February 25, 2019 Consensus

The Weekly Consensus – February 25, 2018 (Volume 11, Number 8)

The Big Story
RetailWire Discussion: Is Walmart just starting to hit its stride?
George Anderson, RetailWire

 

As many expected, Walmart reported strong fourth quarter results as it continued to strategically use its e-commerce business to drive top line sales online and in stores during the holidays. The retailer, which posted a gain of 43 percent in e-commerce sales during the quarter, saw its same-store sales (excluding gas and including online) improve 4.2 percent in the U.S., a full percentage point ahead of the analyst consensus.

On the company’s earnings call, Walmart CEO Doug McMillon said the retailer had picked up market share in key categories including groceries and toys during the holiday period. He pointed to a strategy of meeting shoppers where and when they want to buy as a big factor in his company’s success. Mr. McMillon, as in the past, said that customers who shop Walmart online and in its physical locations spend about twice as much as those who shop in the chain’s stores alone.

Walmart’s CEO also spoke positively about the company’s focus on adding major retail partners and brands, such as Advance Auto, Ellen Degeneres, Fanatics, Lord & Taylor and Sofia Vergara, to its online lineup. “These initiatives are contributing to the improvements we see in key metrics like the customer value index, as well as NPS (net promoter score), which is now more than 10 points ahead of last year,” said Mr. McMillon (via Seeking Alpha).

Mr. McMillon said that while his company is committed to expanding selection and investing in low prices, it also remains focused on improving its bottom line. “Our previous investments in fulfillment centers and systems, plus our acquisitions are helping us drive strong sales, but we need to make more progress to improve profitability,” he said. “Our fulfillment shipping costs were improving as we continue to enhance our assortment, repeat visits should increase and contribute to improved profitability.”

Discussion Questions: What do you see as current areas of strength for Walmart and those in need of improvement? Do you expect Walmart to be in a stronger or weaker competitive position a year from now?

Comments from the RetailWire BrainTrust:

At least in the Walmart locations I visit, selections seem to be getting better and better in grocery. They’ve cleaned up the produce area to where it now looks appealing. It’s rare that I can’t find a flavor or size in most of the products I buy. I’ve been pushing this idea for Walmart with my clients for close to 20 years – it’s good to see Walmart recognizes it’s not a club store or large size store but can be America’s grocery store.
Dr. Stephen Needel, Managing Partner, Advanced Simulations

Walmart is the only truly international omnichannel operator in the retail space. Sure, Amazon has Whole Foods and is tinkering with other brick-and-mortar concepts, but the promised clicks-to-bricks integration and benefits of Prime membership translating to terra firma have yet to be realized. Walmart’s laser focus on turning its massive store fleet into a customer convenience enabler is paying off and Walmart is only in the early stages of synergizing its acquired assets (including the talent that comes with every deal). Walmart will be an even stronger competitor as it continues to flex its test-and-learn sensibilities.
Carol Spieckerman, President, Spieckerman Retail

As McMillon stated, they are walking the walk by executing aggressively on the strategy of meeting shoppers where and when they want to buy. If they continue to innovate in this area as well as focus on better assortment in certain categories, they will be stronger going forward. I do think the “look and feel” of the store can continue to be improved.

Zel Bianco, President, founder and CEO Interactive Edge

Walmart has many strengths and one of the biggest is its people. According to Mr. McMillon, the investments that Walmart has been making in store staff, including training and technology to support front-line employees, is starting to pay off. McMillion mentioned that they trained 450,000 associates, launched a new benefits program, raised starting average wages with benefits to $17.50 per hour, and expanded parental benefits. Walmart has strong momentum and what seems like an endless list of strategic initiatives – I think they’ll be in an even stronger competitive position a year from now.
Mark Ryski, Founder, CEO & Author, HeadCount Corporation

Driving the 43 percent increase in online sales is the new, vastly improved interface of Walmart.com. It’s easy to navigate, as Walmart navigation is just like shopping Amazon.com. Walmart has raised the customer-centric bar in the past couple of years for sure. While the combo of in-store and online sales is driving top line sales, customer personalization, just like with Amazon, is a big miss for Walmart. Both Walmart and Amazon require a shopper to sort through millions and millions of SKUs to find what they want. Now Walmart needs to hone in and help their customers online and in-store find what they want.
Cynthia Holcomb, Founder | CEO, Prefeye – Preference Science Technologies Inc.

