October 9, 2018
On October 5, Mattress Firm, DIP filed a voluntary prepackaged Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. The Honorable Christopher S. Sontchi was assigned to the proceedings, which has been designated case number 18-12241. The Debtor stated that funds will be available for distribution to unsecured creditors. Management said the Company is taking this action to strengthen its balance sheet and optimize its store footprint. To facilitate the store optimization plan, the Company has filed motions with the Court seeking authority to reject up to 700 leases. An initial group of approximately 200 stores were shuttered immediately. Decisions about additional store closings will be made in the next few weeks. A&G Realty Partners is assisting the Company with its store closing and lease restructuring program. In conjunction with its prepackaged restructuring plan, Mattress Firm received commitments for approximately $250.0 million in Debtor-In-Possession financing, which, subject to Court approval, will be available to support its ongoing operations during the Chapter 11 proceedings. The $250.0 million DIP Facility consists of a $150.0 million ABL DIP Facility and a $100.0 million DIP Term Loan. The ABL DIP Facility is being provided by Barclays Bank and Citizens Bank, the Company’s ABL lenders; the DIP Term Loan is being provided solely by Barclays. The Company also obtained commitments for $525.0 million of senior secured credit facilities, enabling it to emerge from Chapter 11 and support operations thereafter. Mattress Firm expects to complete the prepackaged restructuring process within the next 45 to 60 days. Coverage of the proceedings have now been moved to our Insolvency Support Center.
Amazonwill increase its minimum wage to $15 for all full-time, part-time, temporary, seasonal employees across the U.S., effective November 1. The new minimum wage will benefit more than 250,000 Amazon employees, as well as over 100,000 seasonal employees who will be hired at Amazon sites across the country this holiday. However, it has been noted that the increase will come at the expense of monthly bonuses and stock awards for hourly workers. Amazon confirmed it was phasing out its stock-grant program and incentive pay. Amazon said the stock-grant program, which would vest in 2020 and 2021, would be replaced by a direct stock-purchase plan by the end of 2019.
Amazon’s minimum wage hike puts added pressure on retailers ahead of the holiday season. Walmart earlier this year announced its plans to boost its starting wage to $11, while Target has said it plans to raise its minimum wage to $15 by 2020. Costco raised its minimum wage to $14 an hour earlier this year in June.
In other news, Amazon plans to open a new Amazon 4 Star brick-and-mortar store in Berkeley, CA, in a space formerly occupied by Crate & Barrel. The first store under the concept opened earlier this month in New York’s Soho neighborhood, featuring only products that have been highly rated by shoppers on Amazon’s website, across a broad range of categories. An opening date for the new location has not been disclosed.
Yesterday, Amazon opened a second 1,200 square-foot cashier-less Amazon Go brick-and-mortar store in Chicago, IL, in the center of the city’s financial district. It is the second of its kind to open in Chicago in less than a month, and the fifth store Amazon has opened. A third Chicago Amazon Go will open “soon” in the Ogilvie Transit Center, a site that will allow Amazon to tap into the large suburban commuter workforce that flows through that transportation hub. The Company has said it will move quickly to open additional Amazon Go stores not only in Chicago but in San Francisco and New York City, where there are high-density downtown business districts.
Sears Holding Corporation
Today, Sears Holdings Corporation announced that it named Alan Carr, CEO of Drivetrain LLC, a corporate restructuring firm to its board as an independent director. Mr. Carr has experience with complex financial restructurings and has served as a director of reorganized businesses in the U.S. and Europe. An interesting addition to the board, given the September 24 proposal from ESL to the Company suggesting restructuring $1.10 billion in debt and selling $3.25 billion in real estate and other assets. Sears has not provided an update on the proposal, and is facing a looming $134.0 million debt repayment on October 15 in the face of what the Company characterizes as “near-term liquidity restraints.”
Published reports indicatethatSears Holdings Corporation is closing at least six Sears stores and five Kmart stores ahead of the holidays. The Company had cut its store count to 866 stores as of September 13, down from 1,980 stores in 2013.
