March 1, 2023
Bath & Body Works' 4Q22 sales declined 4.6% YOY driven by a decrease in transactions and lower average ticket. At the Company's U.S. and Canadian stores, sales were down 5.1%, while international sales rose 30% and e-commerce sales fell 6.3% (25% of 4Q22 sales).
During FY22, Bath & Body Works opened 95 stores and closed 48, ending the quarter with 1,802 stores. Looking ahead, the Company expects to open 90 stores, remodel 25 and close approximately 50. The Company provided its 1Q23 and FY23 outlook and expects FY23 sales to be flat to down mid-single digits with continued margin pressure.
In a letter to shareholders this week, Bath & Body Work’s board laid out steps the Company has taken to increase value for shareholders, including its separation from Victoria’s Secret, the appointment of Gina Boswell as CEO, and its efforts to refresh its board (over 75% of current board members joined since 2019). The letter comes days after activist investor Daniel Loeb of Third Point, which has a 6% stake, said it was preparing to launch a proxy contest against the Company to nominate candidates to stand for election at its annual shareholder meeting. The efforts are in response to the Company’s decision to appoint Steve Voskuil, CFO of the Hershey Company, to the board over Munib Islam, a former employee of Third Point and current managing partner at LTS One Capital Management. Loeb also stated that the addition of new directors does not address his concerns about governance, capital allocation and executive pay. In its letter, Bath & Body Works’ board maintained it is has taken all reasonable steps to avoid what it said is a “costly and distracting proxy contest motivated by the personal interests of Third Point and Loeb.”
Dick’s Sporting Goods agreed to acquire outdoor retailer Moosejaw from Walmart. The outdoor segment provides an opportunity for Dick’s to expand adjacent, and beyond its current core customer. Moosejaw will be a good fit with Public Lands, launched in 2021, and currently operates seven stores. Moosejaw is an omnichannel retailer with 13 stores. Walmart acquired Moosejaw in February 2017 for $51 million, as part of its early efforts to build up its digital infrastructure under former Jet CEO Mark Lore.
Carter's sales downtrend continued into 4Q22, with sales falling 14%, following an 8% decline in 3Q. Comps dropped 13%, which was within management guidance of down 10% to 15%. Inflation negatively impacted discretionary spending, depressing sales across the Company’s three business segments; U.S. Retail, U.S. Wholesale, and international segment sales were down 13%, 18%, and 12%, respectively. Looking ahead, a challenging macroeconomic environment is expected to continue, with 1Q23 sales expected to drop 40% and adjusted operating income falling to $30 million – $40 million, compared to $102.6 million in 1Q22. Operations are expected to recover in 2H23.
In FY22, the Company opened 39 stores and closed 26, ending the year with 993 stores, of which 757 were in the U.S. In FY23, it plans to open 70 new locations while closing 22, ending the year with 1,041 stores.
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Walmart added three locations to its list of closures first reported two weeks ago. The list is now updated as follows:
- In Portland, OR, two Supercenter locations are scheduled to close by March 24, the only two units within city limits.
- In the Chicago, IL area, the Company is shuttering two units in Homewood and Plainfield, by March 10, and a Walmart Pickup location closed in Lincolnwood on February 24.
- The four other closings are all scheduled for this month and include units in Milwaukee, WI and Albuquerque, NM, a Walmart Neighborhood Market in Pinellas Park, FL., near Tampa, and a Walmart Pickup in Bentonville, AR.
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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Ollie’s Bargain Outlet opened five new stores in February, in Champaign and Lake Charles, IL, Decatur, AL, Fort Smith, AR, and Old Bridge, NJ. This month, the Company will add more stores in Jasper, AL, Granite City, IL, and Newport News, VA. In 2024, a new 600,000 square-foot distribution center is slated to open in Princeton, IL, which coincides with the Company’s plans to enter the Wisconsin and Iowa markets later this year.
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The Cheesecake Factory opened eight new restaurants during 4Q22, including two in Nashville, TN and Corpus Christi, TX and two North Italia restaurants in The Woodlands, TX and Torrance, CA; two Flower Child locations opened in Austin, TX and Chandler, AZ, and one Fly Bye opened in Phoenix, AZ and one Pushing Daisies location opened in Nashville, TN.
The Arizona Attorney General’s Office has launched an anti-trust investigation of the proposed Kroger-Albertsons merger. The announcement of the investigation cited that the merger could have an especially large impact within Arizona, where Kroger and Albertsons currently operate more than 250 stores combined, employ over 35,000 Arizona workers, and account for almost half of Arizona’s grocery market sales. Our Store Overlap Analysis for the two retail grocers in Arizona can be seen in the map below.
