August 25, 2021
Amazon is reportedly making plans to open several large physical retail locations in the U.S. that will operate like department stores. This will help the Company extend its reach in sales of clothing, household items, electronics, and other areas. The first of these stores are expected to open in Ohio and California, and will be about 30,000 square feet, which is significantly smaller than most typical 100,000 square feet department stores. The stores will offer items from top consumer brands, as well as Amazon private label items in a variety of categories.
Target led the comp growth for the mass merchandisers reporting this week, gaining 9%; however its streak of 4 consecutive quarters of 20% comp growth came to an end in 2Q21 (ended July 31). Comps were driven by gains in traffic as consumers returned to in-store buying; average ticket fell. Margins were strained during the quarter as the Company is seeing increases in both merchandise and freight costs. This is a recurring theme across most mass merchandisers. Same day service (BOPIS, Shipt, drive-up) remains a bright spot for the Company, up 55%.
Target is expanding its partnership with Disney in time for the holiday season, nearly tripling the number of Disney shops within its stores to more than 160 Target locations by the end of the year. Target launched its in-store and online partnership with The Walt Disney Company in 2019, opening in-store Disney shops in 25 locations, as well as online. Featuring a "shop-in-shop" layout, the Disney stores in Target average 750 square feet and are located adjacent to kids’ clothing and toys. Target said it worked closely with Disney to co-develop and design the in-store experience, which includes features such as music, interactive displays, and photo ops. The space also includes a seating area where families can watch Disney movie clips and play games.
In other news, Target plans to open four new sortation centers this fall in Houston and Dallas, TX, Philadelphia, PA, and Lawrenceville, GA. According to Target, moving the sortation process from the backroom and stores and moving it to a dedicated facility will help free up space and time within retail locations. The sortation centers will get deliveries from stores and sort them for delivery partners like Shipt. Target says the pre-sort process and the technology at the sortation centers will also help to lower processing time for delivery partners. Click here to request a list of future openings.
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Publix GreenWise Market opened a new, 26,000 square-foot store in Tampa, FL, on August 19. There are now nine of the new concept specialty, natural and organic stores in operation. A 10th is planned for St. Augustine, FL. Click here for a sample list of openings/closings.
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Macy’s announced a partnership with WHP Global, the owner of Tru Kids, to sell toys on the macys.com/toysrus website and in more than 400 of its 600 Macy’s stores nationwide, starting in 2022. Tru Kids, Inc. owns the Toys R Us and Babies R Us brands in the U.S. We note that Tru Kids had difficulty establishing a foothold, due to the challenges of starting a brick and mortar business during the COVID period. In mid-2019 the Company announced initial plans to open up to 10 stores in the U.S., each averaging 10,000 square feet. Later in 2019 the plans were scaled back, as only two units were opened, averaging about 6,500 square feet, with plans to open 10 additional stores in 2020. The two stores closed in February 2021. Currently, Tru Kids does not operate any stores. Tru Kids’ current presence in the U.S. is through the Toys R Us website. WHP Global is an investment firm, which acquired a controlling interest in Tru Kids in March 2021.
Jack in the Box awarded 16 franchise development agreements YTD through the end of 3Q21, including 64 new locations in Arizona, California, Idaho, Texas, and Utah. The latest deals will see Jack in the Box enter Salt Lake City, UT; Chicago, IL; and Louisville, KY for the first time. The brand will also expand existing footprints in Houston and Dallas, TX; Phoenix, AZ; San Francisco and Los Angeles CA, among other cities. With a goal of reaching 4% annual restaurant growth by 2025, Jack in the Box has opened 10 locations through the 3Q21. Additionally, the brand unveiled its new MK12 prototype earlier this year, which is off premise only and features a lane for drive-thru, as well as a lane for online pick-up and third-party delivery. The new prototype will cut development costs by 18% to 23%, according to Jack in the Box, and allows for more storage capacity and dual-assembly kitchens. Click here to request a list of future openings.
