June 24, 2020
Yesterday, GNC filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware. In the coming days, the Company expects to file in the applicable Canadian court seeking recognition of the U.S. Chapter 11 proceeding.
The Company is pursuing two paths in bankruptcy, as either a standalone plan of reorganization or through a sales transaction, to be completed in the fall of 2020.
For the first option, GNC has already reached a pre-arranged standalone plan of reorganization and has a signed restructuring support agreement executed by over 92% of its Term Lenders and 87% of its ABL FILO Lenders. Additionally, the Company, a significant majority of the supporting secured lenders, and Harbin Pharmaceutical Group Holding Co., Ltd., an affiliate of GNC's largest shareholder, have also just reached an agreement for the sale of the Company's business for $760.0 million. If the sale transaction is timely consummated as outlined, it would be implemented instead of the standalone plan transaction.
The Company's stores will remain open for business, with its largest vendor and joint venture partner, IVC, working to ensure product supply.
GNC has secured $130.0 million of additional liquidity, including $100.0 million in "new money" debtor-in-possession (DIP) financing from its term lenders and $30.0 million from modifications to its existing ABL credit facility. Management expects this, along with vendor support, to maintain business operations through this process. To right-size the organization, GNC is accelerating the closure of at least 800 to 1,200 stores, while also investing in omnichannel; the Company is launching the "buy online, pick up in store" fulfillment option later this year. GNC is seeking to wind down approximately 726 store locations throughout the U.S. and Canada – click here for the full list.
J.C. Penney announced it is closing 136 stores (click here to request the list) where GOB sales started June 17. These units are among a group of 154 underperforming stores the Company initially considered for closing. The remaining 18 stores are expected to close by the fall. Management previously said that each store identified for closing “has significantly underperformed, has seen downward sales and margin trends, is located in high-risk properties, or no longer fits the Debtors’ market strategy.” Each store-closing sale will take approximately 10 – 16 weeks to complete. The Debtors will reject leases associated with the closing locations as, and when, appropriate.
Tapping a windfall of COVID-19-related sales and an improving IPO market, Albertsons solidified its plans to go public last week, with an offering of up to 75.7 million shares priced between $18 - $20, intended to raise up to $1.51 billion. The offering, which represents about 16% of outstanding shares, values the equity at about $10.00 billion. Albertsons will not benefit from any of the proceeds because the stock sale is coming from existing shareholders, including lead investor Cerberus Capital Management, whose ownership percentage will drop from 37% to 30.6% if all shares are sold. The IPO values the Company at just over 6x trailing TTM EBITDA. However, Albertsons’ 1Q20 results were very strong due to COVID-19 stockpiling. For the first 12 weeks of FY20, ended May 23, comps grew 30%, while margins were stronger. Cash flow was also robust; net debt dropped to $6.70 billion as of May 23, from $8.24 billion at FYE February 29, 2020. Click here to request a list of future openings and closings.
In the Neiman Marcus Group bankruptcy case, the Creditors’ Committee notified the Court that it intends to file a motion to terminate exclusivity so that it can propose a competing Plan of Reorganization. The Committee’s proposed Plan would preserve the right to sue the Company’s private-equity owners, Ares Management Corp. and the Canada Pension Plan Investment Board (CPPIB), over the 2018 spinoff of Mytheresa, a German luxury website. Mytheresa is potentially valued at over $1.00 billion. The Debtor’s current Plan shields the private equity owners from future litigation over the Mytheresa transaction, which moved it out of the reach of creditors. Most, though not all, of Neiman’s lenders and bondholders agreed to an out-of-court debt restructuring in 2019 that gave them almost half the shares in Mytheresa.
As part of the restructuring, the same creditors also agreed to drop future litigation against Ares and CPPIB. Marble Ridge Capital LP, a member of the Committee, previously alleged that the transaction constituted a fraudulent transfer.
In other news, the Court granted final authorization for the Debtors to:
- Access up to $525.0 million of a $675.0 million new money DIP facility. The interim order provided access to an initial $275.0 million, which was increased by $250.0 million with the final approval. An additional $150.0 million will become available, as needed, after September 4; and
- Use cash collateral.
Marc Beilinson, a member of the board, tendered his resignation due to health reasons. Scott Vogel, who was designated as disinterested manager by the board on April 28, will discharge Mr. Beilinson’s responsibilities.
On June 17, Publix Super Markets opened its first GreenWise Market in Georgia, located in Marietta (25,100 square feet). The first GreenWise Market opened in Tallahassee, FL in October 2018, and the Company now has seven stores under the concept. Two additional sites are set to open in Odessa and Nocate (Ponte Vedra), FL this week. Click here to request a list of future openings.