Target is investing $100 million to expand its network of sortation centers to increase the efficiency and speed of its delivery service. The Company currently has nine facilities in Minnesota, Texas, Colorado, Illinois, Georgia, and Pennsylvania, with the two in the Chicago and Denver markets opening in January 2023. Under the expansion plan, Target aims to open at least six more sortation centers by 2026. Since the first facility opened in April 2021 in the Company’s hometown of Minneapolis, Target said it has experienced a 150% increase in its next-day deliveries. It expects sortation centers will double their delivery volume from last year to more than 50 million packages, with a growing number of items delivered to customers the next day.
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Party City, DIP submitted a list of 10 additional stores which will close in late February, and followed with a motion earlier this week seeking to reject 18 additional leases. On February 16, we reported on 12 initial closures in seven states and plans by A&G Real Estate Partners, a real estate advisor to the Debtors, to auction the leases. The Debtors entered the Chapter 11 proceedings with 770 corporate stores and 53 independent franchise locations.
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Planet Fitness’ business finished on a strong note in 4Q22. Total revenue increased 53% from 4Q21, driven by a 9% increase in system-wide same store sales. The Company opened 58 new stores in the period; bringing the total club count to 2,410 at year-end; total membership hit a record high, with approximately 17 million members (up from 16.6 million in 3Q22). By segment, franchise revenue increased 10%, while corporate-owned club revenue surged nearly 124% (primarily attributable to the 114 locations acquired through the Sunshine Fitness Acquisition) and equipment revenue advanced 56.7%. Overall, the Company reported adjusted EBITDA of nearly $106 million, up from $62 million the prior year period; moreover, EBITDA margin increased 380 bps to 37.7%. Net debt totaled $1.53 billion as of December 31, 2022, up 32.3% from the end of 4Q21.
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Amazon completed its $3.90 billion acquisition of One Medical, the San Francisco, CA-based company that provides in-office and virtual primary medical care. The deal will add nearly 200 in-person locations as well as virtual care options to Amazon's growing healthcare footprint. One Medical operates as a membership-based service, with an annual fee that allows users to have access to 24/7 tele-visits and other amenities such as walk-in availability for on-site labs and in-app messaging. The FTC said it will watch for any possible harm to competition caused by the acquisition, along with how consumer data is used. The acquisition was completed just months after Amazon closed its Amazon Care telehealth business and launched Amazon Clinic, a new service enabling healthcare consumers to connect with clinicians via a message-based portal.
A new Sheetz service station is coming to northeastern Ohio. Last week, the Company purchased 15.4 vacant acres of land in Jackson Township, outside of Youngstown, for $2.4 million.
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On February 24, Corner Bakery Café, DIP filed Chapter 11, citing assets and liabilities of $10 – $50 million; it reportedly has $33.8 million in secured debt inherited by investment firm Pandya Restaurant Growth Brands, a subsidiary of Rohan Group of Companies, when it acquired the Company from Roark Capital in 2020. According to Court documents, SSCP Restaurant Investors acquired that debt and moved to acquire the chain, establishing a sale process earlier this month that prompted the filing. The chain disputes the amount it owes, saying it owes between $20 million and $24 million. Court documents also cite inflationary costs, supply chain disruptions, and the challenging labor market and impatient landlords for the filing. The chain has struggled for years with weakening sales and shifts in consumer behavior, which worsened when the pandemic hit. There were 161 locations at the end of 2021, including 50 franchisee-owned locations; Court documents say there are now just 14 franchisee locations.
In FY22, Cineplex’s 90% increase in attendance from movie-goers returning to theaters drove revenue up 93.2% to C$1.27 billion, partially offset by the closure of two net locations during the year. All segments saw substantial top-line rebounds from the increased traffic, led by a 104% rise in Food Service revenue and a 95% increase in Box Office revenue. Overall, EBITDA jumped to C$260.6 million at a 20.5% EBITDA margin.
Scheels confirmed a new store in Chandler, AZ will open on September 30 later this year. The new location will occupy the space of a former Nordstrom in the Chandler Fashion Center and will include an indoor Ferris wheel, a shooting gallery, and about 75 specialty shops ranging from home décor and clothing to baseball, softball, fishing, and hunting. The Company is also in the middle of constructing a two-story unit with a putting green and fish tank in Wichita, KS, expected to open in July 2023, and earlier last month the Tulsa, OK City Council approved the rezoning of a new tax district so Scheels could open its first Oklahoma location, which is slated to debut in Fall 2024.
