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Fast-casual, $300 million restaurant deal backed by founder of Panera Bread

BY Marianne Wilson

Zoës Kitchen is being acquired in a deal that will create the nation’s largest restaurant operator in the Mediterranean category

The fast-casual, 261-unit Zoës has entered into a definitive agreement to be acquired by privately held Cava Group, operators of the fast-growing Cava chain. The combined company will have 327 restaurants in 24 states throughout the U.S. The deal was valued at approximately $300 million.

Cava, which also sells its chef-crafted dips and spreads in more than 250 Whole Foods Markets nationwide, operates 66 restaurants. It expects to have 75 locations by the end of 2018.

The acquisition of Zoës Kitchen will be financed through a significant equity investment in Cava led by Act III Holdings, the financial group created by Ron Shaich, founder, chairman, and former CEO of Panera Bread. Shaich will serve as chairman of the combined company; Brett Schulman, current CEO of Cava, will serve as its chief executive.

“As a close observer of the fast-casual restaurant industry, I am thrilled at the prospect of what Cava and Zoës Kitchen can accomplish together,” said Shaich. “Together these businesses will create the leading company in one of the most important categories in fast casual today — Mediterranean — with the capabilities to drive extraordinary customer satisfaction and powerful growth.”

Zoes’ sales have been on the decline according to Restaurant Business, while Cava has been on the upswing since it was founded in 2011. The tech-savvy chain, which takes a data-driven approach to its operations, made Fast Company’s “The World’s Most Innovative Companies” list in 2018.

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Analysis: How Nordstrom bucks department store gloom

Nordstrom has bucked the gloom associated with other department stores and has posted a strong set of second quarter numbers. Total sales rose by a very robust 7.1%, though this includes a helpful shift in revenue recognition from the Anniversary Sale. This benefit was, however, only the cherry on top of a good underlying performance which saw comparables increase by a solid 4.0%.

On the bottom line, net income increased by 47.3%. As well as higher sales volumes, this healthy uplift was aided by less promotional activity and lower rates of discounting. In our view, much of this is down to the fact that Nordstrom has worked hard to create a compelling and differentiated assortment, especially in fashion, which has both protected margins and stimulated sales growth.

Indeed, as other department stores suffer from the withdrawal of premium brands, Nordstrom has actively developed proprietary labels and partnerships. This has allowed the company to stand out in a sea of sameness and has given customers a reason to visit.

An excellent assortment is not the only area where Nordstrom has succeeded. In our view, the company has, for a long time, invested in its retail proposition. This means that it has far fewer legacy issues, such as a long tail of shabby stores in need of investment. In turn, this ensures that gains in sales fall quickly through to the bottom line.

Historically, Nordstrom has also been savvy at making sound strategic decisions at the right time. One of these was to develop and grow the Rack business, which has provided a strong stream of growth over the past few years. This quarter was no exception with the off-price business growing by 7.1% on a total basis and by 4.0% in comparable terms. This comes as a slight relief after a softer performance last quarter which was caused by a sub-optimal product mix and some issues with inventory. That Nordstrom achieved much better numbers this time around underscores the continued value and relevance of its off-price division.

Looking ahead, we see a number of further significant opportunities in off-price. These include increasing the penetration among male shoppers and doing more in categories like home. Both of these things, along with future store openings — especially in Canada — should help Nordstrom to achieve further growth.

In the full-price part of the business, comparable sales grew by a comfortable 4.1%. However, total revenue was dragged down by the sales return reserve allocation. Over the period a more confident consumer traded up to higher-end fashion products which helped Nordstrom’s sales. From our data, it was clear that out of all the mainstream department stores, Nordstrom benefitted most from this upswing in spending at the premium end of the market.

Online and omnichannel also played a role in Nordstrom’s growth. Over the same period last year, digital sales increased by a respectable 23%. This is a little way above the total market indicating that Nordstrom is still gaining share online. Nordstrom has worked hard to create as seamless a shopping process as possible, including the introduction of Nordstrom Local stores, and this is paying dividends. In our view, its advanced thinking gives Nordstrom a significant opportunity to further improve the shopping experience across all channels and bolster its share.

Overall, Nordstrom is in good shape. It is certainly benefitting from the strong consumer economy, but it is also helping itself to superior growth.

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Consumer sentiment slides to 11-month low

BY Marianne Wilson

Consumer sentiment dipped in August amid concern about rising prices.

The University of Michigan’s consumer sentiment index fell to 95.3 in August, down from 97.9 in July, according to a preliminary reading. It was the lowest level in 11 months, and below economists’ expectations who were looking for it to reach 98.

The decline was concentrated among households in the bottom third of the income distribution, according to the report. And the concern was rising prices — buying conditions for large household durables sank to the lowest level in nearly four years. When asked to explain their views, consumers voiced the least favorable views on pricing for household durables since October 2008. Vehicle buying conditions were viewed less favorably in August than anytime in the last four years, with vehicle prices being judged less favorably than anytime since the close of 1984.

In addition, home buying conditions were viewed less favorably in early August than anytime in the past 10 years, with home prices judged less favorably than anytime since 2006.

“These are extraordinary shifts in price perceptions given that consumers anticipate an inflation rate in the year ahead of 2.9% in early August, unchanged from last month,” the report said. “The data suggest that consumers have become much more sensitive to even relatively low inflation rates than in past decades.”

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