Denny’s provided an update on its operations and the status of its ongoing reopening of restaurants and dining rooms. The Company hit a low of only 67% of about 1,600 domestic restaurants open in the week ended April 15, but starting in late April and early May, several states began to ease restrictions on dine-in service. As a result, the Company and franchisees began reopening locations, and the Company reached 94% open in the week ended June 10. 93 domestic and 14 international franchise restaurants remain temporarily closed. Dining rooms at 1,234 domestic restaurants have been reopened, with 56% of these restaurants open at 50% to 75% capacity, 42% open at 25% to 33% capacity, and the remainder open with just social distancing restrictions. Weekly comparable restaurant sales have improved sequentially since April, but are still down significantly year-over-year at -40% for the week ended June 10.
Dick’s Sporting Goods is expanding its nationwide footprint with the opening of two new formats: Overtime by Dick’s Sporting Goods, and Dick’s Sporting Goods Warehouse. Dick’s first entered the outlet space last year, with the opening of three clearance centers (in Utica, MI, Spartanburg, SC, and Racine, WI). The Overtime format will offer an expansive assortment of apparel, footwear and equipment at up to 75% off regular prices. Three Overtime stores opened on June 16 in Plainville, CT; Hagerstown, MD; and Philadelphia, PA. The Warehouse format will offer deeper discounts on customer-favorite footwear and apparel brands at up to 90% off, with a pop-up-style shopping experience. Five Warehouse locations have opened in Avon, IN; St. Peters, MO; North Olmstead, OH; South Hills, PA; and Brookfield, WI. With the new openings, Dick’s now has 11 outlet and clearance centers in nine different states. As of May 2, the Company operated 726 locations. The new concepts will allow Dick’s to expand its relationship with key brands, such as Nike and Adidas, while limiting the need to offer deep discounts in its legacy stores. Click here to request a list of future openings and closings.
Demoulas Super Markets’ sales rose for the fifth straight year, reaching $5.35 billion in 2019, a 3% increase over 2018. The Company opened one store in 2019, bringing its total to 81 locations, mainly in Massachusetts and New Hampshire, with one store in Maine. The Company currently has six new locations in its development pipeline, including stores in Plymouth, NH; Lowell and Maynard, MA; Westbrook, ME; and Johnston and Warwick, RI. Four of the stores are slated to open during the back half of 2020, with the Rhode Island locations expected to open sometime in 2021. Click here to request a list of future openings.
According to published reports, CEC Entertainment (parent of Chuck E. Cheese) has been fielding interest from a number of potential buyers. The Company is said to be in talks with a group of bondholders who have offered to invest more than $100.0 million in the Company. Reports also indicate that John Catsimatidis, owner of Gristedes, might be interested and has acquired some CEC bonds. The Company continues to explore strategic alternatives and said in April that it hired law firm Weil, Gotshal & Manges LLP and financial adviser PJT Partners LP.
According to reports, Bed Bath & Beyond is looking to sell its Christmas Tree Shops and Cost Plus World Market banners; the move makes sense in our view, given that the banners are too small to make an impact on consolidated results, and would allow the Company to generate additional cash. There are no further details on any potential transactions at this time. There are 261 Cost Plus World Market stores in 33 states (about one quarter are located in California) and 74 Christmas Tree Shops in 20 states (primarily in the Northeast).
There are also reports of up to 285 employees in the Company’s Layton-based contact center being laid off; these employees are expected to receive regular pay and benefits until August 15. In other news, the Company executed an $850.0 million three-year secured asset-based revolving credit facility with a syndicate of banks. The ABL Facility expires in June 2023 and replaces the Company’s existing $250.0 million unsecured revolving credit facility.
Bed Bath & Beyond began reopening stores in late May, and currently expects to have 95% of its total store fleet reopen by the end of this week (1,325 stores were closed beginning in March, while 175 buybuy Baby and Harmon stores remained open); nearly all stores are expected to be open by July. Additionally, BOPIS and curbside pickup will be expanded to cover the vast majority of stores. Click here for a list of recent and future closures.
Schnuck Markets will debut EatWell, A Natural Food Store by Schnucks, today. The first location is in a former Lucky’s Market store in Columbia, MO, which Schnucks acquired in an auction earlier this year. The 42,000 square-foot store will focus on organic and local items and feature a natural living department.
