FINANCE

Kroger Co. outlines new corporate mission

BY Deena M. Amato-McCoy

The nation’s largest grocery store operator is introducing a new plan that it expects will redefine the customer experience.

Kroger Co. reaffirmed its 2017 forecast sales growth of 0.5 to 1.0%, excluding fuel, for the remainder of 2017. Meanwhile, net earnings are still on track to hit between $1.74 and $1.79 per diluted share, including an estimated $.09 for the 53rd week.

This confirmation comes amid growing pressure from Amazon, especially since its recent acquisition of Whole Foods Market has given the e-retailer an even stronger foothold into the supermarket segment.

To fight back, the supermarket operator announced a new program that it expects to drive more engagement and sales.

Called Restock Kroger, the program will leverage the company’s food expertise and data analytics to create new and highly-relevant customer experiences delivered both digitally and in stores. The company will invest an estimated $9 billion in capital investments in the program over the next three years — a move that it expects will generate $400 million in incremental operating margin by 2020.

The program is also designed to generate more than $4 billion of free cash flow over the next three years – nearly double what was generated over the previous three years, according to the company.

“Our goal is to continue generating shareholder value even as we make strategic investments to grow our business,” Mike Schlotman, Kroger’s executive VP and CFO said during the company’s annual investor meeting on Wednesday in New York.

The plan is based on four drivers, from redefining the food and grocery experience and expanding partnerships to developing talent and focusing on social impact. An overarching theme however, will be Kroger’s accelerated commitment to digital and e-commerce efforts, and applying customer data and personalization expertise through its 84.51 customer insights division to even more aspects of the business, including space optimization, pricing and brand growth.

It is also planning a front-end transformation that includes redesigning its front-end, including maximizing its self-checkout presence. This includes expanding its 20-store Scan, Bag, Go pilot to 400 stores in 2018.

Another way Kroger expects to transform the customer experience is by focusing on its Internet of Things sensor network, video analytics and machine learning networks, and complementing those innovations with robotics and artificial intelligence.

In another strategic move, Kroger is also considering putting its convenience store operation on the block. Kroger’s convenience store business includes 784 convenience stores that operate under the banners KwikShop, Tom Thumb and QuickStop across 18 states. It also has 68 franchise operations.

The division has delivered 62 consecutive quarters of identical store sales growth, and generated revenue of $1.4 billion in 2016. However, the operation could experience even more growth under a new owner, according to the grocer.

“Our convenience stores are strong, successful and growing with the potential to grow even more,” said Schlotman.

“We want to look at all options to ensure this part of the business is meeting its full potential,” he added. “Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review.”

The company has hired Goldman Sachs & Co. to identify, review and evaluate the options.

Kroger operates nearly 2,800 U.S. supermarkets. The company also operates jewelry stores, retail health clinics and pharmacies.

 

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Luxury handbag retailer to change its name

BY Deena M. Amato-McCoy

Eager to better reflect the company’s increasing diversity, Coach is changing its name.

Coach will become Tapestry Inc., on Oct. 31. The company, which owns the brands Coach, Kate Spade New York and Stuart Weitzman, will continue to define itself as a New York-based house of modern luxury lifestyle brands.

The decision came on the heels of the company’s acquisitions of Stuart Weitzman in 2015 and Kate Spade & Company this past summer. However, this transition has been three years in the works, according to Coach’s CEO, Victor Luis.

“Three years ago we laid out our vision to transform Coach, and announced our intention to grow beyond the Coach brand,” Luis said.

“We are now at a defining moment in our corporate reinvention, having evolved from a mono-brand specialty retailer to a true house of emotional, desirable brands, all leveraging our strong operational foundation,” he said. “Each of our brands has a unique proposition, fulfilling different fashion sensibilities and emotional needs within the very attractive and growing $80 billion global market for premium handbag and accessories, footwear and outerwear. At the same time, our brands are also built upon the shared values of optimism, inclusivity and innovation.”

The leadership team at Coach partnered with brand agency Carbone Smolan Agency on all aspects of the rebrand, the company said.

When searching for a new name, Coach wanted something that reflected its values. It also wanted to express the cultural diversity of the company and its brands today, as well as in the future, the company said.

“In Tapestry, we found a name that speaks to creativity, craftsmanship, authenticity and inclusivity on a shared platform and values,” Luis said.

“We believe that Tapestry can grow with our portfolio and with our current brands as they extend into new categories and markets,” he added. “The name embodies our creative brand-led and consumer-focused business, while also representing the deep heritage of the group. Most importantly, we are establishing a strong and distinct corporate identity, which enables our brands to express their individual personalities and unique language to consumers.”

To further reflect the transition, the company will change its New York Stock Exchange ticker symbol from COH to TPR on Oct. 31. The company’s Hong Kong Depositary Receipts are traded on The Stock Exchange of Hong Kong Limited under the symbol 6388.

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D.Hoolihan says:
Oct-12-2017 09:00 am

Very disappointed! I don't like the new name, doesn't sound any better than Coach!

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Upscale home furnishings retailer repays second lien term loan

BY Deena M. Amato-McCoy

RH has repaid its second lien term loan — in just over three months after securing it.

The upscale home furnishings retailer said that it has repaid its $100 million second lien term loan on Oct. 10. The annualized cash interest rate on the second lien term loan was approximately 9.5% as of the date of retirement.

The company funded the repayment with borrowings on its asset backed credit facility, which bears current annualized interest of approximately 2.75%, as well as existing cash on its balance sheet. Between repaying the loan early, and having a related reduction in interest expenses, RH expects an incremental $0.05 benefit to its fiscal 2017 adjusted diluted earnings per share, the company said.

“Based on our strong business performance, significant cash flow generation, and confidence in our future outlook, we are retiring the second lien term loan just over three months after securing it,” said Gary Friedman, RH chairman and CEO.

“The $100 million second lien term loan was intended to act as a short term bridge loan to help fund the company’s purchase earlier this year of nearly one-half of its outstanding shares, which has created, and we believe will continue to create, significant shareholder value,” he added. “The early debt retirement is expected to be incremental to the company’s fiscal 2017 adjusted diluted earnings per share by approximately $0.05.”

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