August 14, 2018

Albertsons and Rite Aid

On August 8, Albertsons and Rite Aid announced a mutual agreement to terminate their proposed merger. As we have been reporting, the merger had been criticized by Rite Aid shareholders, including several institutional holders and proxy firms noting that it undervalued Rite Aid. Although the cancelled deal leaves Albertsons’ private equity owners searching again for an exit strategy, from the beginning we were not convinced that acquiring Rite Aid’s struggling assets would provide much in the way of additional revenue synergies. Meanwhile, we think Rite Aid’s shareholders may have done more harm than good, especially judging by the fact that Rite Aid’s share price has continued to fall since the announcement, closing at $1.40 yesterday. Without Albertsons, Rite Aid lacks the scale to effectively compete against Walgreens and CVS. There are few if any potential strategic acquirers for Rite Aid, while a financial or private equity transaction doesn’t seem to make sense given Rite Aid’s already leveraged capital structure.

A day after the termination, Moody’s placed the ratings of Rite Aid on review for downgrade including its Corporate Family Rating of B2 and its Probability of Default Rating of B2-PD. According to Moody’s, “The merger termination leaves Rite-Aid in a weaker position as it lacks the scale or the balance sheet to compete in the changing pharmacy landscape with much larger and well capitalized competitors like CVS Health and Walgreens Boots Alliance.” S&P revised the outlook for Rite Aid from “stable” to “negative”.

As a result of the termination, on August 10, Albertsons issued a notice of redemption for all $750.0 million of its Senior Secured Notes due 2024. The redemption is expected to occur today (August 14) at a price equal to 99.5% of the principal amount plus interest.

National Stores

On August 8, the Bankruptcy Court entered first day orders authorizing National Stores, DIP to access up to $57.0 million of the $108.0 million DIP facility on an interim basis, pending final authorization at a hearing scheduled for August 28. In addition, the Court approved going-out-of-business sales to begin at 74 of the Company’s 344 stores (see below for Store Closing Map), which commenced on August 9. Please click here to request the entire store closing list. Finally, the Court authorized the Debtor to make payments to critical vendors of up to $15.0 million. During the hearing, Debtors’ counsel stated that management, its advisers, and bankers are working toward a reorganization that would keep the Company under the ownership of its founders. This would require securing exit financing in the next few months and “overwhelming” support from vendors. However, the lawyer stated that the option of finding a buyer to take over the business is also on the table, if it provides a better value to creditors.

Supervalu

Supervalu is pursuing the sale of its corporately owned and operated Shop ‘n Save [SnS] (based in St. Louis) and Shop ‘n Save East [SSE] (with stores in West Virginia, Maryland, Pennsylvania, and Virginia) retail operations. The 38 SnS stores average 56,500 square feet, and the 21 SSE stores average 34,000 square feet. Supervalu has now announced it is closing 13 of the SSE stores by September 8 because the Company could not find buyers for them. They are still marketing the others. In other news, Supervalu is renovating three Cub stores in Chanhassen, Maplewood, and Maplewood West, MN. The renovations will be completed before the end of the year. Supervalu will also be closing a St. Paul, MN Cub Foods on September 26. The moves come in the midst of United Natural Foods’ acquisition of Supervalu. Despite the Company selling the chain to focus on wholesale distribution, a Company representative stated that Supervalu continues “to invest in its portfolio of stores and these remodels are a step in further strengthening the Cub brand.” Possible suitors for the Cub Foods chain could be Hy-Vee or Kroger, which does not currently have a presence in the Twin Cities market but has long eyed it. With the Albertsons/Rite Aid Merger officially off, Albertsons also might also take this opportunity to use capital freed from the deal to kick the tires on one of Supervalu’s retail chains. 