Tesco reported interim results for the first half of fiscal 2018/2019. For the first half ended August 25, the Company generated revenue of £28.30 billion, up 12.5% over the same period last year. The U.K. and Republic of Ireland led the charge, with revenue up 17.7% on a 3.8% improvement in comps. The Company’s other two segments, Central Europe and Asia, both reported negative sales growth at -2% and -5%, respectively. The sales decline was driven by negative comp growth in Central Europe of -2% and Asia at -4.8%. Tesco has turned its full attention to the discount grocery segment, opening up its own line of stores under the Jack’s banner to compete with Aldi and Lidl. If approved, the Company will face increased competition from the J Sainsbury/Asda merger. The proposed merger would create an entity that would vault over Tesco for the number one market share positon in the U.K.
Sedano’s Supermarkets has partnered with Takeoff Technologies to build “the world’s first robotic supermarket,” a dedicated fulfillment center that will serve the online needs of 14 Sedano’s stores in the Miami, FL market and offer pickup services at those stores. The technology is expected to launch in the upcoming month. Customer orders will be placed via an app and carried out by Takeoff’s automated “micro-fulfillment center,” with the support of Sedano’s employees. AI-enabled robots assemble full supermarket orders of up to 60 items in just a few minutes – a fraction of the speed and cost of current manual picking options. Takeoff’s objective is to develop “hyperlocal” fulfillment centers that have one-eighth the footprint of a typical supermarket. Takeoff is currently working with five regional and national retail chains in the U.S. and has several sites in development to deploy in 2019. Sedano’s operates a total of 34 Hispanic-themed supermarkets in Florida.
United Natural Foods (UNFI)
United Natural Foods (UNFI) provided further details regarding the proposed financing required for the Supervalu acquisition. As we reported on September 4, the Company has closed on a new $2.00 billion ABL revolver maturing August 2023, of which up to $1.20 billion will be used in the acquisition. In addition, the Company has negotiated a new $2.05 billion senior secured term loan facility maturing December 31, 2025. Together, the two sources of funds will primarily be utilized to fund $1.35 billion for Supervalu’s equity and $1.97 billion of existing debt to be refinanced.
Ahold Delhaize’s Giant Food Stores plans to introduce a new concept, format, and brand name for urban neighborhoods. The store, which will be located in downtown Philadelphia, will be called “Giant Heirloom Market” and will open next year. The first store will be about 9,500 square feet and feature a produce chef to prepare fruits and vegetables on demand. The assortment will include fresh, seasonal and local products; sampling and demonstrations will “foster exploration and encourage creativity in the kitchen.” The new location is one of several stores planned for Philadelphia.
In late 2017, the Company suspended the rollout of its Bfresh brand of smaller-format, urban-focused grocery stores, which average about 10,000 square feet. Ahold opened its first Bfresh in Allston, MA in September 2015. According to the Company’s website, two Bfresh stores are currently in operation, one each in Allston and Somerville, MA. In November 2017, the Company closed its 3,700 square-foot Everything Fresh grocery store that it opened in December 2014 as a prototype for smaller-format stores.
Meanwhile, Stop & Shop unveiled a new look starting with 21 stores in the Hartford, CT area. The refresh represents a $70.0 million capital investment to improve the in-store experience with a focus on delivering fresher, fast, local and healthy options. Hartford will serve as a test market for the brand to pilot features like an in-store smoker, taco stations, and expedited checkout. Stop & Shop is also investing heavily to lower prices on thousands of items that customers purchase most, while offering a larger assortment of private-label items such as Nature’s Promise. Stop & Shop’s new look includes a modernized store format and a new logo.
Wendy's Restaurant of Canada
Wendy’s Restaurant of Canada is seeking franchise business partners to expand the brand throughout Quebec. It currently has over 360 locations throughout Canada, including 12 in Quebec.
Carolls Restaurant of Canada
Over the past two months, Carrols Restaurant Group completed the acquisition of a total of 43 Burger King restaurants including two in Detroit, MI, three in Virginia, one in West Virginia, 10 in South Carolina, and two in Georgia.
The Company also reported that third quarter restaurant sales increased 4.1% to $296.9 million. Comparable restaurant sales increased 1.6%, compared to an increase of 7.5% in the prior-year period, negatively impacted by approximately 0.5% due to Hurricane Florence.
