RETAIL NEWS ROUNDUP: Week of April 15 to April 22 2007

CoStar News is expanding its retail real estate coverage under the direction of Senior Editor Sasha Pardy to bring you a weekly feature covering the gamut of retail acquisitions and mergers, retailer expansion plans, new store openings, store closings, new retail developments, significant personnel changes, and more.

In addition to appearing every week in the national news section of our web site, you may also request to be one of the first to receive the Retail News Roundup via email by contacting the editor at spardy@CoStar.com

This week in the Roundup, CoStar reports on Rite Aid's acquisition of rivals Brooks and Eckerd, BI-LO supermarket going up for sale, Target's unprecedented growth plans, The Coffee Bean & Tea Leaf opening its 500th store, new shopping centers planned by Cedar Shopping Centers and Regency Centers, and more. This issue points to the continued trend of Private Equity firms playing a large role in the retail marketplace, as well as strong growth in the fast casual, quick service restaurant sector.

ACQUISITIONS

Rite Aid's Acquisition of 1,850 Brooks and Eckerd Stores Closing in May
Rite Aid Corp. said it expects to close on its acquisition of Jean Coutu Group's 1,850 Brooks and Eckerd drugstores by the end of May. In addition to stores throughout the East Coast, the deal also includes six distribution centers. Rite Aid plans to divest 24 stores located in CT, MD, ME, NH, NJ, NY, PA, VT, and VA. In its recent fiscal 2007 earnings press release, Rite Aid said it plans to benefit from $100 million in sale-leaseback proceeds in the coming year. Also in May, Rite Aid expects to close on an exchange of six stores with Longs Drug Stores, which will strengthen its presence in Nevada.

During fiscal 2007, Rite Aid opened only 8 net new stores, closing the year with 3,333 stores. The Brooks-Eckerd acquisition will make Rite Aid the largest drugstore chain on the East Coast and bring its store count to 5,000 stores, shrinking the gap between it and the industry's top two competitors: Walgreens and CVS. CVS has 6,200 stores while Walgreens has 5,675 stores in 48 states. With plenty of acquired stores on its plate in the coming year, Rite Aid did not announce plans to open any additional stores in its fiscal 2008 guidance. The company expects to fully integrate the Brooks and Eckerd stores to the Rite Aid brand by the end of fiscal 2009's second quarter.


Raving Brands Selling its Baby, Moe's Southwest Grill
Atlanta-based FOCUS Brands signed a definitive merger agreement to Acquire Moe's Southwest Grill, a 345-store, Mexican-style cuisine fast casual chain. FOCUS is the franchisor and operator of more than 1,750 shops under such names as Carvel, Cinnabon, Schlotsky's, and Seattle's Best Coffee. FOCUS will acquire Moe's from Raving Brands, franchisor and operator of Mama Fus, PJ's Coffee, Monkey Joe's, Flying Biscuit, Planet Smoothie, Doc Green's, Boneheads, and Shane's Rib Shack fast-casual restaurants. Started in 2000, Moe's Southwest Grill is Raving Brands' flagship concept; generating nearly $300 million in annual revenues, its sale is surprising. Terms of the deal have not been disclosed. FOCUS Brands' parent company is Atlanta-based private equity firm, Roark Capital Group, which also holds Movie Gallery, Fast Signs, and McAllister's Deli.


BI-LO Supermarket Chain up for Sale by Lone Star Funds
Greenville, SC-based private equity firm Lone Star Funds' March 20th reorganization plan to move the 74-store Bruno's supermarket chain out from under the wing of BI-LO LLC now makes sense, seeing as the company announced that it is seeking a buyer for BI-LO. Lone Star has appointed Merrill Lynch and William Blair & Co as co-advisors in the strategic evaluation process.