Two things strike me about Walmart. The first is the lengthy list of innovations that it now lists in its Q4 report. This is something Amazon does too, and it shows a company that is unafraid to try and test lots of new things. Some of these will come to nothing, others may prove to be the “next big thing.” In essence, Walmart feels like a young, entrepreneurial retailer and that has to be a good thing! The second is the fact that Walmart has not taken its eye off the basics. Stores are being remodeled, services like delivery and store pick-up are being enhanced, and customer service is being improved. This is one of the reasons why Walmart is a successful retailer: it never forgets what it is in business to do!

So, yes, I expect a lot more good things from Walmart in the years to come!
Neil Saunders, Managing Director, GlobalData

Walmart is the only company in my book that drew a line in the sand a few years ago and said, “hey Amazon, the landslide stops here.” Innovation, investment in infrastructure, stores and e-com, acquisitions galore, BOPIS, ship to home, you name it — they’ve either tried it or are doing it in scale. You have to take your hat off to them and if you’re a retailer heavily invested in bricks, you should study what and how they’ve done things and move as decisively as they have. We used to think of Walmart as the image of Sam Walton, with a pair of overalls and a trucker hat on. Now, when we think of them, we should think of a high speed monorail on its way to next.
Lee Peterson, EVP Brand, Strategy & Design, WD Partners

Read the entire RetailWire discussion:
http://bit.ly/2GCS7hP

 

Headlines of the Week

Kraft Heinz posts huge loss, slashes dividend and reveals SEC investigation

Kraft Heinz had one of the worst days imaginable Thursday. The company wrote down the value of its Kraft and Oscar Mayer brands by $15 billion, posted a $12.6 billion loss, cut its dividend by 36% and announced its accounting practices are under investigation by the Securities and Exchange Commission. Kraft Heinz (KHC) stock plunged as much as 20% in after-hours trading.

 

Pinterest reportedly files for IPO

It looks like Pinterest is going public. The visual discovery engine confidentially filed paperwork with the Securities and Exchange Commission for an IPO, reports the Wall Street Journal. The company is believed to seek a valuation of roughly $12 billion with a late June listing. The news doesn’t come of much of a surprise: Pinterest raised $1.5 billion in funding, and, according to CNBC, was on track to earn $1 billion in revenue last year.  The bookmarking platform, which sees 250 million users a month, has become a way for people to express interest across a multitude of categories, from shopping ideas to parenting to gardening. Pinterest joins a list of other tech companies which have filed paperwork of late, including Lyft, Slack, and Postmates, while others such as Peloton are rumored to be next.

 

 

Apparel & Footwear

Payless files for bankruptcy, closing 2,500 stores

Payless Inc. and its North American subsidiaries filed for bankruptcy protection last Monday, with the discount shoe retailer saying it plans to close its 2,500 stores in North America by the end of May. The company, which is taking its second trip to bankruptcy court in two years, said retail operations outside North America, including company-owned stores in Latin America, aren’t included in the Chapter 11 filing and will continue business as usual. The company, which sought relief in the U.S. Bankruptcy Court for the Eastern District of Missouri in St. Louis, said last week it would begin liquidation sales and shut down its online operations.

China’s Fosun makes bid for German fashion chain Tom Tailor

Chinese conglomerate Fosun International announced a takeover bid for troubled German clothing retailer Tom Tailor on Tuesday, further expanding its reach into Europe’s fashion sector. Shares in Tom Tailor surged 14 percent to 2.46 euros after the company said Fosun was increasing its shareholding to 35.35 percent by buying new shares worth 2.26 euros each. That will lift Fosun’s stake above the 30 percent threshold that triggers a mandatory takeover offer under German law. The capital increase will raise 8.6 million euros ($9.7 million), the companies said, and an offer price of 2.26 euros per share would give Tom Tailor a total value of 96 million euros. Fosun, which owns French leisure company Club Med, has been expanding in Europe’s retail sector at a time when consumers in China are driving growth in luxury goods spending.