Ahold Delhaize USA

In the second quarter of fiscal 2018, net sales at Ahold Delhaize USA decreased 0.3% at constant exchange rates; adjusted for the timing of the Easter holiday, net sales were up 0.8%. Comps, excluding fuel, decreased 0.1% but adjusted for the timing of Easter increased 1%. Price inflation during the quarter was 1.6%, reflecting a lower level of promotional activity (higher pricing) compared to last year. Online sales in the U.S. increased 7.7% at constant exchange rates to €182.0 million (US$216.8 million), supported mainly by growth in same-day, third-party delivery and Hannaford To Go. Companywide, online sales were up 23%, keeping the Company on pace to reach about €5.00 billion in online sales by 2020. Online sales represent just 1.2% of total Company sales and 2% of total U.S. sales. However, volumes were weak at certain U.S. brands, particularly Stop & Shop, the Company’s largest business in the U.S.

During a subsequent conference call with analysts, CEO Franz Muller announced plans to update its Stop & Shop format. Mr. Muller stated, “There will be a lot of innovation there on fresh meals, on ready-made meals, ready-to-cook, ready-to-eat meal kits, different types of packaging sizes, healthier food. That’s all very much geared toward fresh formats across all the categories.” He noted that 20 Stop & Shop stores will have the new format implemented by the end of the year.

In other news, Ahold Delhaize will reportedly reduce the number of e-commerce platforms it has in the U.S. The Company is said to be “looking for partnerships in a bid to stabilize its position in the online groceries market.”Ahold Delhaize’s U.S. chains, such as Stop & Shop and Giant, traditionally have operated their own platforms but, in a logical move, the Company “now plans to consolidate web sales under its Peapod online delivery service.”CFO Jeff Carr says Ahold Delhaize also will be integrating the Peapod platform “with the stores and our loyalty cards.” Toward that end, the Company recently announced the launch of Peapod Digital Labs, which will specialize in enhancing the Company’s e-commerce offering to keep up with changing consumer preferences. The new organization will also oversee the Peapod brand. Ahold Delhaize USA will start to build out Peapod Digital Labs in the coming months and expects it to be operational by the end of the year.

Petco

On August 7, Petco announced an expansion into the Canadian market through a partnership with Canadian Tire. Canadian Tire will offer Petco’s assortment of food, treats, supplies and accessories in Canada, both online and in stores. This month, Canadian Tire shoppers will have access to Petco’s own WholeHearted brand, with additional Petco products added to Canadian Tire’s pet department in September.

Aldi

Aldi is increasing its fresh food offerings by 40% via a nationwide rollout through 2019. With an emphasis on fresh, organic and easy-to-prepare options, 20% of products in every ALDI store will be replaced. As previously reported, Aldi is in the midst of an accelerated growth plan, investing more than $5.00 billion to remodel and expand its store count to 2,500 by the end of 2022. The Company reported that it is more than halfway through its remodel investment, which includes a new store layout to accommodate more fresh foods with additional refrigeration space, part of its initial plan. Aldi is hoping the store renovations will help it move beyond its image as a no-frills discounter. 

In other news, Aldi will open a 20,000 square-foot store in Gardena, CA this fall. 

Kroger

Last week, Kroger announced that it is exploring strategic alternatives for its Turkey Hill business, including a potential sale. Turkey Hill produces a full line of iced teas, fruit drinks, milk, frozen dairy treats and a variety of ice cream at its Conestoga, PA manufacturing and distribution facility. 

In other news, Kroger lowered prices at its Pick ’n Save, Metro Market and Copps stores (all banners of its Roundy’s subsidiary). The extent of the price cuts and number of products affected were not disclosed. The initiative is part of the Restock Kroger plan, which aims to “redefine” customers’ shopping experiences. According to the Company, “Roundy’s continues its investment in its 106-store network throughout Wisconsin.” It has made other updates at its Wisconsin properties in recent years, including offering curbside pick-up at 50 locations with plans to add more. Grocery delivery is also offered to about 80% of its Wisconsin network.

