January 16, 2019
Today, Specialty Retail Shops Holding Corp, DIP, (Shopko) announced that it, along with its subsidiaries, has filed voluntary petitions for Chapter 11. The petition was filed in the U.S. Bankruptcy Court in the District of Nebraska. A judge has not yet been assigned to the case, which has been designated as case number 19-80064.
Shopko has obtained up to $480.0 million debtor-in-possession (DIP) financing from certain of its prepetition secured lenders, led by Wells Fargo, N.A. as administrative agent. The incremental liquidity will be used to pay suppliers and other business partners and vendors during the Chapter 11 process, in accordance with customary terms.
Shopko has announced that it will be closing an additional 38 stores, relocating over 20 Optical centers to freestanding locations, and conducting an auction process for its pharmacy business (click here to request a list of closures). Throughout this process, all Shopko Optical centers and pharmacies remain open as well as all other stores.
Additionally, the Company said it was encouraged by the performance of the four freestanding Optical centers that were opened in 2018, and plans to continue to grow its optical business by opening additional freestanding Optical locations during 2019.
Shopko is also filing customary first day motions that, once approved by the court, will allow the Company to transition its business into Chapter 11, including, granting authority to pay wages, salaries, benefits, and pay vendors and suppliers in the ordinary course for authorized goods and services provided on or after the filing date.
"This decision is a difficult, but necessary one," said Russ Steinhorst, Chief Executive Officer. "In a challenging retail environment, we have had to make some very tough choices, but we are confident that by operating a smaller and more focused store footprint, we will be able to build a stronger Shopko that will better serve our customers, vendors, employees and other stakeholders through this process."
According to an internal Whole Foods email, Whole Foods is discontinuing expansion of the Whole Foods 365 banner. The Company has suggested that the 12 existing ‘365 banner’ stores (see below for Store Concentration Map) will remain in business, though it is unclear if they will eventually be converted to the Whole Foods banner.
Meanwhile, published reports indicate that Whole Foods is considering former and closing Sears and Kmart store sites, which average 159,000 and 95,800 square feet, respectively, as possible locations as it expands its physical footprint in the U.S.Sources indicate that last month Whole Foods managers visited a site in Utah that was previously a Kmart store that closed in mid-2017. Whole Foods, whose average store is 38,000 square feet, has been looking to increase its store size in order to include other products, and to support online pickup services.
Google will lease a vacated mall in Los Angeles, CA – the Westside Pavilion – to use as office space. The Company will occupy 584,000 square feet of the center, which is being renovated and renamed One Westside.
Amazon is reportedly close to leasing about 10,000 square feet in the Chrysler Building in New York City. The Company already has NYC space at Hudson Yards and announced its new headquarters will be located in Long Island City. The news comes on the heels of an announcement that the Chrysler tower has been put up for sale by its owners Abu Dhabi Investment Council (ADIC) and New York developer Tishman Speyer.
Target announced that holiday comps (November and December) grew 5.7%, primarily on higher traffic. Digital sales were up 29% for the same period. The Company expects full fourth quarter comps to be around 5%.
In other news, the Company announced that CFO Cathy Smith will be retiring but will stay on in an advisory role through May 2020. The Company named Chief Human Resources Officer Stephanie Lundquist as president of food and beverage. Chief Marketing Officer Rick Gomez has added the title of chief digital officer.
Published reports indicate Gymboree Corp. may file its second formal restructuring in less than two years as soon as this week. As part of the process, Gymboree expects to shutter nearly all of the roughly 900 stores it operates under three banners, according to the reports. In December 2018, Gymboree started a comprehensive review of strategic options, which could include a sale or other transactions for its Gymboree, Janie and Jack, and Crazy 8 brands. The Company also said it planned to close its value-oriented Crazy 8 stores and “significantly” reduce the number of Gymboree store locations in 2019. The Company’s previous Chapter 11 filing occurred in June 2017, and it emerged in September 2017.
