The Weekly Closeout: Petco swings to a loss and Ace Hardware plans 170 stores this year

Jun 29, 2023

The pet retailer reported its 19th consecutive quarter of comp growth, while the hardware cooperative has already opened 100 of its planned stores.

It’s been another week with far more retail news than there is time in the day. Below, we break down some things you may have missed during the week, and what we’re still thinking about.

From pumpkin spice’s return to retail, and Shein and Forever 21 making an unlikely duo, here’s our closeout for the week.

Avocado Green opens 'experience center’

DTC retailer Avocado Green Mattress opened a new store in Boulder, Colorado, according to a Monday press release. The “experience center” offers eco-luxury mattresses, furniture, loungewear, clean skin care and clean body products displayed throughout the store, according to the press release.

"We are extremely excited to be opening this new showroom," Brett Thornton, Avocado Green Mattress vice president of retail said in a statement. "We've developed a unique shopping experience that is unlike anything in our industry. The Boulder space will carry on the same tradition of our other locations: an inspiring retail space where customers can relax and learn more about Avocado Green Brands."

None of the employees at the store earn commission, a decision the company said means that, “guests have no pressure to buy.”

Mad Rabbit enters Walmart

Tattoo skin care brand Mad Rabbit has launched at Walmart, according to a company press release Thursday.

The brand will be available on the retailer’s website and roll out to nearly 2,000 Walmart stores, marking Mad Rabbit’s first launch into mass retail.

"We are thrilled to launch at Walmart and are grateful that they believed in Mad Rabbit," Oliver Zak, CEO of Mad Rabbit, said in a statement. "This collaboration will allow us to broaden our reach within the tattoo community, providing consumers with many points of purchase while also introducing new customers to the brand."

The brand will sell seven of its products through Walmart, including its tattoo balm, soothing gel and numbing cream.

Petco swings to a loss in Q2

Petco on Thursday reported second-quarter net sales increased 3% year over year to $1.5 billion, while comparable sales grew 3.2% — the 19th consecutive quarter of comps growth. However, the retailer swung into the red, reporting a net loss of $14.6 million from a net profit of $13.5 million last year.

"With discretionary spending continuing to be pressured, we're taking numerous strategic actions to strengthen our business, including initiatives to unlock a targeted $150 million in cost savings and productivity enhancements by the end of fiscal 2025,” CEO Ron Coughlin said in a statement. “These actions, combined with the enduring competitive advantages of our differentiated offering, will position us even better to deliver sustainable and profitable growth for the long term."

The company lowered its full-year guidance. While Petco maintains expectations for net revenue between $6.15 billion and $6.275 billion, it now expects adjusted EBITDA to be between $460 million and $480 million and capital expenditures to be between $215 million and $225 million.

Krispy Kreme fetches pumpkin spice biscuits for dogs

It’s almost September, and that can only mean one thing — pumpkin spice everything. But this year, Krispy Kreme is asking an important question: Where are all the pumpkin spice products for dogs and why weren’t they here sooner?

The doughnut maker has rolled out, for the first time in its glaze-filled history, a “Pup’kin Spice Doggie Doughnuts” biscuit collection in stores. Any pet-loving humans stocking up on pumpkin spice lattes and other fall-themed goodies can soon treat their dogs to a six-pack of handmade gourd-inspired biscuits, including Pup’kin Spice Maple Peanut and Pup’kin Spice Cheesecake Swirl.

The collection will be available Saturday to Thursday, if supplies last that long. Because while the dogs may not know the difference between a regular gourmet dog biscuit and a pumpkin spice dog biscuit, their humans certainly do — and Krispy Kreme is banking on them showing up for the unofficial signaling of the fall season.

“We know you love our Pumpkin Spice and now it’s time for dogs to get in on the action,” Global Chief Brand Officer Dave Skena said in a statement. “We’re pawsitive (groan) your dogs will love them.”