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Alimentation Couche-Tard agreed to acquire 45 fuel and convenience store retail sites in Arkansas from Big Red Stores. All 45 sites are company-owned and operated, with 44 of the sites sitting on owned real estate and one location being leased. Terms were not disclosed, and the deal is expected to close in the first half of calendar year 2023.
For 4Q22, Floor & Decor reported its 14th consecutive quarter of comp growth and opened 32 stores during the year; in FY23 it plans to open 32 to 35 stores.
With a presence in more than 2,200 grocery store locations across 10 partners, Claire’s Holdings plans to add 230 grocery store locations in the next three months. Among its current grocery partners are Albertsons, Kroger, Food City, WinCo, Giant Eagle, Smart & Final, and Schnucks. Each grocer showcases a selection of hair accessories, jewelry, and cosmetics; Claire’s says it has driven weekly sales across both smaller checkout displays and larger in-aisle assortments. The Company plans to add two additional partners this spring, but has not named who those partners will be. In addition to grocers, Claire’s has a presence in CVS, DSW, Walmart, and Macy’s.
Kroger’s 70,000 square-foot ‘spoke’ delivery center in Austin, TX began operating earlier this month to support fulfillment for grocery orders in the Austin market as well as San Antonio. The Company announced plans for the facility last year, as well as for a 67,000 square-foot spoke in northeast San Antonio, which became operational in late October 2022. That same month a 50,000 square-foot spoke began operating in Oklahoma City, OK. All three spokes serve as last-mile cross-dock locations and further the reach of Kroger’s delivery service from a 350,000 square-foot, Ocado-powered customer fulfillment center in Dallas that became operational in July.
In 4Q22, Wingstop opened 50 domestic stores and closed two, and it opened 13 international locations, bringing its domestic store count to 1,721 and international store count to 238.
Marco’s Pizza signed a multi-unit agreement to bring 10 stores to Northern Virginia, a new market for the brand. The first locations are expected to open this year, with all 10 set to open by early 2026. The Company, which passed the $1 billion annual sales mark in 2022, has about 30 stores in Virginia and has signed several recent multi-unit agreements across the state, including for eight units in Reston-Arlington and seven in Roanoke-Lynchburg. Marco’s has about 1,100 stores and has set a goal to reach 1,500 locations by end of 2023. Last year it opened more than 90 stores and signed 140 franchise deals.
Tuesday Morning, DIP filed a motion seeking approval of bid procedures in connection with the auction and potential sale of its remaining 200 stores. This follows a motion to close approximately 264 of the 464 units it operated as of the petition date. Additionally, the Debtors expect to file a separate motion to sell leases for stores which are closing on or before March 31, 2023. The Debtors reserve the right to include those leases in the auction and sale process. Bid protections may include a break-up fee of not more than 3% of the purchase price.
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Cineworld Group plc, DIP did not receive any bids for the UK and U.S. assets by the deadline of February 16, according to reports. During a hearing, the Debtor’s counsel told the Court that the initial bids received were mainly for theatres in central Europe, eastern Europe, and Israel. This follows the Debtor’s statement in January, that it sought to focus on selling the entire Company, rather than transactions involving individual assets. We note that if a sale of the entire company fails, a debt-for-equity exchange may be one of the few remaining options to enable a reorganization and emergence from Chapter 11. Separately, the Court issued an order authorizing the Debtors to reject 19 unexpired leases.
A recent WARN notice indicated that online grocer Misfits Market will close three facilities in Delanco, NJ, West Jordan, UT, and Fort Worth, TX and layoff roughly 650 employees on April 8. The Company is trimming costs and streamlining operations following its acquisition of fellow online grocer Imperfect Foods in October 2022.
Jackson, MS-based Newk’s Eatery is partnering with a new franchisee to open six restaurants across southern Mississippi and Louisiana. The fast-casual restaurant chain offers salads, sandwiches, soups, and pizzas and has nearly 100 locations in 15 U.S. states.
With annual sales estimated at about $785 million, Miners, Inc. is a regional grocer currently operating 34 grocery stores and 12 liquor stores, primarily in Minnesota, as well as Wisconsin and Michigan. In 2022, the Company's top line benefited from grocery price inflation, as well as one additional store which opened in May. Miners has ceded the top slot in its primary Duluth market, where half its stores are located. Walmart is now the top dog there, gaining 450 bps of market share, while the Company lost about 140 bps; in each case, store count remained static. We believe Walmart's gains were due to its superior online sales capability during the pandemic. Aldi has also become a significant threat, with 76 stores in Minnesota, 81 in Wisconsin, and 102 in Michigan, as of late February 2023. Aldi is in the midst of a major expansion plan that includes 900 new stores, which is expected to bring its U.S. total to 2,500 stores by 2024.
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