June 12, 2019
On June 10, Sportco Holdings, DIP, the parent of Ellett Brothers, LLC, filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The Honorable Laurie Selber Silverstein was assigned to the proceedings, which have been designated as case number 19-11299. Documents in the filing state that SportCo’s board made a determination that “filing the Chapter 11 case to pursue an orderly liquidation of the Debtors’ assets was in the best interest of all stakeholders.” The Debtors filed a motion to authorize interim access to $15.0 million of a $30.0 million DIP Facility to be provided by Bank of America, N.A.
Over the last 18 months we have reported on writedowns taken by Prospect Capital Corporation to its Secured Second Lien Term Loan, due November 16, 2019, as well as various lawsuits filed against the Company. Click here to request case updates.
Kohl's Corp. announced plans to wind down its Off/Aisle concept. The stores are expected to close August 3, click here to request a list of the closing locations.
On June 6, it was reported that Barnes & Noble was in the final stages of being acquired by the hedge fund, Elliott Management Corp. as the lead bidder. On June 7, the Company announced an agreement to be acquired by Elliott Advisors (UK) Limited, an affiliate of Elliott Management, in an all cash transaction valuing Barnes at $683.0 million, including debt (approximately $129.3 million as of third quarter ended January 3, 2019). The Company’s stockholders will receive $6.50 per share, representing a 42% premium to the closing share price of the Company’s shares on June 5, 2019, one day prior to rumors of a potential transaction. The deal has been approved by the Company’s board, including founder and chairman, Leonard Riggio. The acquisition is expected to be completed during the third calendar quarter of 2019, subject to regulatory approvals and other customary closing conditions. Elliott’s acquisition of Barnes follows its June 2018 acquisition of Waterstones Booksellers Ltd., a UK and Ireland bookseller with 293 locations. Following the completion of the transaction, Barnes and Waterstones will merge, with James Daunt, CEO of Waterstones, assuming the role of CEO of the combined entity, which will be based in New York. The equity component of the transaction will be financed with cash by Elliot. The debt component (Barnes’ credit facility borrowings) will be financed by the merged Company’s new credit agreement. This includes a $700.0 million asset-based revolving credit facility from Wells Fargo, National Association and Bank of America, and a $125.0 million FILO asset-based revolving credit facility from Wells Fargo, National Association, Carlyle Global Credit Investment Management and Pathlight Capital. The Company did not comment on the post-merger capital structure of the new entity. Click here to request a list of Barnes & Noble Future Openings and Closings.
White Paper - Private Equity In Retail
After a record setting year for global private equity (PE) fundraising in 2017, the 2018 tally was a little more muted. There are several factors that contributed to this, including higher prices for deals, volatility in the capital markets, trade tensions, Brexit, and the possibility of a recession. With the economic expansion trend now entering its tenth year, there could be some wariness in the sector about the future of deal making. For 2018, Ernst & Young (EY) reports global PE fundraising totaled $682.00 billion, down 12% from last year’s final count of $775.00 billion. The top 10 funds commanded about 17% of the capital raised. Our U.S. Private Equity Review offers an analysis of the state of the market, including notable retail deals from the past year, as well as a charted list of nearly 40 U.S. firms, their total assets, select retail holdings and deal activity.
YM Inc. announced it is re-launching retail outlets branded Charlotte Russe across the U.S., with five of 100 planned locations opened on June 5. YM, Inc., which operates more than 560 stores across North America, purchased the Charlotte Russe brand in March as part of the Chapter 11 proceedings. The five retail locations are located in Southland Center in Michigan, Cumberland Mall in Georgia, Willowbrook Mall in New Jersey, Park City Center in Pennsylvania, and Monmouth Mall in New Jersey. Click here to request a list of Future Openings.
Conversations with a lawyer in the case indicate that during negotiations with Charlotte Russe, YM had considered acquiring a number of the leases in addition to the intellectual property. Ultimately YM did not acquire any leases as part of the bankruptcy proceedings, however, the lawyer notes that YM may have separately negotiated with some of the landlords outside of the proceedings. Therefore it is not clear if the stores which are the subject of the YM’s announcement are some of its existing units with new signage, or they are Charlotte Russe, DIP leases acquired through YM’s own independent negotiations.