With 230 supermarkets in four southeast states, BI-LO responded to the announcement by reaching out to its customers and employees. In an April 11th press release, Brian Hotarek, BI-LO's president and CEO explained that the supermarket chain has made significant progress in the last several years by decoupling from Ahold, divesting stores in non-core markets, outsourcing distribution, and investing in technology and capital improvement in existing stores.

PUMA to be Taken Over by Gucci Brand Owner
Germany's PUMA, the well-known sports footwear, apparel, and accessories brand, announced a takeover offer by Paris, France's Pinault-Printemps-Redoute (PPR) through its subsidiary, SAPARDIS. PPR is a global company whose luxury brands include Gucci, Bottega Veneta, Yves Saint Laurent, Alexander McQueen, and Stella McCartney. On April 10th, 25.14% stakeholder Mayfair sold its stake to SAPARDIS for the U.S. equivalent of $446.72 per share. SAPARDIS will also be submitting a voluntary public take-over offer to PUMA's other shareholders for the same price. The offer price represents a 24% premium on the undisturbed one-month weighted average share price as of April 3rd, 2007. Pending approval by its German regulator in May, the take over is expected to complete in July 2007.

Primarily selling its merchandise through outside retailers, PUMA opened its first retail store in 1999 and now has 91 stores. The company opened 25 of those stores in 2006 alone under its new store format. On October 11, 2006 PUMA opened its 5,300 square-foot flagship new concept store in Union Square, New York; PUMA dubs the design a "brand museum" with flexible, modular components for displaying merchandise.


Duffy's Sport Grill Stepping In to Save Roadhouse Grill
Palm Beach Garden, FL-based Duffy's Holdings, Inc., owner and operator of 15 Duffy's Sports Grill casual dining restaurants on Florida's East Coast, announced its agreement to acquire 85.5% of the outstanding common stock of Pompano Beach, FL-based Roadhouse Grill, Inc. for $7.99 million. After the transaction is closed, Duffy's plans to complete a merger to acquire the balance of Roadhouse's common stock for $.46 per share, representing an approximate 20% premium. In addition, Duffy's will invest $11 million in cash in Roadhouse, leaving Roadhouse with $10 million debt following the close of all transactions, expected to be complete no later than May 31, 2007. Duffy's will evaluate the Roadhouse portfolio to decide which stores are best served by a conversion to Duffy's Sports Grill.

Roadhouse has been in trouble for some time, consistently posting net losses. About this time last year, Roadhouse terminated a merger agreement by Steakhouse Partners, Inc. after the prospective buyer failed to line up financing. Late in 2004, the company completed a $21 million sale-leaseback of 11 restaurants and also experienced significant hurricane damage during the year. Since January 2006, Roadhouse has closed 15 net restaurants, and now operates 57 full-service restaurants in AL, AK, FL, GA, LA, MI, NY, NC, OH, and SC. According to CoStar a 10,000 square-foot former Roadhouse Grill is available in Kennesaw, GA for sale at $4 million or for lease at $16.50 per-square-foot, triple-net.


EZCORP Acquiring 15 Jumping Jack Cash Stores, Adding 100 EZMONEY Locations
Austin, TX-based EZCORP; which operates more than 600 stores in 13 states as EZPAWN and EZMONEY, announced it will acquire 15 Colorado pawn shops from Pawn One, Inc. under the trade name Jumping Jack Cash. Expected to close in early June 2007, the shops will be acquired for $23 million cash. EZCORP plans to open 100 EZMONEY locations during fiscal 2007, which closes in September. An EZMONEY signature loan store resembles a bank and is typically 1,000 to 1,500 square feet in size. The company generally leases its stores for at least three years with one or more options to renew and store are typically located in a strip center in markets with lower income households.


UPDATE: Men's Wearhouse Closes $100 Million Acquisition of After Hours
On April 9, 2007, Cincinnati-based Federated Dept. Stores, Inc. announced the successful completion of the sale of its After Hours Formalwear business to Houston, TX-based Men's Wearhouse. The $100 million deal marks Federated's exit from the bridal retail business; its David's Bridal and Priscilla's of Boston division was sold in January 2007. The sale adds 507 After Hours and Mr. Tux tuxedo rental stores to Men's Wearhouse's more than 750 existing stores.