Charlotte Russe Looking for an Angel to Buy the Retail Chain

Charlotte Russe, the San Diego-based teen retailer who filed for Chapter 11 bankruptcy protection on Feb. 3, is accepting bids from prospective buyers in hopes of not liquidating the company and closing all its stores. Bids are due by March 3 and an auction is scheduled for March 5, the company said in a Feb. 19 press release. Charlotte Russe executives said they are in active discussion with prospective bidders to make a going-concern sale of the business to avoid liquidating substantially all of the company’s assets. At the same time, Charlotte Russe will seek court approval of a “stalking horse” liquidation agreement put forth on Feb. 20 by retail liquidators Gordon Brothers Retail Partners and Hilco Merchant Resources. If a bidder is not selected, the company will start an “orderly wind-down of all its store locations and operations beginning on or about March 7, 2019.” Currently, Charlotte Russe has about 500 stores located primarily in malls and outlets in 49 U.S. states and Puerto Rico.

 

Athletic & Sporting Goods

How Under Armour Is Taking On Nike And Adidas In Asia, The New Battleground For Sports Apparel

Under Armour has trailed behind larger rivals Nike and Adidas in recent years, failing to respond fast enough to the hot athleisure trend in the U.S., but it’s hoping the growing sports business in Asia and an expanding middle class will give its growth a jolt.  Under Armour has about 700 mono-branded company-owned or partner-run retail locations in Asia, and the company plans to expand that to about 1,900 by 2023, it said on its investor conference. It said the region has an addressable $32 billion market targeting the “focused consumer.” But including consumers less serious about sports, it said the total sportswear market in the region totals $125 billion. In comparison, citing market research data, it described the North American athletic shoe and apparel market as $95 billion in size.

Duke’s Zion Williamson blows out his shoe, injures knee, and Nike gasps in horror

Nike shares were down 2% premarket Thursday as the widely projected number 1 NBA draft pick and Duke star basketball player, Zion Williamson, tore through his shoe within 33 seconds of Wednesday night’s UNC-Duke rivalry game. Williamson is known for his physical play as he weighs in at over 280 pounds and stands at 6 feet 7 inches tall. Williamson would leave the game after the incident and not return. He has been diagnosed with a knee sprain, which is a sigh of relief for many as the injury appeared to be more severe. Nike says they are looking into the incident.

Nike smart sneakers experience connection issues days after release, users report

Nike’s new self-lacing smart shoes, which retail for $350, are having connection errors just days after release. Android users are currently reporting that they are unable to connect both of their shoes to the Nike Adapt app, meaning it cannot be used to tighten the pair of shoes. “Simply, this app doesn’t work,” user David Erdos wrote as a review for the app. “Whenever I try connecting my shoes, it says error try again or it says it’s already connected with another pair of shoes.” Nike has also been responding to certain reviews on the Nike Adapt app in Apple’s App Store.

Cosmetics & Pharmacy

CVS Health’s Q4, 2018 Buoyed by Strong Retail, PBM Script Growth

CVS Health has posted results for its fourth quarter and full-year, bringing in revenues of $54.4 billion for Q4 — an increase of 12.5% over the previous year. For its full-year period, the company saw sales increase to $194.6 billion, a 5.4% increase over its full fiscal 2017. The company’s earnings per share for the quarter hit a $1.99 loss, with an adjusted EPS of +$2.14. “2018 was a milestone year for CVS Health as we successfully completed our transformational merger with Aetna, began effective implementation of our integration strategy, and took important steps toward building the integrated healthcare model that will bring substantial value to our various stakeholders. We had strong financial performance and delivered on our operating expectations,” president and CEO Larry Merlo said.