Amazon plans to open 10 brick and mortar pop-up shops throughout the U.K. under the “Clicks and Mortar” banner. The move will give more than 100 small online businesses an opportunity to sell in a brick and mortar location. The new stores are in partnership with Enterprise Nation, a network of small businesses and business advisers; Direct Line for Business, a business insurance product provider; and Square, provider of tool for businesses and individuals to participate in the economy. They will sell homeware, health and beauty, food and drink, and electronics products. The pop-ups will also enable customers to see and try out products from online-only brands. The first store opened in Manchester last week. Amazon says the pilot scheme will run for one year to test the viability of the concept.
On June 24, Amazon will discontinue its Amazon Restaurants food delivery service in the U.S. Amazon Restaurants first launched in Seattle back in 2015 and was expanded to more than 20 U.S. cities and later to London, though Amazon ended the program in London this past November. Last month, Amazon led a $575.0 million investment in British meal delivery company Deliveroo. Amazon will also shut down Daily Dish, a workplace lunch delivery service that launched in 2016, on June 14.
Yesterday, Amazon opened its second New York City Go store in Manhattan. The 1,700 square-foot store offers ready-to-eat meals and snacks, Amazon meal kits, and coffee. The first New York City Amazon Go store opened in May.
Transform Holdco LLC / New Sears announced it was acquiring the 42% of Sears Hometown and Outlet Edward Lampert’s ESL fund doesn’t already own for $2.25 per share or approximately $21.5 million. Under the terms of the merger agreement, Sears Hometown has a specified period of time in which it can market and sell its Sears Outlet and Buddy's Home Furnishing Stores businesses to a third party for not less than $97.5 million. If the Outlet Segment is sold in accordance with the terms of the merger agreement, it will not be acquired by Transform in the acquisition of Sears Hometown. The closing of the transaction is expected to take place in the third quarter. When Lampert sold 60% of Sears Hometown in 2012 he received about $450.0 million including fees. Click here to request Sears Future Openings & Closings.
Duluth Holdings is more than half way through opening the 15 stores scheduled to open during fiscal 2019 (click here to request a list of future openings). The Company opened its 54th store in Madison, AL on June 6, on top of three stores opened in May (Danbury, CT, Rogers, AR, and Jacksonville, FL), one in April (Spokane, WA), and three in March (Wichita, KS, Katy, TX, and Friendswood, TX). The Company is expected to report first quarter results on June 13.
In a registration statement filed with the SEC on June 10, Grocery Outlet announced the launch of its initial public offering of 17.2 million shares of common stock, priced at $15.00 – $17.00 per share. Grocery Outlet has applied to have its common stock approved for listing on Nasdaq under the symbol “GO.” Grocery Outlet intends to use net proceeds from the offering to repay the $148.5 million term loan outstanding under its second lien credit agreement; any remaining funds will be used to repay a portion of the $723.2 million term loan outstanding under its first lien credit agreement.
On May 31, Rouses Markets opened a new store in Daphne, AL, marking its 63rd location. The 53,000 square-foot store is the Company’s eighth in lower Alabama.
Five Below reported first quarter sales growth of 23.1%, to $364.8 million, driven by comp growth of 3.1% and the opening of 39 new stores over the past year. It now operates 789 stores in 36 states. Operating income decreased by 1% to $24.5 million, primarily due to tax reform-related investments that began in 2Q18, the start-up costs of the new Southeast distribution center, and a new lease accounting standard. Net income increased 17.7% to $25.7 million.
Looking ahead at fiscal 2019, which includes the impact of new tariffs, the Company expects sales of $1.865 billion – $1.885 billion, comp growth of 3%, net income of $175.9 million – $179.9 million and the opening of 145 – 150 new stores (click here to request a list of future openings).
Hudson’s Bay Company announced that its board has formed a special committee of independent directors to review a proposal received June 10 from a group of HBC shareholders looking to take the Company private for C$9.45 per share in cash. The proposed transaction represents a premium of 48% to HBC’s closing share price on the Toronto Stock Exchange on June 7, and a premium of 39% to its 20-day average closing price. The group of shareholders, which collectively owns about 57% of outstanding common stock, includes individuals and entities related to Richard A. Baker (governor and executive chairman), Rhone Capital, WeWork Property Advisors, Hanover Investments, and Abrams Capital Management. The special committee is comprised of David Leith, Stephanie Coyles, Wayne Pommen, Earl Rotman, and Matthew Rubel. It has retained Blake, Cassels & Graydon LLP as legal counsel and J.P. Morgan Securities as financial advisor to assist in the review.