Kroger has closed all 14 of its remaining Raleigh and Durham, NC stores, eight of which will be rebranded to Harris Teeter. The Company does not have a timetable for the Harris Teeter conversions or when the stores are expected to reopen. The number of layoffs as a result of the Triangle closures was larger than originally estimated, at about 1,650, compared to the 1,500 it initially announced. Food Lion is acquiring one store in Raleigh, which is scheduled to open in early 2019.

Schnucks

Schnucks will open a new store in Maplewood, MO on August 22. The renovated 57,600 square-foot store was a former Shop ‘n Save, which closed at the end of June after a decision not to renew its lease. Schnucks is also building a new store in Warrenton, MO, expected to open later this fall.

ShopRite

Last week, ShopRite opened a new 45,000 square-foot store in Lake Ronkonkoma, NY in a former Waldbaums that closed six years ago. The store is one of three stores vacant as a result of A&P’s bankruptcy. The other two will open in Riverhead this fall and Port Jefferson Station, both on Long Island, by early 2019.

Ingles

Ingles reported third quarter sales increased 5.1% to $1.03 billion, as sales rose in every retail product category. Comps, excluding gasoline and the effect of last year’s extra Easter sales, increased 1.8%, driven by higher customer transactions and transaction size. Operating income rose 0.4% to $29.78 million. Net income more than doubled to $24.5 million, reflecting a $10.6 million tax benefit from U.S. tax reform. Capital expenditures for the year-to-date period were $120.5 million, focused on new stores and upgrades. The Company currently operates 200 stores, opening a net of one new store in the past year. It has $145.4 million available under its $175.0 million line of credit.

H.E. Butt

H.E. Butt plans to close one of its Houston, TX stores next month and convert it into an e-commerce warehouse to support its home delivery and curbside pickup businesses. According to published reports, the 28,000 square-foot store was not doing well in the neighborhood and was criticized for being too small with an inadequate selection. President Scott McClelland says that he is “committed” to bringing a better store to the zip code but that in the meantime it is important to develop capacity to service the growing number of customers taking advantage of the retailer’s e-commerce offerings.

Meijer

Meijer is seeking approval to build a new store in Delavan, WI. Meijer opened its first store in Wisconsin in 2015 and currently operates ten in the state. Meanwhile, Meijer will open a new, 37,000 square-foot prototype store in Grand Rapids, MI on August 29. The smaller urban store, which will operate under the Bridge Street Market banner, is part of a mixed-use redevelopment site, and will be primarily a grocery store.

McDonald's

McDonald’s has opened a new 19,000 square-foot prototype restaurant in Chicago, IL, replacing the Rock ‘n’ Roll McDonald’s. The new modern location features touchscreen ordering kiosks, flatscreen menus, fast WiFi, and plugs to charge mobile devices. Customers can also order food at a traditional counter. There is a separate coffee counter with pastries. McDonald’s has announced plans to open seven new restaurants in Chicago over the next two years. It is in the process of updating the city’s 93 locations.

Wendy's

Wendy’s second quarter sales increased 28.3% to $411.0 million, driven by increased rental revenues related to Franchise Flips completed in 2017, and same-restaurant sales growth of 1.9% in North America. The Company reported operating income of $71.5 million, compared to $17.6 million last year, resulting from system optimization losses of $43.1 million related to the DavCo-NPC transaction in 2Q17 and prior-year reorganization and realignment costs related to the Company’s G&A savings initiative. Net income was $39.9 million, compared to a $1.8 million loss last year. During the quarter, the Company had 36 global restaurant openings and an increase of 23 net new units. The Company now expects 2018 global net new unit growth of1.5% (1% growth in North America and 10% growth in International). The Company said it is expanding its third-party delivery platform, offering it in about 40% of its North American restaurants. The number of Wendy’s restaurants on the delivery platform, which was introduced in December, is up 25% from the end of the first quarter, and the Company is expanding the delivery rollout ahead of schedule. Wendy’s partners with DoorDash in the U.S. and SkipTheDishes in Canada.

