February 15, 2023
Yesterday, Tuesday Morning Corporation, DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the Northern District of Texas. The proceedings have been designated as case number 23-90001. The petition states that the Debtors plan to pursue “a value-maximizing, going-concern sale of certain store locations, a reorganization around the Company’s most profitable store locations, or, if a going-concern sale or reorganization is not possible, an orderly liquidation process on terms that are reasonable under the circumstances.” The Debtors operated 464 stores in 39 states at the petition date.
The Debtors filed a motion to reject an agreement with Gordon Brothers Retail Partners, LLC. The motion states, “In the weeks leading up to the petition date it appeared that financial circumstances would require a total liquidation of inventory and cessation of operations at all store locations. To assist in completing a full-chain liquidation, management entered into an agreement with Gordon Brothers Retail Partners, LLC to assist with store liquidation sales and, ultimately, going-out-of-business sales. The Debtors have now received a proposal for DIP financing that will permit the exploration of alternative Chapter 11 exit strategies, including the potential sale of assets or pursuit of a Plan of Reorganization, rather than a full-chain liquidation. While still intending to liquidate inventory at certain underperforming stores, the Debtors are comfortable with completing such sales using the Company’s staff and resources.” Consequently, the Debtors filed a motion seeking to reject the agreement with Gordon Brothers, effective as of the petition date.
This is the Company’s second Chapter 11 filing in just over two years, having previously emerged from Chapter 11 proceedings in early 2021 after closing approximately 200 stores.
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A half dozen Walmart locations are set to close in the coming weeks in four states. In the Chicago, IL area, the Company is shuttering two in Homewood and Plainfield, by March 10, and a Walmart Pickup location will be closed in Lincolnwood this Friday. The three other closings are all scheduled for next month and include units in Milwauke, WI and Alburque, NM and a Walmart Neighborhood Market in Pinellas Park, FL., near Tampa. In December 2022, CEO Doug McMillon cautioned that Walmart could close stores and raise prices due to historically high rates of theft at stores. The Company said the decisions to close these locations were made after a thorough review process.
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CVS Health reported better than expected 4Q22 results, and announced another major acquisition, that if successful will further scale up its vertically integrated models. FY22 revenues grew just over 10% to $322.50 billion; however, operating profits declined due to pressure on retail margins, driven by fewer COVID vaccinations and testing, reduced pharmacy reimbursement rates and higher labor costs. The big news was that CVS agreed to acquire Oak Street Health for about $10.60 billion. The acquisition would expand its healthcare offerings, adding about 600 health care providers and a network of 169 clinics. Oak Street serves Medicare patients, enabling CVS to tie patient treatment with its Medicare Advantage (Aetna) plans, though Oak Street would continue to work with other insurers as well (payor agnostic).
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FAT Brands, which owns more than 2,300 units operating under 17 restaurant banners, opened 142 new stores during 2022 and added 362 stores to its development pipeline. Of the more than 500 recent/future openings, the majority are under the Fatburger and Buffalo’s Express banners (86 stores each), Fazoli’s (61), Round Table Pizza (56), and Twin Peaks (50). Noteworthy franchise deals include a combined 80-store development agreement for 40 Fatburger and Buffalo’s Express locations and 40 Round Table Pizza restaurants in Texas, a 32-store agreement for Twin Peaks in Mexico, and a 10-store agreement for Johnny Rockets in Israel. This year, 175 units are set to open, and the Company anticipates continuing to sign development deals.
Last week, Kroger and Albertsons were reportedly working on plans to sell between 250 and 300 stores they hope will alleviate U.S. antitrust concerns over their merger. The stores, potentially valued in excess of $1 billion, are located across all regions where they overlap, including the Pacific Northwest, Southern California, Phoenix and Chicago. Prospective buyers for the stores include rival grocery store operators that are looking to expand their U.S. footprint, including Ahold Delhaize, operator of the Stop & Shop, Giant, Food Lion, and Hannaford chains in the U.S. Kroger and Albertsons suggested in their initial announcement that they may divest between 100 and 375 stores by placing them in a new company spun off to Albertsons shareholders, although in a regulatory filing, Kroger said the upper limit for divestitures was 650 stores. Kroger and Albertsons may still opt to proceed with a spin-off if they are unable to unload enough stores to competitors to satisfy regulators. As shown in the Store Overlap Analysis map below, Kroger and Albertsons operate more than 300 stores within one mile of each other, with roughly half located along the West Coast (California, Oregon, and Washington).
On February 10, Bed Bath & Beyond's Canadian unit (BBB Canada Limited) applied to the Ontario Superior Court of Justice and was granted an order for a stay of proceedings under the Companies’ Creditors Arrangement Act (CCAA). We note that CCAA proceedings are similar to a Chapter 11 filing in U.S. Bankruptcy Court. Documents in the case state that the 54 Bed Bath & Beyond stores and 11 Buybuy BABY stores operated in Canada will cease to operate.