Chico’s FAS announced it will close at least 250 stores in the U.S. over the next three years, in an effort to “rebalance the mix between its physical store presence and its digital network.” Chico’s currently operates 1,431 stores in the U.S. and Canada. The closings will be across the Company’s three brands, Chico’s, Soma, and White House Black Market, and will primarily occur in 2020 and 2021 as leases expire. Chico’s has commenced a comprehensive review of its operations to improve efficiencies. The review will include an assessment of SG&A expenses and business processes across the entire organization.
Chico’s also updated its fourth quarter guidance and said sales and comps were trending better than its previous outlook. It now expects sales to decrease in the low double-digits, improved from prior expectations for sales to decline in the mid-teens. Fourth quarter gross margins are anticipated to decline by about 500 basis points from 2017, on the high end of its previous outlook for a 400 – 500 basis point decrease.
Chapter 11 Recap: The Second Half of 2018
Following a challenging first half of the year, the second half of 2018 served as the backdrop for another wave of retail bankruptcies and store closings, as a number of brick-and-mortar operators struggle to evolve within a retail sector facing increased online competition, shifting consumer preferences, maturing debt, and lack of competitive positioning. Several iconic brands headed to the bankruptcy court in the back half of the year, most notably Sears, which is fighting to avoid liquidation after 125 years in business. Our Chapter 11 Recap provides a look back at the previous six months of Chapter 11 activity from all 94 U.S. jurisdictions and presents the data by month, industry and state of primary operation.
P.F. Changs announced that it is being sold by its private equity owner Centerbridge to TriArtisan Capital Partners Inc. and Paulson & Co. Inc. Centerbridge had been evaluating a potential sale since July 2018 and the estimated sale price for P.F. Changs is about $700.0 million. The sale does not include the Pei Wei Asian Kitchen banner of approximately 200 units that was spun off in 2017, which Centerbridge will continue to own. According to an investor notice, TriArtisan and Paulson plan to refinance all of P.F. Chang’s debt, including a $317.0 million term loan due September 2020, a $300.0 million bond due June 2020, and other debt including revolver borrowings and secured notes. The deal is expected to close in the first quarter of 2019.
Captain D’s, LLC signed a franchise development agreement with Chris Benner and Ed Stokes of Trident Holdings LLC. As part of the agreement, Mr. Benner and Mr. Stokes acquired eight corporate-owned Captain D’s locations in Mississippi and will be developing 10 new Captain D’s throughout the state, as well as in key Southeast target markets including Louisiana and Georgia, over the next several years. Trident Holdings LLC signed its first agreement with Captain D’s in 2015, and has since become the brand’s largest franchisee, currently operating 33 restaurants across seven states. As part of this new agreement, Trident Holdings will also be adding Captain D’s sister brand Grandy’s to its portfolio, with plans to develop 10 new locations of the Southern-style quick service concept throughout the Southeast, beginning in Nashville. Benner and Stokes are also currently spearheading the brand’s growth in Virginia, opening their third restaurant in the state last month with an additional four new locations in the pipeline.
BMC Stock Holdings
BMC Stock Holdings acquired Barefoot & Company, which provides windows, exterior doors, hardware, specialty products and installation services to homebuilders in the Charlotte, NC metro area. Founded in 1971, Barefoot generated $52.0 million in fiscal 2018 sales. Terms of the deal were not disclosed. Headquartered in Raleigh, NC, BMC serves 45 metro areas across 19 states, principally in the South and West regions.
On January 10, Bojangles announced that shareholders voted to approve the Company’s acquisition by Durational Capital Management and The Jordan Company. Under the deal, which was initially announced on November 6, shareholders will receive $16.10 per share in cash. This values the Company at $735.0 million, or approximately a 1.1x revenue multiple and 10.5x TTM EBITDA. The deal is expected to close in the first quarter of fiscal 2019.
Costco’s December sales increased 7.8% to $15.42 billion. Comps, excluding fuel and foreign currency exchange, increased 7%, including growth of 7.1% in the U.S., 8.1% in Canada, and 5.7% in Other International. E-commerce sales jumped 23.9%. For the 18 weeks ended January 6, sales rose 9.5% to $52.99 billion, total comps increased 7.3% (8% in the U.S., 6% in Canada, and 5.5% in Other International), and e-commerce sales rose 27%.