In other news, HBC entered into definitive agreements to sell the Company’s remaining stake in its German real estate joint venture, and divest its related retail joint venture to its partner, SIGNA, along with assumption of certain obligations, for a total consideration of C$1.50 billion ((€1.00 billion). The transaction is expected to close in the fall. A portion of net proceeds will be used to repay its outstanding $436.0 million term loan. Upon close, HBC will completely exit its German operations. As part of the transaction, HBC will assume ownership of the Netherlands retail business, and release SIGNA from its 50% back-to-back guarantee of certain obligations of Hudson’s Bay Netherlands. SIGNA will assume German liabilities from HBC. HBC is reviewing its options for the Netherlands business, which has been underperforming.
Nordstrom announced plans to close its Northgate location in Seattle, WA on August 9, 2019. The store has been in operation for nearly 60 years and is one of Nordstrom’s oldest locations. The Nordstrom Rack location at that mall will remain open. However, a significant portion of the mall is being demolished to make room for a new NHL team, two hotels, and office space. Click here to request a list of Nordstrom Future Openings & Closings.
Sprouts Farmers Market will open its second Central Florida location in Oviedo on June 19. Its first area store opened in Winter Park last fall. The Oviedo location will be 30,000 square feet; it is one of five stores in the U.S. with a new design that places produce at the center of the store and provides more space for customers at the Market Corner Deli. The Company plans to open more than 30 locations nationwide this year.
Raley’s began construction on a new store in Truckee, CA. The 40,000 square-foot store will feature an extensive assortment of fresh, healthy food, including natural and organic offerings, as well as an in-store casual dining experience.
Aldi will open a new store in San Diego, CA, marking its 1,900th unit in the U.S. The store is part of a $3.40 billion investment to expand to 2,500 stores nationwide by the end of 2022.
Ahold Delhaize’s Giant Food Stores opened a 68,000 square-foot replacement location in State College, PA. Simultaneous to the opening, the Company closed a nearby, 20 year-old store.
Costco reported May sales growth of 5.9% to $11.67 billion. Total Company comp growth, excluding fuel and foreign exchange, rose 4.3%, consisting of growth of 4.4% in the U.S., 3.9% in Canada, and 4.8% at Other International. E-commerce sales increased 19.9%. Click here to request a list of Costco Future Openings.
A U.S. bankruptcy court judge recently signed an order granting Kona Grill, Inc., DIP authority to enter into an asset purchase agreement and the approval of bid procedures in connection with a sale of substantially all of their assets. The Debtors currently operate 27 restaurants in 17 states and Puerto Rico. Williston Holding Company, Inc. agreed to acquire the Debtors' assets in exchange for $20.3 million, plus the assumption of certain liabilities in the aggregate approximate amount of $5.1 million. Higher and better offers must be submitted by July 18 and an auction will take place on July 23. In addition, the court has set a July 25 hearing to consider approval of the sale to the successful bidder.
The judge also signed a final order authorizing the Debtors to incur post-petition senior secured indebtedness in an amount up to $39.2 million.
Last week, Empire Company Limited, parent of Sobey’s, announced the locations of six additional FreshCo store investments in British Columbia as part of its discount format expansion into Western Canada. This follows five successful FreshCo openings in B.C. and Manitoba earlier this spring. In fiscal 2018, the Company announced plans to expand FreshCo into the West by converting approximately 25% of its underperforming Safeway and Sobeys locations, over a five-year period. President and CEO of Empire Company, Michael Medline, stated, “Western Canada is responding extremely well to our smaller box discount format.” The Company opened its first FreshCo in Western Canada in Mission, B.C. on April 25, 2019, quickly followed by two store openings in Winnipeg, Manitoba on May 2. Two additional FreshCo stores opened in Richmond, B.C. on May 16 and two more stores will open in Surrey, B.C. in July 2019.
Also on June 4, Empire announced that the Sobey’s Urban Fresh Metcalfe store in Ottawa, Ontario will convert to a Farm Boy.
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.