Walmart is acquiring an online plus-size fashion brand called Eloquii Design Inc. Terms were not disclosed. Eloquii also operates five retail stores. Its executive team, including CEO Mariah Chase and its 100 employees, will continue to be based in Long Island City, NY and Columbus, OH. In recent years Walmart has been highly acquisitive, purchasing Jet.com for more than $3.00 billion two years ago as well as smaller online brands such as Bonobos and Moosejaw.
On October 2, the Bankruptcy Court filed a notification that at the conclusion of the auction for the going concern assets of Brookstone, DIP, a joint bid of $72.7 million submitted by Bluestar Alliance, LLC and Apex Digital Inc. was determined to be the successful bid. Accordingly, Bluestar and Alliance will purchase 33 of Brookstone’s 34 airport stores, along with its IP assets, and trademark rights in China. GOB sales at all 103 of the Company’s retail stores concluded September 30.
VP Corp. & The Rockport Group
VF Corp. announced it is selling its surfwear brand, Reef, to The Rockport Group, a portfolio company of private equity firm Charlesbank Capital Partners since August 2018. Terms of the deal were not disclosed. The transaction is expected to close later this month, after which Reef will operate as an independent brand under The Rockport Group and maintain its Carlsbad, CA headquarters. VF Corp. previously spun off its denim business in August, into a separate, yet-to-be-named company that includes the Lee and Wrangler brands as well as its outlet business. VF Corp. also recently sold off Nautica (bought by Authentic Brands) and Licensed Sports Group (bought by Fanatics). While the Company continues to unload brands, it has also acquired other brands, including workwear label Williamson-Dickie, performance wear label Icebreaker, and running shoe company Altra. Published reports indicate that VF is likely to further expand its outdoor and athleisure portfolio through acquisitions.
Genuine Parts Company
On October 3, Genuine Parts Companyannounced that Alliance Automotive Group, the Company’s wholly-owned automotive distribution company based in London, U.K., completed the acquisitions of two automotive businesses, U.K.-based Platinum International Group Limited and TMS Motor Spares Ltd. Platinum is a value-added battery distributor in the automotive, industrial, marine and leisure markets, with nine U.K. locations and one in the Netherlands. The Platinum acquisition was effective October 2 and is expected to generate estimated annual revenues of US$75.0 million. TMS Motor Spares is an automotive parts distributor, with 17 locations in Scotland and seven in England. This acquisition was effective August 31, and the Company expects the acquired business to generate annual revenue of US$30.0 million.
Toys "R" Us
A group of lenders filed a motion to cancel a planned auction of Toys “R” Us, DIP’s intellectual property. The filing stated that bids for the assets from outside investors “were not reasonably likely to yield a superior alternative.” The lenders now plan to reorganize the Company’s assets and form a new holding company, to be known as Geoffrey LLC, which will control the Toys “R” Us and Babies “R” Us brands and maintain the current license agreements, as well as the e-commerce assets. The holding company will be controlled by certain of the Company’s debtholders, including Solus Capital and Angelo Gordon. Plans include opening stores in the U.S., in conjunction with various partners. Geoffrey LLC is expected to own the rights to the brands globally, except in Canada, which was bought earlier this year by Fairfax Financial Holdings.
Costco’s fourth quarter sales increased 5% to $44.40 billion. Total comps, excluding gas and currency exchange, rose 7.2%, consisting of growth of 7.8% in the U.S., 4.6% growth in Canada, and 6.9% growth in Other International. E-commerce sales rose 26.3%. Net income increased 13.5% to $1.04 billion for the quarter and rose 17% to $3.13 billion for the fiscal year, boosted by a $41.0 million tax benefit in the first quarter.
The Company said it expects to report a “material weakness in internal control” in its upcoming fiscal 2018 10-K annual report, related to general information technology controls in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes. The Company expects the remediation of this material weakness will be completed prior to the end of fiscal 2019. The news pushed Costco’s shares down 5.5% to close at $218.82 Friday. Its stock has since partially rebounded, closing at $223.93 yesterday.
The Company added a net of 21 warehouse clubs during fiscal 2018, bringing its total count to 762, including 527 in the U.S. and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, two in Spain, one in France, and one in Iceland. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea and Taiwan.