CVS Health

CVS Health announced results for its second quarter and six months ended June 30. Quarterly revenue in the Pharmacy Services Segment increased 2.8% to approximately $33.25 billion, while revenue in the Retail/LTC Segment increased 5.7% to $20.67 billion. Total comps increased 5.9%, and pharmacy comps increased 8.3%, driven by the increase in pharmacy comp prescription volumes, partially offset by continued reimbursement pressure and a negative impact of approximately 275 basis points due to recent generic introductions. Front-store comps declined 1%, including an unfavorable impact of approximately 90 basis points from the shift of sales associated with the Easter holiday, as well as softer customer traffic, partially offset by an increase in basket size.

Reflecting a $3.90 billion goodwill impairment charge taken in the second quarter related to its long-term care business due to slower-than-anticipated growth, the Company revised full-year GAAP operating profit to be down 39.25% to 40.75%, from down 0.25% to up 2.75%. The Company also revised full-year GAAP diluted EPS from continuing operations to $1.40 to $1.50, including the goodwill impairment charge, from $5.11 to $5.32. The Company narrowed adjusted operating profit growth to down 0.75% to up 0.75% from down 1.5% to up 1.5%, and narrowed and raised the mid-point of the range for full year Adjusted EPS guidance to $6.98 to $7.08 from $6.87 to $7.08. Management said the Aetna merger is still being reviewed by regulators, but it expects to close the transaction in the second half.

Hy-Vee

Allina Health System will open its third clinic inside a Hy-Vee in Robbinsdale, MN, as part of a partnership established earlier this year. Allina expects to open two more locations in the fourth quarter and another early next year. In April, Allina opened locations at Hy-Vee stores in Lakeville and Eagan. Hy-Vee also has in-store clinic deals with Entira Family Clinics, St. Francis Regional Medical Center and Mayo Clinic.

Costco

Costco’s July sales increased 10.1% to $10.59 billion. Comps, excluding the impact of foreign exchange and gas prices, increased 6.4%, consisting of growth of 6.6% in the U.S., 5% in Canada, and 7.1% in Other International. E-commerce sales surged 21.6%. For the first 48 weeks of fiscal 2018, sales rose 12.1% to $127.40 billion, and total comps increased 6.8% (7.4% in the U.S., 4.1% in Canada, and 7.3% in Other International). E-commerce sales rose 33.1%. 

Amazon

Published reports indicate that Amazon plans to open primary care clinics for employees at its Seattle, WA headquarters.Amazon has been eyeing new possible openings in the healthcare market for over a year. The Company reportedly met with several primary care providers before deciding to make the effort an internal project.Amazon also is working with Berkshire Hathaway and JPMorgan Chase to form an independent health care company to serve their employees in the U.S. In other news, Amazon is reportedly planning a high-tech fulfillment center at an old ConAgra site in Garner, NC. Construction is expected to begin shortly. 

J.C. Penney

J.C. Penney is opening baby shops in 500 existing J.C. Penney stores that are strategically located near former Babies “R” Us locations. The Company is looking to claim some of the Babies “R” Us sales up for grabs following the recent liquidation of Toys “R” Us. Starting August 30, J.C. Penney will sell in-store items including cribs, high chairs, strollers, and car seats that were formerly sold on its website only. Other retailers looking to increase their baby product sales include Walmart, which recently revamped the baby section of its website; it has also increased the number of baby products it sells by 30,000 in the last year. BuyBuy Baby, which operates about 120 stores and is a subsidiary of Bed Bath & Beyond, offered to help those with Babies “R” Us gift registries recreate them at its stores. Target expanded its private-label brand Cloud Island with more diaper bags and crib sheets.

Camping World

Camping World’s second quarter sales increased 13% to $1.45 billion due primarily to a 5.1% increase in comps, which came on top of a 10.6% increase in the same period last year. Additionally, the Company opened 84 new locations, including 54 Gander Outdoors units. EBITDA was essentially flat at $147.3 million, while EBITDA margin fell 130 basis points to 10.2% due to SG&A and gross margin deterioration. TTM EBITDA margin was 8.5%, down from 9.3% for the same period last year. Interest expense increased 53.5% for the quarter, and TTM interest coverage dropped to 4.5x, which remained adequate. 