Separately, published reports indicate that Costco’s Kirkland Signature products brought in more than $39.00 billion in 2018, making up almost a third of all Costco sales. That’s an increase of about 11% from $35.00 billion in 2017. The Kirkland brands offers clothing, food, sporting goods, HBC products, paper goods and supplements, among other things.
AggData Announces Key Milestones in Concert With 10-Year Anniversary
In celebration of its 10-year anniversary, AggData has announced several key company milestones, including the expansion of its retail location database to include more than 6,000 monitored companies and 5.5 million total locational records. The Company now maintains the largest international database with coverage in roughly 250 countries and territories.
CVS Health’s management presented at an investor conference last week, where it provided an update on its progress since completing its acquisition of Aetna in November. The Aetna takeover was valued at about $70.00 billion and was funded through a combination of cash, $40.00 billion in new senior notes, $5.00 billion of term loans and the issuance of about 274 million shares of CVS stock. The Company also assumed about $8.00 billion in Aetna debt, resulting in total debt increasing from $27.00 billion at the fiscal year ended December 31, 2017 to $76.00 billion.
In other news, CVS Health said Walmart is expected to leave the CVS Caremark PBM commercial and Managed Medicaid networks. If the split is completed, consumers with Caremark plans would not be covered for prescriptions filled at Walmart’s over 4,700 stores. “At a time when everyone is working hard to find ways to reduce health care costs, Walmart’s requested rates would ultimately result in higher costs for our clients and consumers,” said CVS Caremark President Derica Rice. The Company has requested Walmart continue to fill prescriptions as an in-network participating pharmacy through April 30. CVS said Walmart will continue to participate in its Medicare Part D pharmacy network, and Walmart’s Sam’s Club remains in the CVS Caremark pharmacy networks. Walmart is continuing its discussions with CVS Caremark and is “trying to find a solution that benefits all parties,” said a spokeswoman for the retailer. CVS does not expect Walmart leaving its PBM networks to have a material impact on 2019 financial results. CVS said it retains a large network of pharmacies, and that less than 5% of its members enrolled in affected plans use only Walmart for prescriptions.
J.C. Penney’s comps decreased 3.5% on a shifted basis and 5.4% on an un-shifted basis. The Company also reaffirmed its expectations to generate positive free cash flow in fiscal 2018, reduce inventory in excess of $225.0 million, or 8%, and end the year with liquidity in excess of $2.00 billion. Additionally, J.C. Penney will initiate three preliminary store closings this spring as part of an ongoing evaluation of its store portfolio occurring over the next few months. The evaluation includes assessing locations that may not meet required financial targets or represent a market opportunity to capitalize on a beneficial real estate asset. Further information related to future store closings will be shared on February 28 when the Company reports its fourth quarter and fiscal 2018 results.
In other news, the Company announced a series of leadership changes to take place over the coming months. Beginning January 21, Mike Robbins, current EVP of private brands and supply chain, will be appointed EVP, chief stores and supply chain officer. Truett Horne, an associate principal at McKinsey & Company, will join the Company as chief transformation officer. The Company also reported Andrew Drexler is resigning as chief accounting officer and controller to pursue another opportunity, effective March 31. J.C. Penney indicated that it is seeking to fill a number of key senior management positions, including a chief merchant, chief customer officer, SVP of planning and allocation, chief accounting officer and CFO.
Innovative Mattress Solutions LLC
On January 11, Innovative Mattress Solutions LLC, DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the Eastern District of Kentucky. The Honorable Gregory R. Schaaf has been assigned to the proceedings, which have been designated as case number 19-50042. The Company operates 142 retail stores under the trade names of Sleep Outfitters, Mattress Warehouse, and Mattress King, in West Virginia, Ohio, Kentucky, Indiana, Tennessee, Alabama and Virginia. The Company filed a motion for interim approval to use $6.0 million of a $14.0 million DIP Facility, to be provided by its primary supplier, Tempur Sealy International Inc. Management stated that it plans to close an unspecified number of stores and sell the remaining business as a going concern. Further details are not yet available. In Court documents, management attributed the business failure to overexpansion, which started in 2016. It should be noted that Mattress Firm, Inc., a competitor, filed a prepackaged Chapter 11 in October, also blaming overexpansion. Mattress Firm emerged from Chapter 11 on November 21. Coverage of the Innovative Mattress Solutions proceedings have now been moved to our Insolvency Support Center.