Would you like to subscribe to the Retail News Roundup? Have questions or Comments? Reach Sasha Pardy at spardy@CoStar.com

EXPANSIONS

Target to Double its Size Over the Next 15 Years
Discount retail giant, Target Corp., recently reported fiscal 2006 results, which included a 13.% increase in total revenues, a 4.8% increase in comparable store sales, and an 18.5% increase in earnings per share over the previous fiscal year. The company increased its square footage by 7.7% in fiscal 2006 with the addition of 91 net stores, including 72 Target stores and 19 SuperTarget stores. In the company's just-released annual report, Target Chairman and CEO Robert Ulrich stated "our growth plans envision adding about 100 net new stores in the U.S. annually for the foreseeable future, potentially doubling our current store base over the next 15 years." If achieved, this would bring Target's store count to nearly 3,000 in 2022.

The company continues to focus on the domestic market and says it will refrain from international expansion. The states that bring target the most sales per capita include MN, AZ, CA, CO, FL, IL, IA, MD, NB, NV, ND, and VA. The company prefers to own its stores, currently owning more than 84% of its portfolio. Specifically in 2007, Target will add 115 to 120 new stores, including 30 to 35 SuperTarget stores. In addition, 40 to 45 stores will be remodeled with most of those involving square footage expansion. According to CoStar Tenant, SuperTarget stores average 175,000 square feet, while general Target stores average 100,000 to 135,000 square feet. The retailer is a favorite among developers to anchor new lifestyle and power centers.

UPDATE: Bed Bath & Beyond Expansion Plans Following buybuy BABY Acquisition
In a recent CoStar article titled "Child's Play," CoStar informed readers of Bed Bath & Beyond's $86 million acquisition of 8-store infant goods retailer, buybuy BABY. Highlights from BB&B's fiscal 2006 financial report include a 13.9% increase in net sales and 4.9% increase in comparable store sales. During fiscal 2006, BB&B added 74 new core brand stores, bringing the total to 815 BB&B stores in 48 states. In addition, the company operates 34 Christmas Tree Shops and 39 Harmon stores.

In the coming year, the company will open 70 new BB&B stores, but will not open stores among its other brands, choosing to focus on their operational improvement. For Christmas Tree Shops, a new 721,000 square-foot distribution center in Burlington, NJ is under construction and scheduled to deliver December 2007, to accommodate for the brand's future growth. BB&B stores range 20,000 to 50,000 square feet in size and are primarily located in community centers, power centers, or lifestyle centers with complementing national anchors.


Starwood and B.R. Guest Partner to Expand Luxury Restaurant Brands
Starwood Capital Group, the real estate investment arm of hotelier Starwood, and B.R. Guest, owner of several luxury New York City restaurants, announced the formation of a new partnership, B.R. Guest LLC. The new company has set a goal to build a global portfolio of the most exclusive names in the restaurant industry, and plans to achieve this by acquisition as well as the development of new restaurants. B.R. Guest LLC now operates 16 restaurants in New York, Chicago, and Las Vegas and portfolio restaurants include Fiamma Osteria, Blue Water Grill, Blue Fin, and Fiamma Trattoria. In Fall 2007, Fall 2007, B.R. Guest will open two new restaurants: Primehouse in New York City and Dos Caminos at the Venetian Hotel in Las Vegas.