House of Fraser and Sports Direct

On August 10, House of Fraser, the U.K. department store chain owned by Chinese conglomerate Sanpower, entered administration (generally, the U.S. equivalent of bankruptcy), and hours later Sports Direct announced it had acquired the business and assets for £90.0 million (US$115.0 million). Sports Direct, which already held an 11% stake in the chain, acquired all of the U.K. stores, the brand, and all stock. Sports Direct also has stakes in House of Fraser rivals Debenhams and French Connection. Prior to entering administration and the Sports Direct acquisition, House of Fraser revealed that it had lost a proposed £70.0 million investment from China-based C.banner International Holdings, which owns London toy retailer Hamleys. C.banner said a slump in its own share price rendered the transaction “impracticable.” House of Fraser announced in June that it was shuttering 31 of its 59 stores across Britain and Ireland as part of a restructuring plan that has since been abandoned. Sports Direct has yet to indicate what will happen to the store base but said, “We will do our best to keep as many stores open as possible.” According to a statement from Sports Direct, House of Fraser had gross assets of £946.3 million and generated a profit of £14.7 million during the fiscal year ended January 2017. Similar to American retailers, British retailers with high store counts are struggling against fierce competition from Amazon and discounters, and the country is also experiencing weak household spending due to economic uncertainty related to Britain’s pending exit of the European Union in 2019.

Essendant and Staples

Essendant issued an update on its unsolicited acquisition offer from Staples. Management said it entered into a confidentiality agreement with Staples which enables the two companies to begin discussions. Additionally, Essendant indicated that Staples received an executed commitment letter from Wells Fargo Bank for a $1.10 billion asset-based credit facility and a $75.0 million FILO loan facility. Essendant stated that the proceeds of these facilities, together with Staples’ cash on hand and available borrowings under Staples’ existing ABL facility are sufficient for Staples to consummate the acquisition, including acquiring all of the remaining common stock of Essendant that it does not own, and refinancing Essendant’s debt. Essendant also said that as of May 5, the end of Staples’ first quarter, Staples had $728.0 million of undrawn borrowing capacity under its $1.20 billion ABL facility and $240.0 million of available cash on hand. Management also noted that its agreement to acquire Genuine Parts Company’s S.P. Richards unit (which provides office supplies) remains in effect, and the board has not changed its recommendation that Essendant’s shareholders vote in favor of that transaction. The pace with which these acquisition proposals are proceeding highlights the need for consolidation within the office supply retail industry, stemming from reduced industry-wide demand as well as competition from mass merchandisers and internet retailers. Both Staples and Essendant are currently highly leveraged, and the additional transaction-related debt will likely result in a more highly leveraged successor, even considering the impact of operational synergies.

The Home Depot

The Home Depot’s second quarter sales increased 8.4% to $30.46 billion, and comps were up 8%, with U.S. comps up 8.1%. Operating income rose 9.8% to $4.90 billion. CEO Craig Menear commented, “Not only did our seasonal business rebound from the first quarter, but our overall results exceeded our expectations.” At the end of the second quarter, the Company operated 2,286 stores nationwide and in Canada and Mexico. Based on year-to-date performance, the Company updated its fiscal 2018 sales guidance, now expecting sales to grow 7%, up from prior estimates for 6.7% growth; comps are anticipated to increase 5.3%, up from prior estimates for 5% growth. The Company also raised its EPS guidance for the year, now expecting EPS growth of 29.2% to $9.42, up from previous expectations for EPS growth of 28% to $9.31.

