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April 8, 2020

According to reports, Pier 1 Imports, Inc. expects to receive a bid that would keep a number of the Company’s stores open. Click here for more information.

Previously, the Court authorized Pier 1 Imports to temporarily stop paying landlords, suppliers, and shippers to preserve liquidity, until it can resume business operations. The Company negotiated consensual rent deferrals with certain landlords, stating that it is unable to pay $9.4 million of monthly rent until it can reopen its stores. Landlords at 225 of its 541 stores, or about 42%, have agreed, according to documents filed in the case. The deferrals vary in length; some landlords have only agreed to defer April rent at this stage, while others have agreed to defer up to four months of rent. In addition, landlords of 60 stores have agreed to a rent reduction. The order also applies to landlords who have not voluntarily consented to a rent deferral. On the other hand, Pier 1 will continue paying critical expenses, including employee benefits for furloughed workers, as well as some wages, insurance, trust fund taxes, and other corporate and professional costs. In recent weeks, the Company has furloughed employees, temporarily closed all 541 stores, and reduced salaries. Pier 1 has continued to fulfill orders from its website using a reduced number of staff members at certain distribution and fulfillment centers.

Amazon is planning to delay the Company’s biggest shopping event, its annual Prime Day. Typically in July, Prime Day could be postponed until at least August, due to the current logistical pressure on its business brought about by the increased volume arising from the coronavirus pandemic, and could cost Amazon nearly $100.0 million in sales, as excess devices may have to be sold at a discount. 

Amazon / COVID-19 Special Analysis

As part of our ongoing coverage of COVID-19, this Special Analysis examines how the coronavirus has affected Amazon, its sellers, and the U.S. consumer.


Kroger announced business updates in response to the impact from COVID-19. Management noted that after experiencing strong sales in February, the COVID-19 pandemic triggered a significantly greater uptick in sales across both physical retail stores and digital channels in March. The Company also noted it has proactively borrowed $1.00 billion under its revolving credit facility on March 18, as a precautionary measure to reduce reliance on the commercial paper market and preserve financial flexibility. Cash and temporary cash investments were approximately $2.30 billion, and there were no commercial paper borrowings outstanding immediately following the drawdown. Kroger has also decided to pause additional share repurchases during the fiscal first quarter. Based on recent trends, Kroger expects first quarter comps excluding fuel and adjusted EPS to be better than the annual growth rate provided in guidance for full year 2020.

Meanwhile, Kroger has begun limiting the number of shoppers allowed in its store by up to 50% of the recommended capacity to help shoppers and workers adhere to social distancing guidelines. BJ’s Wholesale and Walmart have taken similar measures. 

Published reports on April 2 stated that Neiman Marcus is stepping up preparations to seek bankruptcy protection. The Company reportedly began holding confidential discussions last week, after its 69 U.S. stores (43 namesake, 24 Last Call units, and 2 Bergdorf Goodman locations) had been closed since March 17. Weeks of store closures have resulted in a cash crunch, just before significant interest payments on portions of its more than $4.00 billion of debt are due starting April 15. Prior to last week, Neiman Marcus had reportedly received inquiries from creditors but had not yet commenced discussions about a possible bankruptcy. The Company may be able to avoid filing if creditors give Neiman Marcus an extension to pay the interest payments, similar to a deal it received last year under which it was able to persuade creditors to restructure debt without resorting to bankruptcy proceedings, pushing out due dates on its financial obligations.

On March 31, Stein Mart extended the temporary closure of all 283 stores indefinitely (stores have been closed since March 18). The Company furloughed most store associates and a significant number of associates in its supply chain network and corporate offices. In addition, the Company temporarily reduced the salaries of executive management by 20%, and associates not furloughed by a lower rate; the board has suspended its compensation. Stein Mart is working with vendors and landlords to negotiate temporary terms. 

On January 6, Town Sports International entered into an asset purchase agreement to acquire the studio business of Flywheel Sports, Inc. for an undisclosed price. On April 2, the Company delivered notice terminating its asset purchase agreement with Flywheel Sports, given the escalation of the COVID-19 pandemic. The $50.0 million Second Lien Secured Term Loan that Kennedy Lewis Investment Management (current owner of Flywheel Sports) committed to provide terminated automatically.

Transformco, parent company of Sears and Kmart, announced that in response to the COVID-19 pandemic it will temporarily close all Sears stores effective April 4 through at least April 30., distribution centers, and customer care will remain open. Sears Home Services will continue to repair essential appliances. Except where required to close by law or government order, Kmart stores and Kmart Pharmacy locations will remain open to provide essential products and services. The Company has also made the decision to temporarily furlough most Sears store hourly workers, salaried associates and the majority of its associates in Hoffman Estates and other corporate locations around the country. The Company will cover 100% of the premium costs through April 30 for all furloughed associates currently enrolled in Transformco’s benefits programs during this period. Click here for a list of recently effective and future permanent closures.

