December 20, 2023
KROGER and ALBERTSON are reportedly anticipating a possible FTC lawsuit over their proposed merger as soon as January. Certain lawmakers and the Teamsters union both urged the FTC to veto the deal. The FTC, which has been in talks with state attorneys general who are also reviewing the deal, has until January 17 to announce a decision. It could sue to block the transaction or agree to a settlement proposed by the companies. There is a high risk that the FTC may block the merger or require the companies to divest more than the currently planned 413 stores, which C&S agreed to acquire.
Published reports indicate that WALGREENS has been holding early talks about ways to separate its subsidiary Boots, the largest U.K. pharmacy chain. Options reportedly being considered include a third party sale or a spin off via IPO. Any process would only start next year at the earliest. Walgreens reached a deal in November to offload Boots pension risks to Legal & General Group Plc, removing a stumbling block that had complicated previous efforts to divest the business.
Boots was marketed last year with a price tag estimated at £7 billion (approximately $8.50 billion) before Walgreens pulled it off the market. It said an “unexpected and dramatic change” in market conditions had caused it to scrap the sales process. Reports indicated private equity firms Apollo, TDR Capital and Sycamore made pitches for Boots when it was on the market last year. Boots operates approximately 2,500 stores, including optician locations, although it is currently in the process of closing 300 locations.
A few months ago, WALMART partnered with Google-owned drone delivery company Wing to begin operating out of one of its Supercenter locations in Frisco, TX. The Company is now set to add a second Dallas-area Supercenter location early next year. Wing CFO said that nearly half of consumers said in a recent survey that last-minute grocery runs are the most common reason they make an unplanned trip to the store, and 74% are interested in finding ways to replace time-consuming trips with fast delivery. Wing deliveries typically take under 30 minutes, and have reached their destination in as fast as three minutes. Drones can carry just under three pounds of goods and travel at speeds of up to 65 miles per hour. The Company offers thousands of SKUS on its app, and the drones can travel as far as six miles from the store, which opens the service to 60,000 households in the area.
SPROUTS FARMERS MARKET met its goal of opening 30 new stores in 2023, including a dozen locations on the East Coast (nine in Florida). Management indicated that Sprouts will continue to expand into East Coast markets in 2024. Sprouts aims to open 35 new stores in both new and established markets throughout 2024, and says it may surpass this goal. Management indicated that is it being meticulous when choosing spots to expand in places like Florida and New Jersey, where it lacks brand awareness. In addition to finding markets with its target customers, it is seeking regions that are conducive to its 20,000 to 25,000 square-foot small store format, which it is focusing on exclusively as it expands. Management indicated that there are nearly 100 stores in the pipeline.
NORDSTROM announced plans to open a new Nordstrom Rack in Franklin, TN in Fall 2024. The 24,000 square-foot store joins four existing Rack stores and one full-line store in Tennessee. The Company also plans to open a 25,000 square-foot Nordstrom Rack in Noblesville, IN in Fall 2024; the Company operates three Rack stores and one full-line store in Indiana. At the end of 3Q23, the Company operated 258 Nordstrom Rack stores, up from 242 a year ago. See the list of 2024 and 2025 announced openings below:
| Pinole, CA | San Diego, CA | Kennesaw, GA | Mason, OH |
| Elk Grove, CA | Davis, CA | Snellville, GA | Bay Shore, NY |
| Gilroy, CA | Queen Creek, AZ | Wheaton, IL | San Antonio, TX |
| Oceanside, CA | Jacksonville Beach, FL | Macedonia, OH | Mooresville, NC |
| San Mateo, CA |
CHEWY announced the launch of its first pet health practice. Chewy Vet Health will open in South Florida early next year, with additional locations slated to open throughout 2024. At the locations, services will include routine appointments, urgent care, and surgery. The veterinary practices join the Company's existing health offerings, such as pet pharmacy, tele-triage services, and pet-first insurance and wellness plans.