DSW

DSW opened a new store in Las Vegas, NV that is half the size of a typical DSW and includes new concepts based on the Company’s Columbus, OH innovation lab store. Innovations include a “video tunnel” escalator down to the sales floor, and a “shoevator,” or shoe elevator that essentially serves as a giant shoe vending machine. While the 11,500 square-foot store size is smaller than the average 20,000 square-foot unit, it continues to provide a full assortment of brand name and designer shoes and accessories. The Company’s innovative efforts are aimed at driving traffic and acquiring new customers. DSW is also testing services such as nail bars, repair services, and custom inserts at its lab store in Columbus.

Indigo Books & Music

Indigo Books & Music’s first quarter sales decreased 0.5% to C$205.4 million. Online sales continued to grow across all categories, in books and general merchandise, with highly successful promotional campaigns driving meaningful increases in e-commerce traffic and average order value. The retail channel experienced expected downward pressure due to a number of stores undergoing renovations and the closure of a few underperforming stores as part of the Company’s retail transformation, while renovated stores continued to deliver double-digit growth. As a result of this double-digit growth, the Company is accelerating the roll out of its new store concept, including the opening of its first location in the U.S. Additionally, the Company is launching operations in its new Alberta distribution center. However, as a result of the Company’s investment in strategic initiations, including store renovations and expanding its distribution facilities, operating loss widened 198.5% to C$20.9 million. Commenting on the quarter, CEO Heather Reisman said, “This quarter marks the beginning of the most aggressive investment period in our history. We are making major investments in our Canadian retail network, we’ve just opened our new Calgary distribution center, we continue to make meaningful investments in our digital platform and we are poised to open our first U.S. store. As with any period of major investment, this has put temporary pressure on our profitability. Based on the tremendous response to our new concept stores and the growth we are seeing online, we are confident this period of investment will solidify our position as a valued retailer.”

Cinemark

Cinemark’s second quarter sales increased 18.4% to $889.1 million. Admissions revenues increased 13.1% to $508.9 million and concession revenue increased 16.4% to $305.3 million. Attendance grew 10.1% to 76.4 million patrons, average ticket price rose 2.8% to $6.66, and concession revenues per patron increased 5.8% to $4.00. Adjusted EBITDA rose 29.8% to $221.6 million. CEO Mark Zoradi stated, “We are thrilled to have delivered multiple records across all revenue categories, net income, and Adjusted EBITDA. Given the all-time high box office that the North American industry celebrated in the second quarter and first half of the year, we remain bullish on full-year 2018 box office potential, while our enthusiasm for the 2019 film slate continues to grow.” As of June 30, the Company’s aggregate screen count was 5,998; the Company has commitments to open eight new theatres and 59 screens during the remainder of 2018 and 16 new theatres and 146 screens subsequent to 2018.

Party City

Party City announced the expansion of its digital reach with a pilot program to sell select product assortments on Amazon. This program broadens Party City’s existing e-commerce offering. The Company will launch the pilot program in advance of Halloween and will initially offer select products focused largely on the costume category. Although this is currently a pilot program, Party City anticipates expanding its offerings later this year to include products for Christmas and New Year’s celebrations, with further expansion possible in 2019.

On August 9, Party City announced that one of its stockholders, THL PC Topco, L.P., intends to offer for sale 10 million shares of its common stock. THL will receive all of the proceeds from this offering.

Second quarter sales increased 3% to $561.0 million. Retail sales increased 2.9%, driven primarily by square footage growth from store acquisitions. Brand comps inched up 0.1% despite headwinds from a shift in the timing of Easter (1Q18 versus 2Q17). Excluding the shift, brand comps rose 1%. Gross margin increased 40 basis points to 41%. Continued strong gross margin expansion in retail, due to increased manufactured share-of-shelf and the benefit of retail productivity efforts and positive product mix, was partially offset by a decline in wholesale segment gross margin, due mostly to increased freight and distribution costs, higher distribution center wages and emerging commodity cost inflation. Adjusted EBITDA was roughly unchanged at $96.6 million. In July, the Company acquired 16 franchise stores in Pennsylvania for $18.8 million. Party City’s retail operations include 950 party supply stores throughout North America operating under the Party City and Halloween City banners.