Walmart reported a modest 2.4% revenue gain, but comps improved 6%. The top line was weighed down by an International sales decline due to the previous year’s divestitures. E-commerce growth also slowed, rising just 6%, although Sam’s Club rose 27%. Sam’s Club also saw continued membership revenue growth, up just over 12%. The comp growth was led by health and beauty, up mid-teens, followed by grocery comps improving mid-single digits. Comps at Sam’s improved 7.7%, led by home and apparel with low double-digit increases.
In other news, Walmart is launching GoLocal, a new white-label, crowd-sourced delivery service now available to all types of retailers. The service is touted as a way for local merchants as well as large retailers to tap into Walmart’s online order fulfillment capabilities involving product delivery. Those capabilities largely involve access to an on-demand, labor pool. Walmart GoLocal has already established a number of contractual agreements with national and enterprise retail clients and is currently accepting select new merchant partners.
Walmart Canada plans to open a 223,000 square-foot distribution center for fresh and frozen food in Moncton, New Brunswick in fall 2022. The Company broke ground on the new facility, which is its first Atlantic Canada DC, last week. The cold warehouse will provide fresh and frozen groceries to 43 Walmart stores in the region. Plans call for the Company to invest more than $56 million in the project, part of a $3.50 billion, five-year Company growth initiative unveiled in the summer of 2020. That effort includes two other distribution centers under construction: a 300,000-square-foot DC in Surrey, British Columbia, due to open in 2022, and a 550,000-square-foot DC in Vaughan, Ontario, slated to open in 2024. Click here to request a list of future store openings.
On June 4, 2021, we reported that USR Parent Inc., the Sycamore-affiliated owner of Staples, made a proposal to The ODP Corporation’s board to acquire ODP’s consumer business, including the Office Depot and OfficeMax retail store businesses, its direct channel business (officedepot.com), and the Office Depot and OfficeMax intellectual property, including all brand names, for $1.00 billion. To facilitate the transaction, ODP’s board approved a plan to separate itself into two independent, publicly traded companies, comprised of the consumer/retail unit and the B2B unit. The Company recently announced that it continues to make progress on its separation plans, and it expects to complete the transformation in 1H22, including a tax-free spin-off of its consumer business to ODP shareholders in 1H22. Additionally, the board selected the CEOs and company names for each of the two units, which would become effective upon the completion of the spin-off:
The ODP Corporation – a B2B solutions provider, serving small, medium and enterprise level companies, will consist of several operating companies, including the contract sales channel of ODP’s current Business Solutions Division, which will be renamed ODP Business Solutions, and ODP’s newly formed B2B digital platform technology business, which will be named Varis. ODP Business Solutions and Varis will be owned by ODP, but operated as separate businesses.
ODP will also continue to own the global sourcing operations and other sourcing, supply chain and logistics assets. Gerry Smith will continue to serve as CEO of The ODP Corporation following the separation.
· Office Depot – a provider of retail consumer and small business products and services distributed through approximately 1,100 Office Depot and OfficeMax retail locations and an e-commerce presence, officedepot.com, will be spun-off and will be named Office Depot, Inc. Kevin Moffitt, currently chief retail officer of The ODP Corporation, will be appointed CEO of Office Depot upon completion of the spin-off. Click here to request more info.
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The continued re-opening of the economy throughout most of 2Q helped BJ's Wholesale Club generate a modest sales increase, up almost 6%, however comps fell 3.4% (excluding fuel). The Company is lapping a tough 2Q20 comparison when sales and comps were up 18% and 24%, respectively; two-year stacked comps were still up almost 21%. Comparisons to 2Q19 were mixed; sales were up just 1.2% but comps were slightly more positive at 1.6%. However, the Company is lagging other mass merchandisers, Target and Walmart turned in 2Q21 comp growth of 9% and 6%, respectively. Digital growth followed a similar pattern, up just 4%, following a 300% increase last year. BJ's remains successful in attracting new members with membership revenue growing 8%, not far off from 2Q20's pandemic driven growth of 11%. Similar to other retailers, BJ's is experiencing increased freight and supply chain costs, which drove gross margin down about 90 bps. While the sales leverage improved SG&A margin, it could not offset the gross margin decline, limiting the gain in EBITDA to about 2%; EBITDA margin was down 20 bps. BJ's added one club during the quarter, leaving five new clubs to be opened in the remainder of the FY. The Company has not issued any financial guidance for FY21. Click here to request a list of future store openings.
