
Tilly’s 1Q21 sales more than doubled as physical store traffic recovered compared to depressed 1Q20 sales due to pandemic related store closures. On a more normalized basis, 1Q21 sales were up 25% from 1Q19, driven by a 22% increase in comps, with brick & mortar sales up 13% and e-commerce net sales up 80%. Overall, EBITDA was $19 million in the quarter, compared to an $18 million loss the prior year. As of May 1, 2021, Tilly’s had no debt and liquidity of $206 million, including $158 million of cash. Management plans to have 244 stores open at the end of 2Q compared to 238 in 1Q21.
BBQ Holdings, the parent company of Famous Dave’s and Granite City Food & Brewery, announced June 29 the closing of its private investment in public equity (PIPE) in the Company, which was finalized in a securities purchase agreement on June 24. BBQ Holdings received total gross proceeds of $13 million. The investment was made by Nantahala Capital Management, LLC and its affiliates. BBQ Holdings expects to use proceeds from the offering for growth initiatives.
Papa John’s International announced its planned expansion into Germany, with the goal of opening 250 restaurants in the German market over the next seven years. Click here to request a list of future store openings.
Saker ShopRites opened a 91,625 square-foot store in Middletown, NJ. A 20,000 square-foot ShopRite Wine and Spirits store will open next door.
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J. Alexander’s Holdings has agreed to be acquired by SPB Hospitality LLC in an all-cash transaction valued at $220 million, or $14 per share. The share price represents a 14% premium to the price as of July 1. This deal follows the completion of a review of strategic alternatives that began in August 2019 but was put on hold for much of FY20 due to the pandemic. The Company did not provide an estimate for when the deal is expected to close. SPB Hospitality is an affiliate of Fortress Investment Group and, in May 2020, acquired the assets of the bankrupt Craftworks Restaurants, which includes the Logan’s Roadhouse, Old Chicago, and Rock Bottom restaurant banners, among others. At the time of the sale, Craftworks’ store network included about 260 Company-owned and 77 franchised restaurants.
Given the 66 net store closures over the past two years, compressed mall traffic, reduced demand for occasion-based apparel during the pandemic, and increasing competition among direct-to-consumer brands, Express’ 1Q21 sales fell 24% from 1Q19. Total comps (excludes stores closed for more than one day) were positive for the first time since 2Q18, up 5%. While outlet (26% of 1Q21 sales) comps dropped 19%, retail (74% of 1Q21 sales) comps accelerated 11%.
Checkers Drive-In Restaurants, doing business as Checkers & Rally’s, announced an expansion agreement with franchisee Shawn Danesh, who plans to open 15 Rally’s restaurants in north Orange County, CA over the next six years. The latest expansion effort will increase the brand’s California footprint by 20%. The Company has already purchased a site in Anaheim and has plans for stores in Tustin and La Habra. The Checkers & Rally’s brand opened 18 new restaurants in 2021 to date and has an additional 40 restaurants set to open before the end of the year. Click here to request a list of future store openings.
Barnes & Noble Education’s consolidated 4Q21 sales fell 13.3%, to $222.8 million, partly reflecting the impact of an additional week in 4Q20. Retail sales declined 13%, with comparable sales down nearly 7% for the quarter, inclusive of a 17.9% comparable course materials sales decline, partially offset by a 9.6% increase in general merchandise sales. While many athletic conferences resumed sporting activities during the quarter, fan attendance at games remained restricted, limiting sales of high margin general merchandise offerings. BNC's First Day digital course revenue grew 94%, benefiting from the accelerated move to digital courseware. The Company reached agreements for 64 campus stores to support its First Day Complete courseware delivery program in the Fall Term 2021, up from 12 campus stores in the Fall Term 2020. Wholesale 4Q sales were down $9.2 million, to $9.7 million, primarily due to lower textbook sales due to the pandemic. DSS sales increased 25.8% to $8.3 million driven by an increase in sales of subscriptions to bartleby (a student access hub). The Company gained over 300,000 gross subscribers for the bartleby suite of services (which include textbook solutions, a virtual writing center, and research help) during FY21. The Company also signed over $103 million in net new business in FY21 expanding BNED’s footprint by 52 BNC institutions and 31 K-12 schools. Gross margin eroded 250 bps primarily due to higher markdowns and the shift to lower margin digital courseware. To mitigate the impact of the sales decline, the Company reduced expenses through cost reduction initiatives, but SG&A increased 360 bps on a margin basis. Ultimately, consolidated EBITDA loss widened to $31.4 million for the period. Looking ahead, while significant uncertainty remains, the Company expects to generate positive EBITDA in FY22, as it expects most schools to return to a traditional on-campus environments for learning and sporting activities. The Company expects EBITDA to approach pre-COVID levels in FY23 as schools fully resume on campus learning and sporting activities with less-restrictive COVID health and safety protocols. Click here to request a list of future store openings and closings.