Yesterday, The Cato Corporation further extended the closure of all 1,298 U.S. stores until further notice (last week it extended the closures to April 16); stores have been closed since March 18. The Company also temporarily suspended its quarterly dividend and hiring, significantly decreased capital expenditures, eliminated all merit raises for the year and reduced CEO salary and board fees by 50%. The Company will not report March sales this Thursday and has delayed or canceled planned store openings. It is also managing inventory by aggressively canceling or delaying merchandise to align with current sales, and is evaluating extending payment terms for vendor invoices and suspending rent payments.

On April 1, Big 5 Sporting Goods exercised the accordion feature under its credit agreement, increasing the aggregate commitments from $140.0 million to $165.0 million. Additionally, the Company drew down additional amounts, increasing total borrowings outstanding to $143.0 million compared to $66.6 million outstanding at the end of fiscal 2019. Following this drawdown, the Company’s current cash position totals approximately $67.0 million, and we estimate remaining borrowing availability of approximately $20.0 million. At the Company’s option, the commitment may be further expanded to $200.0 million. The Company said it is pursuing expense reduction and cash preservation initiatives throughout the organization, and has suspended its quarterly cash dividend. On the Company’s website, it lists 110 of its 225 California stores, and all 19 New Mexico locations and 18 Nevada units, as closed since March 20. The remaining 115 California stores were temporarily closed but have since reopened. The Company operates 434 stores in 11 Western states.

On April 6, BJ’s Restaurants announced that it continues to operate all 209 of its restaurants under a take-out and delivery-only model, following the suspension of dine-in service. Management noted that the Company has seen higher off-premise sales, but overall revenues have decreased materially, resulting in its decision to temporarily lay off about 16,000 hourly restaurant employees (out of about 22,500 employed as of February 24). The Company plans to evaluate all restaurants regularly and may close certain locations if their off-premise sales are not adequate. Management also announced that it suspended payment of rent on leases for April; the Company is in discussions with landlords regarding further suspensions and/or rent restructuring. 

On April 2, Lululemon Athletica announced that its 478 stores across North America, Europe, Malaysia, Australia, and New Zealand, which have been closed since March 15, will remain closed for the foreseeable future. The Company has made the decision to continue paying its employees through June 1, whether stores reopen or remain closed. In addition, for the next three months the Company’s senior leadership team will reduce their salaries by 20%, and the board will forgo its cash retainer. These funds will go towards the newly established We Stand Together Fund to help Lululemon employees facing hardships at this time. The Company continues to manage its expense structure, capital investment, and store opening and remodel projects. Lululemon is also pausing its share repurchase program. Its website and mobile app remain operational across all regions. 

On April 2, Zumiez announced that its 718 stores across the U.S. (607), Canada (52), Europe (48), and Australia (11) will remain closed until further notice; stores have been closed since March 19. The Company continues to serve customers through its e-commerce website, and to support its full-time workforce either directly or through partnerships with local governmental programs.

However, Zumiez has suspended hiring, laid off virtually all part-time staff, eliminated substantially all planned fiscal 2020 bonuses and delayed the majority of merit raises. In addition, it lowered operating costs by eliminating non-essential items like travel and marketing, it reduced capital spend by delaying or cancelling select projects, reduced planned inventory receipts by cancelling or delaying orders, suspended rent payments while negotiating rent relief, extended payment terms for both merchandise and non-merchandise vendor invoices, and paused its share repurchase program. Zumiez ended fiscal 2019 with over $250.0 million in cash and no debt. 

Shake Shack provided an update on its operations that have been impacted by COVID-19. Comparable restaurant sales were down about 2% during the first two months of 1Q20, but in March they nosedived to a 29% decrease. The decline has been most prominent in the last two weeks of March, with an average drop of 70% across all Company-operated locations. Nine Company-operated locations are temporarily closed, and dine-in areas are closed at all remaining restaurants. Further temporary closures may occur if management evaluates that sales levels are not high enough to justify their continued operation. The Company has taken several measures to improve liquidity on top of its previous revolver drawdown of $50.0 million on March 24. About 20% of Shake Shack’s Home Office workers have been furloughed or laid off, and the remainder has taken salary reductions. A hiring freeze has been implemented, and the Company has reduced restaurant staffing significantly. Non-essential capex and new store construction has been suspended, as Shake Shack does not plan to open any new stores.