Red Robin reported results for 2Q21 ended July 11, 2021. Revenues increased 71.9% to $277 million and comparable restaurant sales spiked 66.3% as the Company cycled extended dining room closures in the prior year period. On a two-year basis compared to pre-COVID 2Q19, Red Robin’s revenues were still down 10.1% and comps also declined 2.4%, indicating that the Company’s recovery is still a work in progress. The Company permanently closed 12 restaurants during 2Q (10 Company-owned, two franchised), reducing the total store count to 531 units at quarter-end. Red Robin generated $19 million in adjusted EBITDA during 2Q21, compared to a loss of $15.3 million last year. Click here to request a list of future store openings.
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.
7-Eleven has partnered with Minibar Delivery to offer alcoholic beverages within 30 to 60 minutes. The partnership is launching across roughly 600 of the convenience chain’s stores in Florida, Texas, and Virginia before expanding to more markets later this year. Click here to request a list of future store openings.
Handil Holdings (owned by Pam and Marc Salkovitz) acquired Christmas Tree Shops from Bed, Bath & Beyond in October 2020; we estimate the cost was about $175 million. The chain has operated around 80 stores for the last five years with no meaningful new openings or closures and management commented any expansion would be several years out. The Company operates in 20 states but the majority of the store base is in Massachusetts, New York, New Jersey, and Pennsylvania. Click here to request more info.
Pizza Inn, a portfolio company of RAVE Restaurant Group, has executed a multi-unit development agreement with franchisees Prakashkumar and Sarah Solanki. Four new Pizza Inn buffet stores are planned in North Carolina, with the first scheduled to open in Lincolnton during the spring of 2022.
Best Buy’s reported better-than-expected results in 2Q22. Consolidated revenue increased 20% to $11.80 billion, primarily driven by comparable sales growth of 19.6% on top of a 5.8% increase in 2Q21, partially offset by the closure of 79 stores in the past year. Revenue increased 24% compared to 2Q20 (management did not provide a comparison of comps to 2Q20). 2Q22 comps improved across almost all categories; the largest drivers were home theater, appliances, computing, mobile phones and services. Domestic online revenue totaled $3.50 billion, down 28.1% on a comparable basis. Online revenue was 31.7% of total Domestic revenue, down from 53.1% last year. 2Q22 operating income increased 40% to $821 million and operating margin was up 100 bps. Domestic gross margin increased, driven by improved product margin, leveraging of supply chain costs and higher revenue from the Company’s private label and co-branded credit card arrangement. SG&A margin improvement reflected the leveraging impact of the higher revenue base. 1H22 free cash flow totaled $541 million, down from $3.40 billion in the same period last year, due to unfavorable changes in working capital items, partially offset by improved operations and lower capex. At the end of 2Q22, Best Buy had a net cash position of $2.90 billion. Click here to request a list of future store openings.
TJX's 2Q22 revenue increased 23% and only-open comparable sales rose 20% compared to 2Q20 (ended 8/3/2019). Currently, all of the Company’s stores in the U.S., Canada, and Europe are open, while about 40 of its Australian stores are closed. By business sector, comps (versus 2Q20) soared 36% at HomeGoods and 18% at Marmaxx (Marshalls and TJ Maxx); Canada and International reported respective 18% and 12% comp increases. The sales increase and gross margin expansion due to fewer markdowns more than offset higher freight expense as well as substantial supply chain and wage costs, pushing 2Q22 EBITDA sharply higher, to $1.30 billion, from $185.3 million a year ago. Click here to request a list of future store openings and closings.