Sally Beauty Commences Tender Offers for Senior Notes

Sally Beauty Holdings, Inc. announced that its indirect wholly-owned subsidiaries Sally Holdings LLC and Sally Capital Inc. have commenced cash tender offers to purchase up to $100,000,000 in aggregate purchase price (as it may be increased by Sally Beauty) of their outstanding 5.625 percent Senior Notes due 2025 and 5.500 percent Senior Notes due 2023.

AmorePacific Sells French Perfume Plant to Dior

AmorePacific,the world’s 14th largest cosmetics company, has sold its Satre perfume plant to Christian Dior this past week. The company completed the sale following the end of a licensing agreement with perfume brand Lolita Lempicka in 2017. Perfumes currently produced at the site, such as the Goutal Paris brand, will now be produced under an OEM contract or at the company’s Korean or Chinese factories.

 

Discounters & Department Stores

Walmart flexes in the fourth quarter, beats all expectations

Walmart defied a gloomy government retail sales report for December, delivering fiscal fourth-quarter profits and sales that beat Wall Street expectations. The world’s largest retailer also enjoyed another quarter of surging e-commerce sales during the critical holiday period as it expanded its online assortment and services. Shares moved higher in afternoon trading Tuesday. The report provides more evidence that Walmart’s efforts to expand online grocery services, including curbside pickup and home delivery, are widening the gap between itself and traditional rivals while at the same time holding its own against online leader Amazon.

Do dollar stores help the poor with cheap, vital staples? Or block out grocers and trigger food deserts?

Vanessa Hall-Harper, a lifelong resident of Chicago’s poorest area, has viewed the opening of dollar stores in recent years with trepidation. The stores were a reminder of the blight, she said, and they blocked grocers and others from opening. So when she was elected to the City Council, she fought back, ushering in restrictions on new stores.

“The community said, ‘We don’t want any more dollar stores,’ ” she said. “We need grocery stores, clothing, shoes — things that you need to live.”

Target is chasing moms and dads

Moms and dads are some of the best shoppers for retailers. Target has a plan to win them over: Focus on the kids. On Thursday, Target said it will extend its trendy kids’ clothing line, Art Class, to toddlers. Target has built a multi-billion dollar kids’ clothing brand, Cat & Jack, but it found some parents want a more stylish look for their kids, too. The company hopes that rounding out the edgier Art Class brand for toddlers will plug gaps in its children’s lineup. Parents are crucial to Target’s success because they spend more every year than shoppers without children, the company says.

 

 

Emerging Consumer Companies

Neighborhoods Goods raises $8.8 million in funding

Neighborhoods Goods, the retail concept featuring products from digitally native and new to brick-and-mortar brands, raised $8.8 million in funding. The round was led by previous investor Global Founders Capital, with participation from Forerunner Ventures, and Michael Dubin, CEO of Dollar Shave Club, among others. The $8.8 million brings the company’s funding total to $14.5 million. The round will be used in part to open a store in New York City.

Girls Night In raises pre-seed round

Girls’ Night In, which began as an email newsletter emphasizing indoor activities, such as beauty, cooking, and reading., announced it raised a pre-seed round of $500,000 from SV Angel, Third Kind Capital, and Combine VC. Based in Washington, D.C., Girls Night In will use the proceeds to build its events business, and continue its evolution into a wellness and holistic health brand.

Kidfresh raises investment round

Kidfresh, makers of frozen meals for children, raised a new round of funding from existing investors Monogram Capital Partners, Emil Capital Partners, and AccelFoods. Kidfresh markets kids’ favorite meals with hidden vegetables and better-for-you ingredients.

 

 

Grocery & Restaurants

Walmart’s deal to sell Asda to Sainsbury’s in peril

Walmart’s $10 billion agreement to sell its Asda Group Ltd. grocery chain in the United Kingdom to J Sainsbury plc has hit a big roadblock. The U.K.’s Competition and Markets Authority (CMA) said Wednesday that it has found “extensive competition concerns” with the proposed Asda-Sainsbury’s merger. To address these issues, CMA recommended that the deal be blocked or that the merger partners be required to divest a large number of stores or either the Asda or Sainsbury’s brand.