Meanwhile, Schnucks announced that it will close its (underperforming) store in Bettendorf, IA, its only store in the state, on August 16. Schnucks currently operates 112 stores in Missouri, Illinois, Indiana, and Wisconsin.
As of June 21, Ulta Beauty has reopened 866 stores, or about 68% of its store fleet, to in-store customers, with 827 stores offering salon services. Curbside pickup is available at 1,177 stores, or about 93% of its fleet. The Company continues to expect to have substantially all stores open in some capacity by the end of June. Click here to request a list of future openings.
Following QuikTrip’s announcement that it would enter Colorado last spring, the Company recently said it plans to open 50 to 70 locations in the Denver metro area over the next five years. The stores will feature an average lot size of 2.5 acres each with a 4,800 square-foot store. The stores are slated to begin opening early next year, but their exact locations have not been disclosed. The move into Denver came on the heels of QuikTrip entering the San Antonio, TX market, where it opened its first c-store in October 2018; it plans to add 60 stores in San Antonio and 40 in nearby Austin, TX.
On June 10, H.E. Butt opened a 130,000 square-foot store in South Austin, TX.This store is part of more than $200.0 million in H-E-B projects in South Austin. Click here to request a list of future openings.
Cinemark Holdings announced a phased reopening plan that kicked off with select theaters in the Dallas, TX area that opened on June 19. The Company expects to continue reopening theaters in other markets based on government guidelines, between July 3 and July 17. Theaters will be operating at limited capacity and with reduced operating hours; initially, they will be playing older classics, charging $5 for adults and $3 for children and seniors, and offering concession items at greatly reduced prices.
The upcoming summer blockbuster line-up includes Unhinged, starring Russell Crowe, on July 10 and The Broken Hearts Gallery on July 17, followed by Mulan on July 24, Tenet on July 31, The SpongeBob Movie: Sponge on the Run on August 7, Bill & Ted Face the Music on August 14, and A Quiet Place Part II on September 4.
Walmart opened its third health center, located in Loganville, GA. Walmart Health is partnering with several health providers to be a first-of-its-kind health center to deliver primary and urgent care, labs, x-ray and diagnostics, counseling, dental, optical and hearing services all in one facility. In addition, there is a newly remodeled Walmart Supercenter located adjacent to the center. The first Walmart Health center opened in September 2019 in Dallas, GA, with a second located in Calhoun. Click here for a list of openings and closings.
Raley’s has temporarily transitioned a closed store in Sacramento, CA into an e-commerce fulfillment center. The Company had planned to announce a new tenant for the closed store in April, when it opened its new store one block north. However, those plans changed due to the COVID-19 pandemic. Raley’s will restart negotiations with potential tenants once normal business operations resume.
AMC Entertainment Holdings announced it plans to resume theater operations at approximately 450 of its over 600 locations on July 15. The Company expects to reopen the remaining approximately 150 locations in late July, before the release of Disney’s Mulan on July 24, and Warner Bros.’ Tenet on July 31. The Company intends to initially cap seating capacity at 30%, raise it to 50% by Labor Day weekend, and eventually return to full capacity.
The Giant Eagle store in Garfield Heights, OH will resume its regular operations on Thursday, after being temporarily closed and used exclusively as a curbside pickup center in April.
In other news, Giant Eagle is now facing more than 30 federal lawsuits in western Pennsylvania over its coronavirus mask policy, claiming the Company is violating the Americans with Disabilities Act. The cases accuse the stores of ignoring Governor Tom Wolf’s provision that people who have medical issues that preclude wearing a mask are exempt. Instead, customers with breathing problems say they are being turned away. Giant Eagle does not require its employees to wear masks if they provide medical excuses.
Earning Reports
During 1Q20, Kroger posted a 19% ID sales increase, excluding fuel. Total sales jumped 11.5% to $41.55 billion and 19.1% excluding fuel and business dispositions. Digital sales grew 92%. Commenting on results, management said that leading into the pandemic, sales were strong, with February ID sales ahead of internal expectations. During the last few days of February, the Company started to see a shift in customer behavior as shoppers began stockpiling, and that trend accelerated into March with ID sales of approximately 30%. Sales remained elevated in April and May, both up approximately 20%, as customers continue to eat at home more. EBITDA advanced 25.2%, to $2.18 billion. At the end of 1Q20, Kroger’s net debt to adjusted EBITDA ratio was 1.81, compared to 2.54 a year ago. Kroger has made investments of more than $830.0 million to increase associates’ pay and safeguard associates, customers and communities during the COVID-19 pandemic. Click here to request a copy of the 1Q Sales Report.