On March 31, The Children’s Place announced it is finalizing the execution of the accordion feature on its $325.0 million revolver. This would provide an additional $50.0 million of liquidity. All 795 U.S. and 121 Canadian stores have been closed since March 17 and will remain closed until further notice. As of April 5, all management and store associates have been furloughed. 1Q20-to-date (February 2 through March 31) digital sales are up double-digits compared to last year, and represent 35% of sales. CEO Jane Elfers will forgo her entire salary, independent directors have elected to forgo their cash compensation, and senior management will take a 25% pay cut until further notice. Other cost-reduction measures were taken, including the suspension of its capital return program, and the extension of payment terms with vendor partners. The Company is also evaluating its options on approximately 600 store lease events occurring in the next 12 months.

Walmart has reportedly put the sale of a majority stake in its U.K. grocery chain Asda on hold, to focus management’s attention on running the business amid unprecedented spikes in demand driven by the coronavirus. There is said to be no timetable for talks with bidders to restart. Stockpiling in U.K. lifted grocery sales to a record in March, and supermarkets worldwide have had trouble keeping essentials in stock.

Private-equity firms Apollo Global Management Inc., Lone Star Funds and TDR Capital each submitted first-round offers for Asda last month and had been invited to join the next round of bidding, people familiar with the process said in mid-March, just a few days after the virus reached pandemic status. A deal for Asda could value the business at more than 7.00 billion pounds (US$8.60 billion), according to one of the people, who asked not to be identified because the information is private. Click here for our Walmart Inc. FYE Report.

On April 3, Hobby Lobby announced the closure of all stores not already shuttered (it operates more than 900 locations) and the furlough of nearly all store employees and a large portion of corporate and distribution employees. Employees will maintain medical benefits through at least May 1, and the Company will pay the cost of employee premiums during the furlough period. On March 31, the Company had quietly resumed business in several states where it had been forced to temporarily close. The reopenings included stores in Ohio and Wisconsin, which both enacted shelter-in-place orders on March 24. Nearly all Hobby Lobby locations in those two states (all 19 in Ohio and 17 of 20 in Wisconsin) reopened after shutting down for just one week. Of the three stores closed in Wisconsin, at least one was forcibly shuttered by police; a similar incident occurred at a location in Jeffersonville, IN. In Colorado and North Carolina, which both enacted stay-at-home orders, Hobby Lobby insisted it was “essential” because it sells educational materials and products for home-based businesses. On April 2, the Company received a cease-and-desist order from a Dallas County judge, who insisted that arts and crafts retailers are not essential businesses. Violators are subject to a $1,000-a-day fine and six months in jail.

JoAnn Fabrics (870 stores) and Michaels Companies (1,274 stores) have managed to keep stores open for curbside pickup only at all locations. Hobby Lobby does not provide in-store pickup, but its e-commerce site remains operational. 

Brinker International recently provided an update on its operations. The Company said that less than 10 of its restaurants have been temporarily closed, with the remaining more than 1,200 locations operating on an off-premise only model. Management noted that initial results following the change indicate that its Company-owned Chili’s and Maggiano’s restaurants are generating 30% – 35% of prior-year Company sales. Delivery has accounted for 20% of sales, with online ordering representing 69% of all off-premise orders. Comparable restaurant sales at Company-owned locations grew 2.9% in the third quarter through March 8, but then flipped to a 5.9% decline from March 9 to the end of the quarter on March 25. 

Brinker has taken several actions to increase its financial flexibility, including reducing operating expenses such as marketing, general and administrative, and reduced salaries for the executive team. Share repurchases and dividends have been suspended, and capital expenditures have also been cut, following a pause on store remodels and new store construction. Based on the Company’s current level of sales and lower expenses, management anticipates a weekly cash burn of less than $10.0 million.

On March 30, the Company amended its $1.00 billion revolving credit facility, reducing its capacity to $800.0 million and increasing the interest rate on borrowings to LIBOR plus 1.95% until September 23, in exchange for a temporary suspension or reset of financial covenants. As of March 31, the Company had $137.0 million in cash on hand and total liquidity of $237.0 million, indicating $100.0 million in revolver availability.

In a March 31 filing with the SEC, private equity firm Allegro Merger Corp. conveyed that, in light of extraordinary market conditions related to COVID-19, it has terminated its previously announced merger agreement with TGIF Holdings, LLC, which would have taken it public. By backing out of the deal, Allegro will dissolve and will return funds to shareholders. TGIF had been struggling with falling comps going into the merger (first announced in November 2019) and $371.0 million in debt.