 

Carrols to acquire 221 Burger King, Popeyes units

Carrols Restaurant Group Inc., already the largest U.S. Burger King franchisee, has agreed to buy 166 more Burger King units and 55 Popeyes Louisiana Kitchen restaurants in a $238 million merger deal with Cambridge Franchise Holdings LLC, the companies said. Syracuse, N.Y.-based Carrols’s proposed deal with Cambridge of Memphis, Tenn., would bring its total restaurants to about 1,070. The targeted Burger King and Popeyes units are in 10 Southeastern and Southern states.

Lemonade and Modern Market Eatery merge to form fast-casual company

Two health-minded fast-casual brands, Lemonade and Modern Market Eatery, have joined forces under the newly created Modern Restaurant Concepts company. The merger of Lemonade Restaurant Group and Modern Market Eatery, announced Wednesday, will allow two like-minded brands to grow their national footprint through franchising and licensing. Butterfly, a Los Angeles-based private equity firm specializing in the food sector, is an investor in both brands and coordinator of the merger. The newly formed company will have a combined 58 restaurants in 10 markets.

Home & Road

Advance Auto Parts Jumps on Earnings Beat Despite Soft Comps Guidance

Advance Auto Parts Inc. topped earnings and revenue estimates despite the fact that it also provided an estimate for full-year same-store sales growth that was below analysts’ expectations. The company said that it expects same-store sales to rise between 1% and 2.5% in 2019, the midpoint of which is short of analysts’ estimates of 2% comp growth. The company reported fourth-quarter net income of $53.4 million, less than a third of the $184.5 million it reported a year ago. Earnings of $1.17 per share beat FactSet consensus estimates of $1.13. Sales rose 3.3% to $2.11 billion, matching analysts’ expectations. Same-store sales in the quarter rose 3.4%.

RaceTrac Tries Something New—Franchising

RaceTrac has taken its first step into the franchising space. As part of the launch strategy, the family-owned convenience store operator is seeking experienced, qualified candidates to franchise three established locations in Florida. With operations in Central Florida spanning three decades and more than 170 stores throughout the state, three existing RaceTrac stores in Clermont, Mt. Dora, and DeLand are immediately available as franchise opportunities. RaceTrac said its franchise owners will benefit from the brand’s conveniently located stores, comprehensive training program and proven experience in marketing, operations and merchandising.

Jewelry & Luxury

Signet Offers Employees Exit Plan as It Looks to Cut Costs

Signet Jewelers Ltd. is offering a “voluntary transition program” to its more than 3,000 corporate employees in Akron, Ohio, and Dallas as it looks to cut costs, two memos shared with National Jeweler show. Employees in store support centers who have been with Signet for two years or more as well as in a district manager position or above can opt to leave the company. In turn, the company will offer the usual severance packages as well as assistance in finding a new job, including resume-building and interviewing classes.

 

Helzberg Opens 7 Next-Generation Stores

Helzberg Diamonds has given seven stores a next-generation format, which showcases a variety of new digital features, including letting consumers try on rings using augmented reality. The newly formatted stores—two of which have just opened and five of which have been converted from the chain’s traditional format—debuted before the Christmas holiday.

Chanel: Iconic couturier Karl Lagerfeld has died

Karl Lagerfeld, Chanel’s iconic couturier whose designs had an unprecedented impact on the entire fashion industry, died Tuesday in Paris, prompting an outpouring of love and admiration for the man in the trademark white ponytail, high starched collar and dark enigmatic glasses who dominated high fashion for the past 50 years. Although he spent virtually his entire career at luxury labels catering to the very wealthy — including 20 years at Chloe — Lagerfeld’s designs quickly trickled down to low-end retailers, giving him global influence.