In other news, according to published reports, Costco is looking to acquire up to one million square feet of distribution space in west and northwest Houston, TX. As of August 2018, Costco owns land at four of its Houston-area retail locations, including Katy, Humble, North Gessner and the future Cypress store, appraised at $46.8 million. The Company has eight Houston-area stores. In the U.S. and Puerto Rico, Costco owns the land and building for 416 of its 514 stores, according to its 2017 annual report.
QuikTrip entered the San Antonio, TX market on October 4, the first of many planned units for the area. The Company has acquired 18 lots in and around San Antonio since December and expects to open around 60 convenience stores in San Antonio and 40 in Austin, with a few between the two cities. According to the Company, QuikTrip recently decided to expand beyond the Dallas area, where it has more than 100 stores, due to the region’s population growth and high number of commuters. The Company operates more than 700 convenience stores across 11 states.
Dick's Sporting Goods
Dick’s Sporting Goods is opening two new Dick’s Sporting Goods stores and two Golf Galaxy locations this month. The first two openings will be a Dick’s store in Spokane, WA and a Golf Galaxy store in Dublin, CA this weekend, followed by both Dick’s and Golf Galaxy stores in Greendale, WI the weekend of October 26 – 28. Once all locations open, there will be 733 Dick’s Sporting Goods stores and 96 Golf Galaxy stores operating in 47 states, see below for Store Concentration Map. During the first half of fiscal 2018, Dick’s opened 13 namesake locations. Including the four stores opening later this month, the Company will have opened 17 of the 19 Dick’s stores slated to open during fiscal 2018.
The Fresh Market
Last Thursday, The Fresh Market opened a new 21,000 square-foot store in south Charlotte, NC. The store replaces an existing, 15,000 square-foot Fresh Market in the same development, which opened 27 years ago and was the Company’s first Charlotte location.
On October 5, a new, 9,600 square-foot Trader Joe’s supermarket opened in Calabasas, CA, in a space previously occupied by a Babies ‘R’ Us. Nearby Trader Joe’s stores are located in Agoura Hills and Thousand Oaks. The Calabasas store represents the Company’s 180th location in California.
On October 4, Publix opened the first of five planned locations for its GreenWise Market format. Located in Tallahassee, FL, the 29,000 square-foot GreenWise store focuses on convenience and healthy lifestyles, offering natural, organic and specialty foods including fresh prepared items. The four other GreenWise stores will be located in Lakeland and Boca Raton, FL; Mount Pleasant, SC; and Marietta, GA and are slated to open in 2019. In March 2017, the Company announced plans to “reignite” its GreenWise store concept. GreenWise is also the name of a Publix brand launched in 2003 that includes organic products. It currently has three GreenWise Market stores in Palm Beach Gardens, Boca Raton and Tampa, FL and is looking for additional locations across its operating areas.
Natural Grocers by Vitamin Cottage
Natural Grocers by Vitamin Cottage will open a store in Tigard, OR on October 17. The Company operates 12 stores in Oregon.
Wegmans has reduced plans for the store size of a new store in Cary, NC, from 130,000 square feet to about 100,000 square feet. According to a Wegmans representative, “the Company has adopted a smaller footprint for new stores to meet the demands of the changing marketplace.”
ShopKo is reportedly closing a store in northern Clifton, TX. The location is holding a liquidation sale and is expected to close in December. Shopko’s store in Comanche is also holding a liquidation sale in preparation for its closure in December. Shopko currently has 15 locations in Texas.
Appliance Factory & Mattress Kingdom
Denver, CO-based Appliance Factory & Mattress Kingdom opened its third Midwest location in Cincinnati, OH, bringing its total store count to 19 locations. The new showroom occupies a former La-Z-Boy Furniture Gallery and joins locations in Columbus, OH and Terre Haute, IN. CEO Chuck Ewing said the Midwest expansion is intended to take advantage of the void left by hhgregg, which closed its stores last year. Appliance Factory was founded in 1986 by Mr. Ewing; it specializes in closeouts, uncrated merchandise and other opportunistic buys to offer “aggressively discounted” goods. The chain later added Mattress Kingdom sleep centers and branched out into contract appliance sales, in-home appliance repair, home remodeling and digital signage. The Cincinnati store was acquired in August and had a soft opening on October 1, with a grand opening scheduled for October 17; it is staffed by former hhgregg employees.