The Children’s Place’s 2Q21 sales for the period ended July 31 were up 12.2% from 2Q20, (down 2% from 2Q19) with comps up 14.1%. The top line benefited from strong back-to-school sales starting in mid-July. 2Q21 gross margin recovered to 40.6%, up 2,168 bps over 2Q20 due to higher merchandise margins and less promotional activity. Overall, adjusted operating income totaled $40 million, compared to an operating loss of $49 million in the prior year period. As of July 31, 2021, the Company had cash of $64 million and $200 million in outstanding revolver borrowings. Liquidity was supported by positive operating cash flow of $13.3 million in 2Q21. Turning to real estate, the Company continued rationalizing its store base and closed 42 stores in 1H21, ending the period with 708 locations, down 14% from 824 in the prior year period. The Company plans to close an additional 81 locations this year.
Bath & Body Works had record 2Q sales of $1.70 billion, up 36% yoy and 54% compared to the pre-pandemic period in FY19. While store comps were down 23% from weak foot traffic, sales growth was driven by both an increase in transactions and average dollar sales. E-commerce sales grew to $407 million, up 128% compared to 2Q19. Strong sales growth and selective promotional activity contributed to a 31% increase in operating income to $384 million. For 3Q21, management expects sales to increase between 40% and 45%, compared to 2019 sales of $1.10 billion.
During 1H21, the Company opened 41 new locations and closed 11 underperforming stores. Management anticipates closing 20 – 40 stores for FY21, mainly in malls. Bath & Body Works expects to open roughly 55 new, almost entirely off-mall stores in North America. About 47% of the Company's stores at year-end will be off-mall. Click here to request a list of future store openings and closings.
Last week, Grocery Outlet Bargain Market opened a new store in Victorville, CA. Grocery Outlet has more than 400 locations throughout California, Idaho, Nevada, Oregon, Pennsylvania and Washington. Stores are owned by independent operators based in the communities they serve.Click here to request a list of future store openings.
Ace Hardware’s 2Q21 sales increased 8.2% to $2.47 billion. Wholesale revenues were $2.20 billion, up 9% on increases across a majority of departments including outdoor power equipment, grilling, basic electrical, and hand tools. Retail sales were $255.3 million, up 2.4%, and comps were up 1.2%. Store sales were up 3.9% on the addition of new stores activated over the last year and a half, but e-commerce sales declined 33.3% when compared to the surge in online activity a year ago. Ace activated 55 new domestic stores and cancelled six units, ending with 4,629 U.S. stores. Wholesale gross margin fell 110 bps to 11.9% due to higher receiving costs. Retail gross margin improved 160 bps to 44.5% due to vendor funds earned related to new store openings. Operating income declined 11.9% to $121.9 million. Click here to request a list of future store openings.
Foot Locker reported a 9.5% increase in 2Q21 sales for the period ended July 31, 2021, with comps up 6.9%, on top of 18.6% comp growth in the prior year period. Sales were up 28% compared to 2Q19. Management noted solid demand for women's and kid's footwear, apparel, and accessories. Gross margin expanded a substantial 920 bps due to less promotional activity. Overall, operating income totaled $264 million, up from $69 million in the prior year period. The balance sheet remains strong, given a $1.73 billion net cash position, up from $1.25 billion in the prior year period. As a result, the Company spent $8 million on share buybacks and paid $21 million in dividends; the Board also approved a 50% quarterly dividend increase heading into 3Q. The Company invested $36 million in its store fleet, digital capabilities, and supply chain during 2Q. On the real estate side, the Company opened 16 new stores, closed 57 locations, and remodeled or relocated 23 stores. As of July 31, 2021, the Company operated a total of 2,911 locations, down from 3,100 in the prior year period. Subsequent to quarter-end, in August 2021, the Company agreed to acquire Eurostar, Inc. (WSS), an athletic-focused footwear and apparel retailer that operates 93 off-mall stores on the West Coast, for $750 million. The Company also agreed to acquire Text Trading Company, K.K., an online-focused premium sneakers and apparel retailer based in Japan, for $360 million. Click here to request a list of future store openings and closing.