New World Restaurant Group Public Offering, Adding Restaurants
Golden, CO-based New World Restaurant Group filed with the SEC for an initial public offering on NASDAQ under the symbol "BAGL". The company is currently quoted in the Pink Sheets, but has experienced inactivity here. New World operates 600 restaurants in 30 states under brands Einstein Bros. Bagels, Noah's New York Bagels, Manhattan Bagel, Chesapeake Bagel Bakery, and New World Coffee. After the offering, 9.26 million shares of stock will be outstanding. In the filing, New World stated it would use the money raised to repay loans. In addition, the company plans to open 11 to 15 company-owned Einstein and Noah's restaurants, 35 to 50 new licensed restaurants and ramp up franchising in Einstein Bros., while continuing to franchise Manhattan Bagel.


UPDATE: CKE Restaurants Refranchising Hardee's, Leads to New Restaurants
After announcing plans to open 28 new company-owned restaurants and remodel 175 restaurants, CKE recently announced the launch of a refranchising program that will involve more than 200 Hardee's restaurants in the Midwest and Southeast. Refranchising will also lead to additional restaurants, as most of the transactions also involve an area development agreement. For example, the company sold 18 units in eastern Atlanta which resulted in the franchisee's commitment to open 25 new Hardee's stores in the area over the next seven years. A second transaction involved the sale of seven restaurants in AL and GA, which will also lead to additional development. Company management said that refranchising the brand allows the company to focus on development in its core markets.


The Coffee Bean & Teal Leaf Opens its 500th Store, Continues Expansion
Los Angeles-based The Coffee Bean & Tea Leaf, the second largest specialty coffee chain behind Starbucks, opened its 500th store in Los Angeles this month. In addition, The Coffee Bean announced plans to grow to 650 stores by the end of this year. The primary source of growth will be through franchising internationally and in select domestic markets. In 2006, the company signed a franchise agreement with Ralph's Grocery Stores to open Coffee Bean kiosks within the supermarkets. The Coffee Bean's U.S. stores are located in CA, NV, AZ and Hawaii and the company is no longer granting franchises within those states.

Would you like to subscribe to the Retail News Roundup? Have questions or Comments? Reach Sasha Pardy at spardy@CoStar.com

Papa John's to Open 300 Restaurants by 2013
Louisville, KY-based Papa John's International operates more than 588 company-owned and 2,427 franchised pizza restaurants in 49 states and 26 countries. During 2006, Papa John's opened 124 restaurants in the U.S., but closed 66. At the close of the 2006, the company had 300 domestic restaurants scheduled to open through 2013; approximately 125 of these will open this year. The latest franchise development agreement is with Alpha Restaurant Group, which will open 30 restaurants in the Detroit area over the next six years. Papa John's typical restaurants average 1,100 to 1,500 square feet and are located in strip centers or freestanding buildings that offer visibility, curb appeal, and accessibility.


Christopher & Banks to Add 70 Stores in the Coming Year
Minneapolis-based Christopher & Banks, a specialty women's apparel retailer operating 788 stores in the U.S. under brands Christopher & Banks, C.J. Banks and Acorn, reported an 11.6% increase in net sales over the previous year. The company added a net 73 stores during fiscal 2007 and plans about the same for the coming year. In fiscal 2008, expect to see 25 new Christopher & Banks stores, 40 C.J. Banks stores and 5 Acorn stores. Christopher & Banks stores average 3,300 square feet, C.J. Banks stores average 3,700 square feet and Acorn stores average 2,400 square feet. Primarily located in malls, the company also has stores in lifestyle and community centers.


Womens Activewear Retailer Lucy Breaking into New Markets
Portland-based lucy, a women's private label apparel retailer specializing in activewear, continues to add stores across the country. The privately held firm, which includes Chico's FAS, Lone Pine Capital, Maveron LLC, Oak Investment Partners and Sutter Hill Ventures as investors, opened 16 stores in several major markets last year, including Chicago, Dallas, San Diego, and Washington D.C. The company has already announced the opening of four stores this year at the following locations: Natick Mall, Natick, MA; La Cumbre Plaza, Santa Barbara, CA; Railroad Avenue, Danville, CA; Galleria in Edina, Minneapolis, MN. In addition, stores are coming soon at Pentagon Row in Arlington, VA, Birmingham in Detroit, MI, and the Promenade at Sagemore in Marlton, NJ. With plans to continue expansion, lucy stores average 1,500 to 2,500 square feet. Although primarily located in California, the company continues to pursue new stores in major markets.