The Shade Store

The Shade Store, known for its customized window treatments, signed a definitive agreement to be acquired by Leonard Green & Partners. The chain is being purchased from Great Hill Partners, which acquired a majority stake in the Company in 2013 and partnered with the retailer’s co-founders. Financial terms of the deal were not disclosed. Founded online in 2006, The Shade Store has grown to more than 60 showrooms nationwide, with a product line that includes shades, draperies and blinds. The transaction is subject to customary closing conditions and is expected to close during the third quarter of 2018.

Casper

Online mattress seller Casper is planning to open 200 physical locations within the next three years across the U.S. Casper opened its first permanent store in New York earlier this year, using it as a test for future growth. Management indicated it has tested different formats to determine the right setup for its business, including testing temporary shops at shopping malls and within street-level retail across the country. The 200 permanent locations will allow the Company to sell directly to customers, while it continues to distribute through Target, Nordstrom and Amazon. Casper’s growth comes as a wave of e-commerce brands such as Bonobos, Warby Parker and Untuckit are expanding their store bases. For online mattress retailers, brick-and-mortar stores also provide shoppers the opportunity to touch and feel products before they buy. While Casper does not disclose revenue figures, it is believed to generate more than $1,500 per square foot at its existing locations.

Toys "R" Us

A joint Chapter 11 Plan and Disclosure Statement was filed by the Toys Delaware and Geoffrey Debtors (Toys “R” Us, DIP). The Plan provides that the Term DIP Facility will be repaid in full, and prepetition secured lenders will receive all remaining value in the Toys-Delaware estate, subject to certain fixed and contingent amounts to be allocated to the administrative claims distribution pool. Only administrative claimants that do not opt out of the settlement agreement will be entitled to receive their pro rata share of the administrative claims distribution pool. In addition, a trust will be established to hold causes of action that Toys-Delaware, Toys “R” Us, Inc., and their respective estates might have against the Debtors’ directors and officers. Non-released claims will be satisfied from the proceeds available under the D&O liability policy, and the proceeds will be shared between holders of administrative claims who do not opt out and the prepetition secured lenders. Additionally, holders of administrative claims are entitled to any residual value that might be available if the prepetition secured lenders are paid in full. General unsecured claims against the Toys Delaware estate shall receive no distribution, except to the extent there is any residual value available after secured creditors, allowed administrative claims, and priority tax claims are paid in full. A hearing on the Disclosure Statement is scheduled for August 30.

Samuels Jewelers

On August 7, Samuels Jewelers filed Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. The bankruptcy petition lists $117.0 million in liabilities, including $84.0 million owed to Wells Fargo, $10.0 million owed to GB Credit Partners, and $23.0 million in trade debt. The Company is currently talking to several parties interested in acquiring the 120-store chain, which has roots dating back to 1891. While the Company is pursuing a going concern sale, it has also enlisted Gordon Brothers and Hilco as consultants to help sell off excess inventory. CEO Farhad Wadia indicated that most of the stores are profitable, and that they all continue to operate as usual. The Company is aiming to significantly reduce its debt during the bankruptcy process. For the fiscal year ended March 31, Samuels generated $112.0 million in sales but suffered an operating loss of $14.9 million. In addition, business was negatively impacted by scandal involving Gitanjali Group, the chain’s owner. In February 2018, India’s Central Bureau of Investigation announced it filed charges against Gitanjali Group and managing director Mehul Choksi, along with nephew Nirav Modi, for allegedly defrauding Punjab National Bank and other financial institutions of $2.00 billion. As a result, Samuels lost a major source of supply and funding, and the investigation caused vendors to become wary about working with Samuels. Based in Austin, TX, Samuels Jewelers operates in 23 states under the names Samuels Diamonds, Samuels Jewelers, Schubach Jewelers, Rogers Jewelers, and Andrews Jewelers. The chain previously filed Chapter 11 in 2003, 1997 and 1992.