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Hibbett Sporting Goods to acquire athletic wear retailer

BY Deena M. Amato-McCoy

Hibbett Sporting Goods just made a big play that could help strengthen its position in the competitive sporting goods segment.

The company said late Monday that it will acquire City Gear, a privately held specialty retailer of premium athletic footwear, apparel and accessories. City Gear operates 135 stores in 15 states.

According to terms of the transaction, Hibbett will pay $88 million in cash at the closing of the deal. There is also the potential for up to $25 million in additional consideration paid over the next two years, subject to certain performance-based targets. Hibbett expects to complete the transaction by early December.

City Gear will operate as a subsidiary of Hibbett Sporting Goods. The company will maintain its current headquarters in Memphis, Tennessee, and will continue to be led by members of City Gear’s senior management team.

“We are pleased and excited to announce this acquisition, which provides substantially greater scale in the athletic specialty market and is an extension of our strategy to provide high demand, branded products to underserved markets,” said Jeff Rosenthal, president and CEO for Hibbett.

“City Gear represents a key brand with the fashion-forward consumer and will allow us to extend our customer base and provide a significant opportunity for growth,” he added. “In addition, Hibbett will provide City Gear the needed infrastructure for future growth, including strong internal systems, omnichannel capabilities, and real estate expertise.”

City Gear is known for its customer service and a compelling merchandise assortment, one that is driven by the “sneaker culture.” For the last fiscal year ended Feb. 4, the retailer reported total revenue of approximately $190 million. For the past three years, same-store sales have averaged in the mid-single digit range.

Meanwhile, Hibbett ended the second quarter of fiscal 2019 with $119.6 million of available cash and cash equivalents, with no bank debt outstanding. The company currently operates more than 1,000 stores primarily located in small and mid-sized communities across the country.

While both companies sell strong, attractive brands that resonate with customers, such as Nike, Jordan, Adidas, Puma, Converse, Fila, and others, there is no “significant” geographic overlap between both companies’ stores. This poses a strong opportunity for future store growth, according to Hibbett.

“We believe that Hibbett provides City Gear the ideal platform to expand upon our successes in serving our loyal customers, and are excited to continue to grow leveraging Hibbett’s capabilities,” said Mike Longo, CEO, City Gear.

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Kroger’s earnings outlook stays on track, sales take a hit

BY Deena M. Amato-McCoy

Despite its store remodels slowing sales in the final months of the year, The Kroger Co.’s strong digital sales will enable the company’s second half financial results to match those achieved in the first half of 2018.

The supermarket giant is standing by its earnings per share guidance of $2.00 to $2.15 per diluted share as it heads into the last months of 2018. This guidance is also still in line with analysts’ forecasts.

However, the company expects its financial results of the second half of 2018 to be similar to those achieved in the first half of the year. While Kroger’s same-store sales increased 1.8% in the first half of the year, the company issued guidance that same-store sales would rise anywhere from 2% to 2.5% for the year.

This impact is based on a series of ambitious projects through the company’s Restock Kroger initiative, including space optimization projects, store remodels, and technology enhancements. All projects affected more than 1,000 of its of the company’s 2,800 store locations.

While these stores continue to gain strength, remodeling initiatives did impact sales negatively, creating “a headwind to sales for the remainder of the year,” according to the company.

The company still remains bullish on the growth of its digital sales. Kroger expects an annual digital sales run rate of just over $5 billion at year end 2018, growing to an annual run rate of $9 billion at year end 2019.

“We are on a transformation journey and we are making strong progress on redefining the customer experience,” said Rodney McMullen, Kroger’s chairman and CEO.

“We are proactively investing in our stores, customers and associates for the future, and we are committed to delivering shareholder value through Restock Kroger,” said McMullen. “Everything we are doing today is creating a truly seamless shopping experience, so we can serve customers anything, anytime and anywhere.”

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CGP Forecast: Consumer electronics, apparel poised for happy holiday

BY Marianne Wilson

Holiday spending will raise 5.1% this year, and some categories will fare better than others.

That’s according to retail research firm Customer Growth Partners’ 18th Annual Holiday Forecast, which predicts that retail spending will reach a record $701 billion, with growth paced by online and consumer electronics.

“Reflecting rising incomes — always the key driver of consumer spending — the retail sector gained speed as the year unfolded, now doubling its 2.5% growth pace from this past winter,” said Craig Johnson, president, CGP. “Holiday may fall just shy of 2017’s stellar 5.3% growth rate, but 5.1% is a very healthy pace, well above the mid-4% consensus. Most importantly, since this robust growth is based on sound fundamentals like full-time job growth and rising real incomes — it is far more likely to be sustainable well into the new year and beyond.”

Holiday will again be paced by online retailers, up 9.9% but down from 2017’s 11.4% pace. Among merchandise categories, consumer electronics will grow 6.1%, riding the new product excitement, whether from new iPhone lines, Samsung’s new Galaxy Note 9, or Sony’s new audio gear, Johnson said.

Apparel sales are poised to rise 5.4%, the best growth since the post-recession bounce in 2011. Health and personal care will see an increase of 3.8%. The sports/toys/books sector will decline sharply — almost 6.5% — from last year — with some of the sales picked up by Amazon, Target and Walmart.

Clubs and superstores will shine this holiday season, enjoying the best in-store and online traffic growth they have seen in years, with a sales increase of almost 5.2%.

Department stores’ sales will be down almost 2%, largely due to Sears’ closures, according to CGP.

Johnson noted there are clear risks to CGP’s forecast, including rising gasoline prices and increasing global tensions. Still, he said, the key takeaway is that consumers and retailers alike will have a happy holiday.

“And since the spending growth is built on a platform of job growth and wage gains, prospects for sustained growth into the future are improving with each passing month,” Johnson added.

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