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Canada Goose unveiled a five-year plan to grow total revenue to $3 billion by 2028, with a CAGR of 20%, by expanding to new categories and doubling its current store count of 51 locations. The sales target would represent triple the Company’s current sales; FY23 sales are expected to be $1.175 billion – $1.195 billion. Management indicated that the women’s category represents about 48% of the Company’s total sales, and that there is room to grow to the luxury industry average of more than 60%. Generation Z customers, defined as those born between 1997 and 2012, will also be a focus. Canada Goose also plans to expand its product offering outside its core winter parkas product; at the time of its IPO in 2017, 15% of products were outside the parka category, and that has since grown to 36%. The Company is aiming for non-parka products to represent just under half of total sales by 2028. To accomplish this, Canada Goose will expand its rainwear, apparel, and footwear offerings, and it will launch eyewear, luggage, and home.
Sur La Table plans to open four new locations by Summer 2023, in Glendale, WI, Canton, CT, and White Plains and Albany, NY. The Company currently operates 55 stores in about 20 states nationwide, and it plans to continue opening stores in new regions throughout the year. This latest batch of new stores are the Company’s first since it was acquired in August 2020 by CSC Generation and Marquee Brands LLC for $89 million. Sur La Table had filed for bankruptcy protection in July 2020 and closed over 50 of its 121 units at the time.
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BJ’s is expanding to Tennessee, its 19th state, with the opening of a new location in La Vergne, 20 miles southeast of downtown Nashville. The store, which will include a BJ’s Gas, is slated to open in 1H23. Additionally, there are plans to open clubs in Davenport, FL and McDonough, GA later this month. The Company currently operates 235 clubs and 164 BJ’s Gas locations. See our Retail Openings & Closings map below for recent openings.
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After announcing its expansion into Ohio, Indiana, and Kentucky, late last year, Wawa recently revealed additional expansion plans to add stores in Alabama and the Florida panhandle. The Company expects to open six stores in Alabama about a year from now. All in, Wawa intends to add 40 stores, investing about $260 million, and overall, plans to just about double its store base by 2030 to 1,800. The Company currently operates 975 stores in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, Florida, and Washington, D.C.
Hy-Vee opened two new stores in Wisconsin, expanding its footprint to eight stores in the state. The first, a 97,000 square-foot location in Janesville, is one of the “reimagined” one-stop shop format stores that the Company began rolling out in September 2021. It features a large, open food hall dining area for fast-casual dining and provides offerings from Joe Fresh clothing, a Pair Eyewear kiosk, DSW footwear, a beauty department, and an expanded Candy Shoppe department. The other location, opened in the city of Oregon in a space which was formerly Bill’s Food Center, features a large Hy-Vee Wine and Spirits department, a specialty cheese department and prepackaged charcuterie, an expanded health and beauty department, and a large greeting card section. The Company operates more than 285 retail stores across eight Midwestern states
Food Lion, an Ahold Delhaize banner, opened a new location in Inwood, WV. The store has an extensive product assortment, fresh sushi, in-store cut fruit, a wide variety of “grab-and-go” options, and a self-service hot wing and Asian food bar. There are over 1,100 Food Lion stores operating throughout 10 Southeastern and Mid-Atlantic states.
In the Party City Holdco, DIP case, the Debtors filed a motion seeking to set April 3, 2023 as the last date to file proofs of claim based on prepetition claims, including requests for payment under section 503(b)(9). The Debtors also filed a motion to reject two additional leases, in Hudson, MA and Palm Springs, CA, bringing the total number of leases the Company is seeking to reject to 30.
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The Container Store reported better-than-expected 3Q22 sales of $252 million, down 5.6% due to macro related headwinds that caused declines in both traffic and transactions. Comparable store sales dropped 4%, as a 2% increase in Custom Spaces was more than offset by a 7% decline in general merchandise. Management highlighted that customers are pulling back on discretionary spending unless they are provided a compelling reason to shop; for example, customers responded well to the holiday shop but were less engaged with the traditional kitchen assortment. Overall, the Company reported EBITDA declined nearly 30% while EBITDA margin contracted 290 bps to 8.8%. The Container Store ended the period with total debt of $189 million and cash of just $6 million. Subsequent to quarter end, the Company opened a new store in Salem, NH, and is on track to open another small format store in Thousand Oaks, CA this Spring. Management also intends to open nine new small format (approximately 12,500 square feet) stores in 2H23 in key existing markets. Looking ahead, the macro headwinds experienced in 3Q are expected to intensify in 4Q, and the Company anticipates two unique headwinds, one from lapping an event last year that will not be repeated this year, and the other from the discontinuation of its Closet Works wholesale business; management guided for 4Q22 comp decline in the high-single digits to low-teens.