Albertsons Companies announced results for its third quarter ended December 1, 2018. Sales and other revenue increased 1.8%, primarily driven by a 1.9% increase in identical store (ID) sales, and higher fuel sales of $91.7 million, partially offset by the closure of 41 stores during the YTD period. Adjusted EBITDA improved 51.4% due to the sales growth, an improved gross margin and cost reduction initiatives. However, the Company now expects adjusted EBITDA for the full year to range between $2.65 billion – $2.70 billion, compared to original guidance of $2.70 billion, due to higher shrink rates and higher rent from recent sale leasebacks.
On January 8, the Company announced that it completed the sale and leaseback of five of its distribution centers to an unaffiliated entity for an aggregate purchase price, net of closing costs, of approximately $660.0 million.
Kohl’s Corporation’s comps on a shifted basis (reflecting the extra week this year), increased 1.2%. Comps have increased for five consecutive quarters. As a result of the solid holiday sales performance, management raised the low end of its fiscal 2018 earnings guidance by $0.15 per share. The Company now expects fiscal 2018 EPS of $5.50 – $5.55. The Company earned $5.12 per share in fiscal 2017. Kohl’s anticipates that fourth quarter results will be released on March 5. In other news, Kohl’s plans to close four “lower performing” stores this year, as well as its customer service center in Dallas, TX. Two of the locations are in New York (Rego Park and Valley Stream), while the other two are in Lenexa, KS and Houma, LA. However, the Company also plans to open four smaller stores this year, so its store count will remain at 1,158. Kohl’s did not indicate where the four new stores will be located. The smaller-format stores are roughly 35,000 square feet and have 60% less space and 60% less inventory than a standard Kohl’s store.
Bed Bath & Beyond
Bed Bath & Beyond’s third quarter sales increased 2.6% to $3.03 billion. Comps declined 1.8% and included strong sales growth from the Company’s customer-facing digital channels, offset by store sales that declined in the mid-single digit percentage range. Operating income declined 54.3% to $49.5 million. Despite this steep decline, the Company indicated that it is ahead of plan for its longer-term financial goals to moderate the declines in its operating profit and EPS in 2018 and 2019. The Company has been heavily investing in revamping its stores and digital platforms, as well as its loyalty programs. It has added more assortments to its stores and websites and has been developing its own brands to be introduced over the next two years. Based on preliminary presumptions, the Company believes that fiscal 2019 EPS will be $2.00, about the same as fiscal 2018, and it expects to achieve earnings growth by 2020.
The Company has identified about 40 Bed Bath & Beyond stores as working labs to test new assortments, visual merchandising, and other aspects of the in-store experience, with 18 already operating and contributing to sales, performing at a mid-single percentage rate better than other Bed Bath & Beyond stores. Another 40, mostly flagship stores, will shutter next year, and the Company plans to open 20 new locations, mostly under the buybuyBABY and Cost Plus World Market banners.
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PGA Tour Superstore
PGA Tour Superstore announced it will open at least six new stores in 2019, including its first two units in the Boston, MA area. The openings are part of an accelerated growth strategy to expand the Company’s brick-and-mortar presence by over 50% during the next three years. The Company currently operates 35 stores in 15 states across the U.S. CEO Dick Sullivan commented, “We have tripled our store count across the U.S. over the last several years and will continue to be opportunistic and aggressively invest in our brick-and-mortar business.” The below map identifies locations of the Company's future store openings; click here to request the list.
Meanwhile, management reported overall sales growth of 14% in 2018, fueled by strong comps and double-digit e-commerce growth. The Company serves about 7.5 million customers annually.