 

Office & Leisure

Hilton Launches New Brand – Signia Hilton

Hilton announced the launch of Signia Hilton, a new meetings-and-events-focused brand. The portfolio of hotels is setting out to transform the industry for meeting professionals and sophisticated business travelers by infusing state-of-the-art technology and design into every aspect of the guest experience. The brand further reinforces Hilton’s commitment to innovation that meets the evolving needs of today’s travelers and will bring premium experiences to top urban and resort destinations around the world.

Red Collar Pet Foods Acquires Hampshire Pet Products

Red Collar Pet Foods announced the acquisition of Hampshire Pet Products, LLC. Based in Joplin, Missouri, the company is a leading provider of baked and cold formed pet products and co-manufacturer of several of the nation’s leading branded pet treats.

Hampshire Pet will join Red Collar, a leading manufacturer of premium and mainstream private label pet food and treat products. The increased production capabilities will make Red Collar one of the largest private label and contract manufacturers of dog and cat treats in North America. Red Collar is owned by Arbor Investments, a specialized private equity firm that focuses exclusively on acquiring premier companies in food, beverage and related industries.

Technology & Internet

Cloud ecommerce firm Kibo Software buys personalization vendor Certona

Cloud commerce company Kibo Software Inc. has acquired omnichannel personalization platform provider Certona Corp. The acquisition of Certona will offer Kibo clients more personalization options, while Certona clients also gain access to Kibo’s cloud commerce products, the companies say. Kibo serves more than 400 retailers and brand manufacturers and Certona provides services to 600 ecommerce websites in more than 70 countries.

Stamps.com threw USPS under the bus because it’s betting big on Amazon shipping

Stamps.com threw USPS under the bus, dissolving the companies’ longtime partnership, because it’s betting big on Amazon’s success in shipping and logistics. The company revealed Thursday it revoked the exclusivity stipulation of its deal with USPS, ultimately spurring the complete termination of its partnership. And it championed Amazon’s foray into the shipping space.

 

Finance & Economy

Freddie Mac says U.S. 30-year mortgage rates hit fresh 1-year low

Rates for home loans fell to the lowest in over a year as investors remained concerned about economic headwinds, setting up the housing market for a strong spring season.

The 30-year fixed-rate mortgage averaged 4.35% in the February 21 week, mortgage guarantor Freddie Mac said Thursday. That was down from 4.37% in the prior week and the lowest since early February 2018. The popular product has eked out a weekly increase only once in 2019. Even if mortgage rates behave, there are plenty of headwinds arrayed against would-be home buyers. Debt consolidator Freedom Financial’s Freedom Debt Relief subsidiary recently conducted a survey of consumer attitudes toward debt and the economy. Survey respondents said that their combined debts were among the big factors keeping them from buying a house. That was true for 26% of members of Generation X, 36% of Millennials, and 35% of Gen Y-ers, those born from 1995 on.

U.S. business spending on equipment weakening

New orders for key U.S.-made capital goods unexpectedly fell in December amid declining demand for machinery and primary metals, pointing to a further slowdown in business spending on equipment that could crimp economic growth. The moderation in business investment was also underscored by another report on Thursday showing a measure of factory activity in the mid-Atlantic region contracted in February for the first time since May 2016. The reports, together with data last week showing steep declines in retail sales in December and manufacturing output in January, strengthen the Federal Reserve’s “patient” stance toward raising interest rates further this year.

Existing-home sales fall for third-straight month, hit a 3-year low

Existing-home sales ran at a 4.94 million seasonally-adjusted annual rate in January, the National Association of Realtors said Thursday. Sales of previously-owned homes were even lower – by 1.2% – than the 3-year low they hit in December. They were 8.5% lower than a year ago.  The housing market may have navigated a soft landing in 2018 only to discover the same constraints that have held back growth ever since the recovery began: supply, affordability, and the specter – if not the reality – of rising rates. “The change in the tax law reduced the tax-advantage of mortgages, especially in high-tax states, and this has had its negative effect,” said Steve Blitz, chief US economist for TS Lombard. Mortgage rates have moved lower in line with the 10-year U.S. Treasury, since the start of the year.