Man's Best Friend to be Pampered with more Three Dog Bakeries
Kansas City-based Three Dog Bakery, a specialty retailer selling natural dog treats and accessories, operates 47 locations in 19 states and Canada. Each store bakes the dog treats on location. In addition to a beefed up product offering, Three Dog Bakery, fueled by a million-dollar investment, plans to grow to 130 locations by 2010, including international growth in Japan and Western Europe.


Krispy Kreme Predicts Future Growth via Small Retail Store Concept
During its fiscal 2007 results call, management of Winston-Salem, NC-based doughnut empire, Krispy Kreme Doughnuts, Inc. reported that the company has made progress over the past year in resolving the accounting irregularities and resulting legal problems, achieving positive cash flow, developing new products, and growing internationally.

Despite these improvements, the company still posted a net loss, although it was significantly less than the previous year. During fourth quarter, Krispy Kreme opened 28 new stores, but closed 14, bringing total store count to 395. The company has developed a flexible real estate model, first debuted in international sites, that matches store size to the market as opposed to a stiff store prototype. President and CEO Daryl Brewster stated the small store concept addresses, "our top consumer issue, convenience and has the potential to meet this need, as well as the franchisee need in terms of an economic model." Krispy Kreme said growth will continue, primarily through franchisees, and that the company will also be considering re-franchising some stores.


No Frills Grocer Aldi Expanding in Alabama and more
German discount grocery retailer, Aldi, is actively pursuing sites for new stores. Aldi's store size averages 15,000 to 17,000 square feet and it is very flexible in it location selection; operating in various types of strip centers and freestanding buildings. The chain is based on a "no-frills" concept, cutting costs by accepting only cash, not providing shopping bags, having no deli, no bakery, little produce, and no listed phone number. Already in 2007, Aldi stores have been announced in Homewood, AL; Trussville, AL; Bessemer, AL; East Hartford, CT; Crown Point, IN; Lower Burrell, PA; Shoal Creek, MO; Mishawaka, IN; Middlebury, VT and Niagara Falls, NY.


Would you like to subscribe to the Retail News Roundup? Have questions or Comments? Reach Sasha Pardy at spardy@CoStar.com

CLOSINGS

Pier 1 Imports Closing 60 Stores, Shedding Employees
Following urgings by its third-largest shareholder, Fort Worth, TX-based furniture and accessories retailer, Pier 1 Imports, announced it would close 60 stores this year. The retailer has posted a quarterly loss for the last two years and posted an 8.6% decrease in sales for fiscal 2007. The company has been in cost-cutting mode and just last month announced 175 jobs would be cut; more than half of those positions are at the company's headquarters. The additional 60 store closings will of course cause additional job losses, but the number has not been released.

DJM Realty Awarded Tweeter Dispositions
In a recent Roundup, CoStar informed readers that home electronics retailer, Tweeter, would close 49 stores, resulting in the exit of CA, TN, AL, NY and most of GA, as well as the loss of 640 jobs. DJM Realty of Melrose, NY has been awarded with the disposition of Tweeter's stores. Emilio Amendola and Michael Jerbich of DJM are marketing 39 Tweeter, Sound Advice, and Hifi Buys locations, as well as one 106,268 square-foot distribution center for sublease. The bulk of stores are located in CA and GA, store size ranges 1,136 to 20,000 square feet, with the latest lease expiring in 2022.


