Commentary: Amazon wasting no time in leveraging Whole Foods Market
(Amazon's $13.7 billion purchase of Whole Foods Market will be finalized on Aug. 28. And that same day, Whole Foods will offer lower prices on some of its top-selling items. Amazon also plans to place lockers in Whole Food stores, and make Amazon Prime the grocer's customer rewards program.)
The takeover by Amazon always meant change was inevitable at Whole Foods. However, that change — much like the deal that facilitates it — is coming much faster than anyone imagined.
The announcement that Amazon will reduce prices on grocery staples at Whole Foods signals a clear intention to remedy what has been one of the grocery chain's biggest weaknesses. It will, at a stroke, help improve basket sizes, transaction values, and customer loyalty.
For the wider grocery market, this is not an immediate threat. Whole Foods remains niche, and its general proposition will continue to be more elevated than most grocers. However, rivals should be under no illusion that they are now dealing with a competitor that is not afraid to damage profits and margins if it creates long term gains. This will only add further pressure to already crimped margins in the sector.
The linking of Prime to Whole Foods is another smart move. Not only will this allow Amazon to target discounts and offers effectively, it will also give it significant intelligence on the preferences and habits of Whole Foods shoppers. Given that 70.3% of Whole Foods core customers are already members of Amazon Prime, the linkage covers a significant part of the existing shopper base.
Finally, the selling of Whole Foods branded products through Amazon's other channels is no surprise. Given the high regard in which the brands are held, this will provide a measurable improvement to Amazon's own food proposition. Moreover, it will facilitate greater volumes which will generate economies of scale and cost savings down the line.
Amazon is wasting no time in making the most of its newest division. Worryingly for others in the market, these things are only the opening salvo in what will be a time of rapid change.
Ulta Beauty beats Street; on track to open 100 stores in 2017
Ulta Beauty turned in another winning quarterly performance, besting analysts' earnings and sales estimates. The beauty powerhouse also raised its fiscal 2017 guidance.
One of the few specialty retailers with an aggressive store opening program, Ulta Beauty said it remains committed to opening 100 new locations in 2017. It will also remodel 11 stores and relocate seven others.
Ulta Beauty earned $114 million, or $1.83 a share, in the second quarter ended July 29, compared with $90 million, or $1.43 a share, in the year-ago period. Analysts had expected earnings of $1.78 a share.
Net sales rose 20.6% to $1.29 billion, from $1.07 billion a year ago, also better than expected. E-commerce sales grew 72.3% to $96.3 million from $55.9 million in the second quarter of fiscal 2016, representing 340 basis points of the total company comparable sales increase of 11.7%.
"We accelerated our market share gains while continuing to reduce promotional intensity and increase personalized offers through our industry leading loyalty program." said Mary Dillon, CEO. "We are also benefitting from continued success of our marketing programs, rapid growth in e-commerce, and solid operational execution across the enterprise."
Ulta Beauty's second quarter same-store sales rose 11.7%, in line with expectations. But the growth was less than the 14.4% increase in the year-ago period, much to the great disappointment of Wall Street.
On the chain's quarterly call, Dillon seemed unfazed. “We exceeded the high end of our guidance for total company sales driven by strong new store productivity," she told analysts. She also said that the company elected to “prioritize earnings growth and margin expansion over comp sales growth.”
• Ulta raised its fiscal 2017 guidance and said it now expects comparable sales growth of approximately 10% to 11%, including the impact of the e-commerce business, compared to previous guidance of 9% to 11%.
• It expects net sales in the range of $1.33 billion to $1.35 billion for the third quarter, up from $1.13 billion in the prior year period. Same-store sales, including e-commerce sales, are expected to increase 9% to 11%.
As of July 29, 2017, Ulta Beauty operates 1,010 retail stores across 48 states and the District of Columbia.
J. Crew names finance head amid ongoing sales decline
J.Crew Group named an internal associate as CFO as the retailer continues to struggle to turn around its namesake brand.
The retailer announced that Vincent Zanna, previously senior VP of finance and treasurer, has been promoted to CFO and treasurer, effective immediately. He will continue to report to Michael Nicholson, who was previously CFO and COO, and now serves as president and COO.
J. Crew’s total revenue decreased 2% to $560.9 million for the quarter ended July 29. Total same-store sales dropped 5%. By brand, same-store sales fell 8% at J. Crew and increased 11% at Madewell.
J. Crew posted a net loss of $20.7 million, compared to $8.6 million in the second quarter last year. The second quarter includes the impact of transformation and transaction costs incurred in connection with the company's debt exchange and refinancing.
Adjusted earnings before interest, taxes, depreciation and amortization climbed 65% to $63.1 million from $38.3 million in the same quarter a year earlier, helped by a decline in the company's costs of goods sold.
"Overall, I am optimistic about the opportunities that lie ahead, particularly when reviewing the strong talent, capabilities and commitment within the organization," said Jim Brett, who took the reins as CEO in July. (He was previously president of West Elm.) "The team delivered solid progress on our transformation plan during the second quarter, highlighted by expansion in gross margin and reduced expenses that drove an increase in Adjusted EBITDA. And I am confident about evolving our brand strategy to drive long term profitable growth."
On the company's quarterly call with analysts, Nicholson said he remained "optimistic" about the future. He said that the company was "exploring all strategic opportunities to maximize growth and profitability."