Getir has completed the purchase of FreshDirect from its previous parent, AHOLD DELHAIZE, for an undisclosed sum. The acquisition was first announced in November 2023, when Ahold said it planned to focus investments in its omnichannel operations. Getir and Ahold Delhaize said this acquisition will create "significant synergies" with Getir's technological power improving FreshDirect's technological infrastructure, and FreshDirect customers receiving their orders "much faster." Getir also seeks to accelerate the growth of its fast delivery business in the U.S. by leveraging FreshDirect's product portfolio and customer base.
AREX Capital Management, LP sent a letter to the board of ODP CORPORATION urging it to separate its brick-and-mortar retail unit and sell its procurement unit (Varis). AREX believes that these changes to the corporate structure would increase the Company’s share price by at least 50%. The letter stated, "Structural changes are necessary for ODP's share price and valuation to have a chance to approximate the fair value of its underlying assets." The letter also implied that AREX may consider changes to the board next year if its suggestions are not implemented. AREX is an activist investor which owns about 1% of ODP Corporation stock.
Highlighting a spin-off of the retail unit, the letter said the existing corporate structure caused investors to view the entire company as a "challenged brick-and-mortar retailer,” adding "this misperception will likely persist for as long as Office Depot (the retail unit) contributes a meaningful portion of the Company’s EBITDA."
AREX’ letter comes one year after ODP’s management and the board rejected acquisition interest from rival bidders, including Staples, and announced plans to remain independent and retain its current business mix and corporate structure.
GRAINGER announced the sale of E&R Industrial Sales to Paradigm Equity Partners, a Los Angeles-based private equity firm. E&R Industrial became a subsidiary of Grainer in 2013. Grainger will continue to serve customers with maintenance metalworking products, services, and expertise while focusing on its core business of maintenance, repair and operation (MRO) products and services. Customers will continue to have access to E&R's assortment when purchasing through Grainger, while E&R customers will have access to Grainger's MRO-leading assortment when purchasing through E&R.
CINEPLEX announced box office results for November. The Company generated C$35 million in box office revenue during the month, which represented 66% of pre-COVID, November 2019 box office revenue of C$52 million. This rate has been on the decline for several months, with September and October 2023 reaching 77% and 69% of 2019 box office revenue, respectively. Management attributed the softer performance to film release shifts and production delays related to the writers' and actors' strikes. Though the strikes have now been resolved, the impact on the movie industry will linger for the near future.
According to reports, B. Riley Financial Inc. is marketing FRANCHISE GROUP'S Sylvan Learning unit for sale in early 2024. B. Riley, a private equity sponsor which has an ownership interest in Franchise Group, noted that Sylvan, an online and in-person tutoring company, has captured interest from almost 50 potential buyers. B. Riley also said that Franchise Group is interested in selling its American Freight and Vitamin Shoppe businesses in the medium term.
B. Riley helped take Franchise Group private in August 2023 through a management buyout. It invested about $281 million in the transaction, which was valued at $2.8 billion.
REGIS CORPORATION has been informed that the regulation unit of the NYSE has determined to commence proceedings to delist Regis' common stock. Regis had been deemed below compliance to maintain either (i) at least $50 million in stockholders' equity or (ii) at least $50 million in total market capitalization on a 30-trading day average basis. Regis responded saying it will appeal the decision and it looks forward to presenting its plan of compliance at the hearing, and in the interim will continue to evaluate all available listing options. During this time, Regis' common stock has not been suspended from trading and is expected to continue to be listed and traded on the NYSE while any appeal remains pending.
General Interest
Fed Signals Rate Cuts in 2024... Federal Reserve officials left interest rates unchanged in their final policy decision of 2023, and hinted that they could cut borrowing costs three times in the coming year. Interest rates are now set to a range of 5.25% to 5.5%, where they have been since July. After a rapid series of increases beginning in March 2022 that pushed borrowing costs to their highest level in 22 years, officials have now held policy steady for three straight meetings.
The S&P 500 rose more than 1% on the Fed's news, leaving it roughly 2% below the high recorded in January 2022 before fear of higher interest rates sent the stock market tumbling. In a positive sign for the broader market, the Russell 2000 index of smaller companies, which tends to be more sensitive to the ebb and flow of the domestic economy, rose 2.5%.
Quarterly Earnings
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