In its first financial report as a standalone company, Victoria’s Secret & Co. reported 2Q21 sales of $1.61 billion, up 51% from the prior year period, driven by greater full-priced selling, and store closures in 2Q20; however, sales were down 9.6% compared to 2Q19. During the quarter, sales improved across all channels, but comps rose only in stores, up 16%, compared with a 12% decline in 2Q20. Online sales in 2Q21 fell 24%, as consumers opted for in-store shopping, but were up 26% compared to pre-pandemic 2Q19. The Company reported operating income of $203 million compared to a loss of $111 million in 2Q20 as improved merchandise mix, tighter inventories and greater full-price selling drove margins. Amid anticipated margin compression once inflation normalizes, permanent store closures are also expected to be a drag on sales; the Company closed a net 240 locations since 2Q19, closed eight during 2Q21, and will be shuttering another 30 to 50 North America stores in 2H21. Victoria’s Secret expects 3Q21 sales to increase by mid to high-single digits versus 3Q20. The Company said that due to “continued uncertainty” it is not providing financial guidance for 4Q21. Click here for a sample list of openings/closings.
Citi Trends’ topline growth trend continued into 2Q21, with sales up 10%, to $237 million, driven by a 9% increase in comps and 10 new stores added since last year. Management reported strong broad-based sales growth, particularly in the men’s, ladies’ and beauty/accessories categories. Operating income improved to $16 million, compared to $0.2 million in 2Q19; 2Q20 operating income of $26 million was not directly comparable since it included favorable one-time expense reductions related to COVID-19 such as temporary furloughs, rent abatements and reduced store hours and closures. For 1H21, total sales and operating income were $523 million, and $55 million, respectfully.
Based on its strong 1H21 performance, the Company raised its sales guidance and now expects to generate total sales of $990 million – $1.01 billion, an increase of approximately 27% – 29% as compared to FY19. Prior sales guidance for FY21 was $970 million – $990 million. Management also plans to open over 20 stores in 2H21. Click here to request a list of future store openings.
Fresh Encounter Inc., grocery management company for Needler’s Fresh Market, opened a new Needler’s location in Carmel, IN on August 20. Fresh Encounter is a family-owned supermarket management company that manages 100 retail stores, with the Carmel store being one of 11 Needler’s Fresh Market locations across Indiana and western Ohio.
On August 20, Trader Joe’s opened a new, 12,500 square-foot store in South Bend, IN. Additionally, the Company will open stores in Chattanooga and Franklin, TN later this week, and a store in Halfmoon, NY, will open this fall. Click here to request a list of future store openings.
On August 18, Fiesta Restaurant Group announced the completion of the sale of its Taco Cabana business to Yadav Enterprises, Inc., which had previously been agreed to on July 1, 2021. The total purchase price was $85 million, and Fiesta received net proceeds of $77 million, depending on closing adjustments. The Company used the proceeds to repay all its outstanding debt, which consisted of $74.6 million in term loan borrowings, as well as a $4.2 million loan prepayment fee.
Xponential Fitness is a franchisor of boutique fitness studios across nine different brands: Club Pilates, Pure Barre, CycleBar, Stretch Lab, Yoga Six, Row House, AKT, Rumble, and Stride. The Company completed an initial public offering in July 2021, raising $120 million in new equity, which will be used to pay down the debt it had accumulated to build its brand portfolio. Management’s strategy involves growth through franchising, given low capital requirements and predictable revenue streams.
Checkers & Rally's is accelerating growth on the West Coast with a call for interested franchisee operators for the San Diego, CA Market. This follows Checkers & Rally's recently announced 15 store development agreement in Orange County, CA. The Company has available growth opportunities through additional franchise agreements in Texas, Arizona and California markets in addition to San Diego specifically. Click here to request a list of future store openings.
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