NEW SUPPLY

Cedar Shopping Centers JVs with Tristate to Build 700,000sf Center in Pennsylvania
Cedar Shopping Centers, a retail REIT and owner of 104 primarily supermarket and drugstore-anchored shopping centers in nine states announced a joint venture with Tristate Ventures, L.P. Tristate is a retail development company that specializes in the revitalization of trouble properties and is a division of Fameco Real Estate, a full service brokerage firm of the Deleware Valley. Cedar and Tristate entered into the joint venture to develop a 700,000 square-foot retail project on 108 acres in Pottsgrove, PA, approximately 40 miles northwest of Philadelphia.

Named "Upland Square" and located at the intersection of Route 100 and State Street in Pottsgrove, the project will feature several big box tenants and specialty retailers as well as a grocery store; expected completion is mid 2009. Although Cedar is investing only $17.5 million in the $105 million development, it will hold a 60% interest with an option to buy out Tristate's share three years following the center's stabilization. With an expectation to be substantially pre-leased before construction starts, Fameco and Tristate will be responsible for the leasing and construction of the project. Fameco represents several national retailers in its area, including Wal-Mart, Kohl's, Best Buy, Staples, L.A. Fitness, Aldi, Petco, Pier 1, Wegman's, Dick's Sporting Goods, Ulta, Borders, Red Robin, Macaroni Grill, Applebee's, and several more.


With Several Retail Developments in the Pipeline, Cross Development Hires Leasing Team
Addison, TX-based Cross Development Co. has a number of projects in its pipeline and has hired a leasing team. The company just announced a $24 million retail project on 16.6 acres in Frisco, TX named "Preston Place", which includes 121,350 square-feet of retail community center space plus five outparcels, located at the corner of Highway 289 and Hickory Street. With the land buy in process, the company has a 286,000 square-foot power center planned at the corner of Hwy 380 and Custer Road in Prosper, TX to be called "Prosper Plaza".

In addition, the developer expects to deliver 30,000 square feet of inline retail space plus four pad sites at its Regent Cross project. Regent Cross sits on 46-acres at the intersection of I-635 and the Beltline in Irving, TX. At completion, the project will also include an Extended Stay Westin Hotel, called "The Element". Other projects in the pipeline include a grocery anchored center in Fate, TX, a community center in Westminster, CO, and a small retail center in North Meridian, KS. The company hired Scott Rose, formerly of Weitzman Group, to lease the company's own properties as well as some third-party projects with the help of three more brokers, yet to be hired.


Regency Centers Plans Richmond, TX and Erie, CO Shopping Centers
Jacksonville, FL-based Regency Centers, a leading national shopping center REIT owning 405 retail properties amounting to 54 million square feet, announced the acquisition of two separate land parcels this month. In Richmond, TX, Regency closed on its purchase of 4 acres of land adjacent to a 16 acres parcel already owned. Located at the northwest corner of Grand Parkway and Mason Road in Richmond, Regency will develop the total 20 acres as a 102,984 square-foot Kroger-anchored neighborhood shopping center. Dubbed "Waterside Marketplace", Kroger will be approximately 78,000 square feet. The property is slated to begin construction November of this year and is being marketed for $24 per-square-foot. In Erie, CO Regency purchased a 19.41-acre parcel located at Leon A. Wurl Parkway and E. County Line Road for development. Located 25 miles north of Denver, Regency plans for a grocery-anchored shopping center at this site, any further information is yet to be disclosed.


PERSONNEL CHANGES

John Crosland Retires from Crosland, LLC
Charlotte, NC-based Crosland, LLC, owner of at least 22 retail developments in primarily southeastern states, announced John Crosland Jr. has retired as chairman of Crosland. Crosland has served for 50 years at the company. Todd Mansfield, Crosland's president and CEO since 1999, adds chairman of the board to his title, while Paul Leonard, a current board member and former CEO of Habitat for Humanity, has been named director of the board. Crosland will continue to work from his office at company headquarters and remain an active board member. John Crosland III will continue as vice chair of the company.

Would you like to subscribe to the Retail News Roundup? Have questions or Comments? Reach Sasha Pardy at spardy@CoStar.com