U.K.-based Belong Gaming, owned by global e-sports and technology company Vindex, plans to open 500 gaming locations in the U.S. over the next five years. The first will open just outside of Houston in Pearland, TX, with additional venues planned for Dallas, TX; Nashville, TN; Columbus, OH; Chicago, IL, all in the coming months. Belong’s 25 U.K. gaming arenas offer daily team competitions, feature a minimum of 48 game stations, and sell snacks and drinks as well as console hardware, games and merchandise. Beginning this fall, with the first batch of its U.S. arena openings complete, Belong intends to launch tournaments, leagues, and scrimmages between teams based at their U.S. and the U.K. locations.
The move described above will escalate competition for GameStop, which is in the early stages of transforming itself into an e-commerce company, although details remain unclear. The Company’s initial focus will be to close underperforming stores in order to reduce costs. We assume the plan includes transforming its remaining units into a more experiential concept. However, it remains to be seen whether GameStop’s real estate is appropriate to reach this goal (the stores currently average only 1,700 square feet, while Belong locations will range from 4,000 to 14,000 square feet). Ultimately, Belong Gaming’s plans add pressure to GameStop, in terms of the timing of its turnaround, while also narrowing the margin for error.
GameStop has made progress setting the stage for its transformation; however, operations remain concerning when compared to 1Q19, prior to the pandemic. 1Q21 “headline” metrics appear favorable relative to 1Q20; sales improved 25%, boosted by new console launches (despite a 12% reduction in store base), and EBITDA and EBITDA margin increased $78 million and 800 bps, respectively.
On July 6, GameStop announced the lease of a 530,000 square-foot facility in Reno, NV, which is expected to be operational in 2022. The Reno facility will position the Company to grow product offerings and expedite shipping across the West Coast. This expansion follows GameStop’s recent lease of a 700,000 square-foot facility in York, PA.
84 Lumber opened its latest dedicated truss plant in Statesville, NC at the end of June. The 34,000 square-foot component plant, which serves the Charlotte, NC market, primarily manufactures roof trusses and floor trusses. This follows the opening of a truss plant in Richmond, VA in February. Based in Eighty Four, PA, 84 Lumber operates nearly 250 stores, component manufacturing plants, custom door shops, custom millwork shops, and engineered wood product centers in more than 30 states.
Camping World announced a land acquisition agreement for TC’s RV dealership in St Albans City, VT, which will be its first location in Vermont. The acquisition is expected to close later this summer. The property will undergo a full renovation and expansion before opening in mid to late 2022. The Company currently has dealerships in operation, agreements to acquire existing dealerships, facilities under new construction, or a land acquisition pending in 46 of the 48 contiguous states. Click here to request a list of future store openings.
Vancouver-based performance apparel maker DUER announced plans to open its second U.S. location in the Fairfax District of Los Angeles in early September. The 1,850 square-foot space will “combine experiential and sensory elements to reflect the natural and sustainable materials that comprise 95% of DUER’s garments.” Its stores offer customers opportunities to test its clothing on stationary bikes, monkey bars, and swings. Launched in 2014, with its first store debuting in Vancouver in 2016, the Company subsequently opened three additional Canadian stores. In 2020, DUER opened its first U.S. storefront in Denver, CO. The Company’s wholesale network serves 700 independent retailers in more than 27 countries and maintains U.S. retail partnerships with Nordstrom and REI.
Marco’s Pizza signed two new development agreements that will bring 20 new stores to the Denver, CO metro market by the end of 2024. The Company noted that it has now signed 90-plus franchise agreements thus far in 2021, with over 200 stores in various stages of development. Marco’s Pizza is aiming to grow its 1,000-plus unit footprint by more than 10% this year. Click here to request a list of future store openings.
Hoots Wings, a spin-off of Hooters, announced the signing of a new multi-unit deal that will add 16 locations within 20 miles of Philadelphia, PA by 2026. The first unit is slated to open by the end of calendar 2021. Additionally, the fast-casual wing concept plans to bring an additional 50 locations to key markets across Pennsylvania. The brand currently has seven locations in Illinois, Georgia, and Florida, with signed development commitments for another 85-plus units. Hoots Wings noted it is on track to open 17 more units in 2021.
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