Walgreens has acquired Medly Health, a digital pharmacy business based in Brooklyn, NY. Medley filed for bankruptcy in December and reported it had $110 million in secured debt. Last week, Walgreens’ deal to purchase Medley for $19.35 million was approved by a judge in the U.S. Bankruptcy Court for the District of Delaware. Almost a year before Medly’s bankruptcy filing, it acquired Pharmaca, a Boulder, CO full-service pharmacy and wellness company. Following the purchase of Medley, Walgreens said that Pharmaca’s prescription files are expected to transfer to nearby Walgreens pharmacies by mid-February.
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The Vitamin Shoppe, a banner of Franchise Group, opened a franchised location in Valparaiso, IN, bringing its store count in the state to 12. This is the first franchised location to open since the Company converted an existing location in Greensboro, NC to a franchised unit in January 2022. To date, the Company has signed 58 franchise territories to 15 franchise partners, with 12 or more stores planned to open in 2023. The next franchised location is scheduled to open later this spring in Tempe, AZ, and another location is slated to open in Braunfels, TX later this year. Additional signed franchise territories will be announced in the coming months. The Vitamin Shoppe operates roughly 700 locations across the U.S.
H-E-B began construction on a 118,000 square-foot store in Mansfield, TX, which is scheduled to open in Spring 2024, along with another unit currently being built in Fort Worth. The Company also announced that it will be expanding its Waxahachie store, adding more than 22,000 square feet, which will allow it to be rebranded under the H-E-B plus! banner. After renovations are complete, the unit will feature new and upgraded departments, a larger product assortment, a twolane pharmacy drive thru, an expanded curbside pickup area, and more parking spaces.
Yum! Brands reported worldwide system sales grew 8% excluding foreign currency translation, with KFC at 6%, Taco Bell at 14%, and Pizza Hut at 4%. The Company added 1,830 gross units during 4Q22. KFC opened 997 gross new restaurants, Taco Bell opened 253 gross new units, and Pizza Hut opened 571 gross new restaurants during the quarter. Meanwhile, The Habit Burger’s sales grew 12%, while comps declined 1% and the chain opened nine gross new units.
Aritzia's 3Q23 comps grew 23%, following increases of 28% and 29% in 2Q and 1Q, respectively, due to continuing strong product demand. Net revenues were up 38% to C$625 million from the addition of eight (net) new stores, a record Black Friday event, and robust e-commerce sales, which increased 36%. The U.S. market continues to drive growth, and now represents 50% of sales. As of quarter end, there were 46 U.S. stores, with eight to 10 new locations planned every year through 2027. Overall, the stronger sales drove an 8% increase in EBITDA, while EBITDA margin contracted 530 bps. For the YTD23 period, sales and EBITDA were up 48% and 18%, respectively, but a near doubling of inventory resulted in a free cash flow deficit of C$18 million, compared to C$302 million of positive free cash flow in YTD22. As of November 27, 2022, Aritzia had no debt and C$307 million in total liquidity, including an untapped C$175 million revolver. Looking ahead, in 4Q23, net revenues are expected to jump 31% to 35% to a range of $580 million to $600 million.
Coborn’s is adding an in-store Erbert & Gerbert’s sandwich shop to its store in Big Lake, MN. The restaurant will be installed in one corner of the building, offering access for a drive-thru lane, an unusual feature for supermarkets with in-store restaurants. This will be the first branded restaurant, other than Caribou Coffee shops, inside a Coborn’s supermarket. The store will continue to offer a full-service deli inside the store. Erbert & Gerbert’s operates more than 70 soup-and-sandwich restaurants in 12 states.
Babylist plans to open an 18,000 square-foot flagship store this summer, in Beverly Hills, CA, in a former Anthropologie/BHLDN. This is the online registry platform’s first brick-and-mortar location and comes as Bed Bath & Beyond is closing certain Buybuy Baby stores and Babies “R” Us is opening a flagship store at American Dream in East Rutherford, NJ, also due to open this summer. Babylist will offer a “guided” registry experience and offer parents-to-be a test-and-try environment. Babylist tested pop-up stores last year in Los Angeles and New York City, called Cribs, which were only operating for a few days.
Family-owned and operated MOM’s Organic Market opened its first New England location last Friday in Burlington, MA, 30 minutes outside of Boston. The nearly 12,000 square-foot store, roughly half the size of a typical Sprouts or Fresh Market, provides the Company’s signature offerings, including 100% organic produce, organic bulk products, and zero-waste soaps. There are more than 20 of the banner’s stores in Washington D.C., Maryland, New Jersey, Pennsylvania, Virginia, and now, Massachusetts.
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