Hefty brings back pumpkin spice trash bags

The pumpkin spice products are rolling out earlier than ever and your trash bin can experience the same festive treatment.

Reynolds Consumer Products brand Hefty has released its limited-edition cinnamon pumpkin spice scented trash bags. The product is available for purchase at various retailers including Walmart and Target for about $5.99.

“We hope pumpkin lovers all over the country will enjoy getting to indulge in their pumpkin spice obsession in this unexpected way, while Hefty's odor-control technology keeps their homes smelling clean, and well, like Cinnamon Pumpkin Spice,” Brian Lutz, senior brand manager at Reynolds Consumer Products, said in a statement.

170+

That’s the number of stores that Ace Hardware projects it will open this year. The company, which calls itself the largest retailer-owned hardware cooperative in the world, has already opened over 100 new locations so far in 2023, according to a company press release.

"With over 100 new stores already opened for the year, we remain enthusiastically bullish about the continued prospect for new store growth,” John Venhuizen, Ace president and CEO, said in a statement. "I applaud our local Ace owners for the pace with which they've integrated our digital efforts with our physical assets.”

Ace Hardware currently operates over 5,800 locally-owned hardware stores globally.

$935 million

That’s Abercrombie & Fitch Co.’s net sales, up 16% year over year, the company said in its second-quarter earnings report. The company’s operating income was $89.8 million, compared to a loss of $2.2 million in the same period last year. Additionally, inventory levels were down 30%.

“Our net sales and operating margin exceeded our expectations as global growth accelerated throughout the second quarter,” CEO Fran Horowitz said in a statement. “We continue to see strong customer receptivity of our brands and product, led by 26% net sales growth in Abercrombie brands. To date, our efforts to evolve Hollister brands’ positioning and assortment are paying off, achieving a return to net sales growth at positive 8% for the quarter.”

It's shrink. We think.

A number of retailers during their second-quarter earnings reports talked about the rise of “shrink,” an amorphous term that applies to lost merchandise, but increasingly is attributed to rising theft.

That is being stoked by high-profile incidents like a brazen robbery at a Canoga Park, California, Nordstrom store earlier this month.

This week alone, the chief executives of Dick’s and Nordstrom noted that theft in particular is a growing problem. Dollar Tree and Macy’s blamed shrink for margin contraction. Macy’s, in a decision that could impact holiday displays, said it’s moving merchandise that is most likely to be stolen away from store entrances. Nordstrom and Macy’s executives called for further legislative action.

The Inform Act, which the industry strongly advocated for, aims to make it more difficult for thieves to sell stolen goods online and became law in June.

So far, though, specifics on shrink — which can include theft anywhere in the supply chain and goods that are damaged or lost for other reasons — are scarce. Retailers haven’t been defining it in dollar terms or lost sales, and sometimes only bring it up when asked about it. (Nordstrom shares rose on better-than-expected Q2 results, but tumbled back down following its earnings call, when CEO Erik Nordstrom was asked about shrink.)

Industry research is similarly murky. In its report last year, often cited in news reports on the issue, the National Retail Federation pegged it at $94.5 billion. However, retail’s average shrink rate has held steady in the last five years at 1.4%, according to the same report.

Shein and Forever 21 team up

Fast-fashion stalwarts like Forever 21 and H&M have struggled in recent years, but Chinese e-commerce player Shein has bucked that trend. Now Forever 21 and Shein are teaming up in what both say is a win-win partnership.

The deal has Shein joining Sparc Group, the Forever 21 operator co-owned by mall REIT Simon Property Group and brand management firm Authentic Brands Group. The latter also owns Forever 21’s IP. Shein will take a one-third stake in Sparc, and Sparc will also become a minority shareholder in Shein; financial terms of these arrangements were not disclosed.

Shein will distribute Forever 21 items to its massive customer base, and will leverage Forever 21 stores and shop-in-shops, the companies said. Forever 21 has partnerships with the likes of J.C. Penney.