Earning Reports

Walgreens Boots Alliance (WBA) reported results for its second quarter ended February 29. 2Q20 sales increased 3.7% to $35.82 billion, up 4.1% on a constant currency basis. Effects from the COVID-19 pandemic were not material to overall 2Q20 results. Management noted that the impact of COVID-19 on March results will be broadly neutral, with revenue upside in the U.S. offsetting higher operational costs and significant sales declines in the U.K. In the U.S., WBA saw very strong sales in the first three weeks of March but is now experiencing declining sales trends, especially in quarantined areas. Adjusted operating income decreased 11.6% to $1.74 billion, mainly due to a lower pharmacy gross margin in the U.S. and higher bonus impact, partly offset by the benefit of cost cutting and the strong U.S. sales growth. The Company said it is still on target to deliver in excess of $1.80 billion in annual cost savings by FY22, but due to COVID-19 its fiscal 2020 outlook is now uncertain. The Company has expanded the use of drive-thru for certain health, cleaning, and grocery items, is offering free delivery, and has expanded its relationship with Postmates delivery to more than 7,000 U.S. stores.

On April 6, Walgreens entered into $3.10 billion of new revolving credit facilities. No borrowings are outstanding under these facilities. In addition, the Company has, subject to the satisfaction of certain conditions, extended a $1.00 billion facility scheduled to mature in 2020 to May 2021.

Walgreens is working to expand drive-thru coronavirus testing to 15 new sites in seven states, including Arizona, Florida, Illinois, Kentucky, Louisiana, Tennessee and Texas. The new testing sites will utilize Abbott’s new test, which delivers positive results in five minutes and negative results within 13 minutes. Walgreens plans to be able to test up to 3,000 people per day across these additional sites, which are expected to be activated beginning later this week. Click here to request the report.

The Cheesecake Factory provided a preliminary first quarter fiscal 2020 sales update. 1Q20 comp restaurant sales at The Cheesecake Factory restaurants are expected to be down approximately 13%. These results reflect quarter-to-date through February comp sales growth of 3%, which was above the broader casual dining industry trend during that period. March comp sales declined approximately 46%. The Company has seen off-premise sales recently accelerate 85% above the 4Q19 level. On an annualized basis, current off-premise sales would equate to more than $3.0 million per unit, on average. Currently, 30 locations across the Company’s concepts, including three Cheesecake Factory restaurants, are temporarily closed. Click here to request the report.

PriceSmart reported March net merchandise sales jumped 17.1% to $306.1 million, negatively impacted by 2.5% due to currency exchange. Comp sales rose 15.7%, negatively impacted by 3% due to currency exchange. For the YTD period, net merchandise sales increased 7% to $1.96 billion, and comps increased 2.6%. YTD Sales and comps were both negatively impacted by 1.2% due to currency exchange. CEO Sherry Bahrambeygui commented, “Although overall sales for the month of March 2020 increased significantly, driven by members stocking up primarily on food and essentials ahead of potential ‘shelter in place’ advisories, sales moderated and later decreased in the second half of the month. Toward the end of March, we experienced a noticeable reduction in traffic that we believe was driven by restrictive government mandates and consumer concerns about potential exposure.” To facilitate social distancing, the Company has created alternative means for shopping, including an online catalog that shows real time availability of products, as well as curbside pickup and home delivery by PriceSmart or through third-party delivery services. The Company is also launching a “Click and Go” service.

Over the past year, PriceSmart opened four new warehouse clubs, bringing its total store count to 45. The Company noted it will complete the construction of its warehouse club in Liberia, Costa Rica in May but postponed its opening. Additionally, it has decided not to suspend or not initiate construction of clubs on acquired land in Bogota and Bucaramanga, Colombia and in Jamaica.

Meanwhile, PriceSmart announced that it has promoted Michael McCleary to EVP and CFO; Mr. McCleary had been interim CFO since December 11, 2019.

On April 6, Tractor Supply rolled out contactless curbside pickup with dedicated parking for buy online, pickup in store (BOPIS). It also completed the nationwide rollout of same-day/next-day delivery. The Company plans to fill more than 5,000 full-time and part-time positions across its nearly 1,900 stores in 49 states and 8 distribution centers. The positions will be focused on increased customer service and safety in stores. The Company is also extending its previously announced $2-per-hour appreciation bonus to May 9 from April 25 and announced 100% coverage of COVID-19 medical treatment.

Tractor Supply reported 1Q20 sales increased 7.5% to $1.96 billion, and comps were up 4.3%. Starting in early March, the Company benefited from strong sales, as consumers stocked up on core everyday consumable, usable and edible merchandise categories, which more than offset the decline in cold-weather seasonal categories sales in January and February. March comps increased 12%, with key consumable categories up more than 20%, partially offset by declines in discretionary categories such as clothing, footwear, toys and gift items.

The Company’s e-commerce business experienced significant growth in March. Tractor Supply expects 1Q EPS of $0.69 – $0.71. As of March 28, the Company had more than $450.0 million in cash and cash equivalents and about $165.0 million in available liquidity through existing credit facilities. Share repurchase activity has been suspended, and the Company withdrew its fiscal 2020 guidance. Click here to request the report.