McDonald’s Corporation provided comparable restaurant sales results for April and May. Following a 13.4% U.S. comp decline in March, April comps fell 19.2%, and May comps dropped 5.1%. The International Operated Markets segment, which includes Canada, Russia, and most of Western Europe, reported a 40.5% comp decline in May, compared to a 20% decline in the International Developmental Licensed Markets segment, which includes China, Japan, and several markets in Latin America. As of June 15, 99% of U.S. restaurants are operating with at least drive-thru, delivery, and take-out service, and more than 1,000 of the about 13,800 U.S. locations have reopened dining rooms, with reduced seating capacity. About 100 restaurants remain temporarily closed due to their locations (mainly malls and other unique sites).
Francesca’s provided an update on store reopenings. The COVID-19 pandemic resulted in the temporary closure of all of the Company’s 703 boutiques beginning on March 25. On April 30, the Company began to reopen its boutiques in locations where local shutdown orders had been lifted. As of June 12, 593 boutiques (84% of the store base) have reopened, although the majority of them are operating at reduced capacity and hours in accordance with local regulations. Management stated that sales at reopened boutiques have been “above expectations.” The Company plans to continue to reopen boutiques and recall furloughed employees as local conditions permit.
Meanwhile, 1Q20 sales decreased 50% to $43.8 million primarily due to the mandated stores closures, partially offset by strong performance in e-commerce. Due to aggressive markdowns and promotions aimed at promoting traffic, as well as increased higher inventory reserves, gross margin was negative. Management commented that it expects gross margin pressure to continue throughout 2Q20. SG&A expenses decreased by $15.0 million. While the Company did not provide an operating loss figure, the numbers imply a quarterly operating loss of approximately $71.5 million.
As a result of the COVID-19 pandemic and as previously disclosed, the Company is delaying the filing of its 1Q20 10-Q, as it needs more time to finalize its asset impairment assessments, including the related income tax effect. The Company expects to file its Form 10-Q within 45 days from June 16.
Designer Brands’ 1Q20 sales dropped 44.7% to $482.8 million, and comps were down 42.3%, compared to a 3% increase last year. U.S. retail sales (78.1% of total sales) decreased 45.5% to $377.1 million, and comps were down 42.4%. Canadian retail sales (6.1% of total sales) declined 43.4% to $29.3 million, and comps were down 32.4%. Brand Portfolio sales (17% of total sales) decreased 21.5% to $82.1 million, while comps were up 92.8% due to strong performance from the Vince Camuto e-commerce site. The Company’s operating loss was $324.0 million, compared to a profit of $44.0 million last year. Designer Brands ended the quarter with 666 stores in operation, including 521 U.S. and 145 Canadian stores. As of June 18, the Company has reopened approximately 90% of its total store base. The Company expects to have nearly all North American stores open by the end of June. Click here to request a copy of the 1Q Sales Report.
Last week, Noodles & Company provided an update on its operations and the impact of the COVID-19 pandemic. After closing all dining rooms from late March to late May, the Company has since begun to reopen dining rooms in line with local guidance. As of June 16, about 20% of the Company’s 458 restaurants (381 Company-operated, 77 franchised) have reopened dining rooms, including 7% of Company-operated restaurants and 87% of franchised restaurants. System-wide comparable restaurant sales have been steadily improving week-to-week but were still down 15.1% in the week ended June 16, 2020, compared to a peak decline of 54.7% in the last week of March. After first quarter comps declined 7.2%, second quarter comps through 6/17 were down 34.1%. The Company also announced an amendment to its credit facility, which waives the lease-adjusted leverage ratio and fixed charge ratio covenants through the 1Q21.
At Home’s 1Q20 sales fell 38%, driven by a same-store sales decline of 46.5%, offsetting strength in online and six new stores. Gross margin fell to 8.6% from 28.8% last year on lower sales and occupancy deleverage. Adjusted EBITDA loss of $14.6 million contrasted with positive EBITDA of $33.8 million last year. In an effort to manage cash during the pandemic, the Company furloughed store and distribution center employees, reduced salaries, cut capital expenditures and marketing, and halted store growth. The Company continued to invest in omnichannel and accelerated its capabilities, including expanding BOPIS across its store fleet, adding curbside pickup and local delivery. Still, despite cutting its advertising budget during 1Q, the Company was able to leverage its more than seven million loyalty program members, helping to drive digital sales and performance at the beginning of 2Q. Since stores began reopening in May, the Company has seen improved selling across geographies and categories, with initial sales rising double digits. Click here to request a copy of the 1Q Sales Report.