Sprouts Farmers Market
Sprouts Farmers Market announced nine new stores scheduled to open in the second quarter of 2019, marking its entry into three new states: Louisiana (Baton Rouge), New Jersey (Marlton) and Virginia (Herndon). New stores also include locations in Mesa, AZ; Jacksonville and Oviedo, FL; and Los Angeles, San Jose and San Luis Obispo, CA. Four of the new stores will feature an enhanced layout, which debuted last year in five locations and maintains center-store focus on produce. Sprouts, which currently operates more than 300 stores in 19 states, plans to open approximately 30 stores in 2019. Click here to request a list of future Sprouts locations.
Ahold Delhaize’s Giant Food Stores will debut its new grocery format, called Giant Heirloom Market, on January 27 in Philadelphia. The 9,500 square-foot store is the first of several locations planned for the city. The Company’s traditional stores average 45,000 square feet. The Heirloom store, originally set up to be a BFresh store, will feature local vendor partnerships, along with an array of traditional items, and both self and mobile checkout.
Meanwhile, the Company announced an update on its strategy for Delhaize Le Lion in Belgium. It plans to open 100 new supermarkets in the next three to four years and strengthen its online position. This year, Delhaize Le Lion will start a collaboration with bol.com, adding in-store bol.com pick up points for orders from the largest online retailer in the Benelux. Additionally, Albert Heijn Belgium will continue its expansion by opening 30 – 50 new supermarkets in Flanders in the next few years.
On January 9, Stater Bros. reopened three renovated store in Artesia, Highland and Menifee, CA.
Big Y is investing an estimated $46.0 million in a 232,000 square-foot expansion project at its distribution center in East Springfield, MA. The expansion will double the size of the current facility, bringing its total to 425,000 square feet. According to the Company, the expansion will provide capacity for the next 20 years, including to supply 20 new supermarkets. The Company’s primary supplier is Bozzuto’s; Big Y is Bozzuto’s largest customer.
Coborn’s will open its second Cash Wise location in Bismarck, ND on January 23, as part of its continued expansion of the banner. Features of the store will include The Kitchen, serving made-to-order entrees, sushi, and additional prepared food options. It will also have curbside pickup, a floral department and Cash Wise Liquor.
Meijer has purchased 28 acres in Delavan, WI, which it will use to construct a 159,000 square-foot grocery store and a 3,400 square-foot fuel station. The store will feature a full-service bakery and deli, a drive-thru pharmacy, and garden center.
Meanwhile, Meijer is in the process of remodeling its store in Muncie, IN. The Company is investing about $3.3 million to renovate the 211,300 square-foot store. As part of the remodel, the apparel department is slated to receive a Skechers concept shop.
In July, Walmart will open a newly built, 340,000 square-foot high-tech consolidation center in Colton, CA. It will be the first in the Company’s supply chain to receive, sort and ship freight. This automated technology will enable three times more volume to flow throughout the center and will help Walmart deliver the right product to the right store. The Company continues to expand its portfolio of high-tech distribution centers. In October, it announced it had broken ground on a tech-enabled perishable grocery distribution center in Shafter, CA.
Calvin Klein announced it will close its Madison Avenue store in Manhattan, NY this coming spring, as part of a new strategy to focus on its digital operations. The Company said it is evaluating options for future retail locations and will be unveiling new consumer experiences both online and in store. Calvin Klein is owned by PVH Corp.
84 Lumber is opening a 35,000 square-foot store in Brooksville, FL later this month. The Company previously operated a store at that location in the early 2000s, but it was shuttered as a result of the 2009 recession/housing market crash. 84 Lumber operates 15 locations in Florida, although the closest locations to Brooksville are in Ruskin and Plant City, both of which are more than 60 miles away.
This information contained in this newsletter is compiled from sources which Market Service Inc. does not control and unless indicated is not verified. Its contents are not to be divulged. Market Service Inc., its principals and writers do not guarantee the accuracy, completeness or timeliness of the information provided nor do they assume responsibility for failure to report any matter omitted or withheld because of their negligence.