August 12, 2020
Today, Stein Mart, Inc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the Middle District of Florida. The Company expects to close a significant portion, if not all, of its brick-and-mortar stores and it has launched a store closing and liquidation process. Click here to request future case updates including store closing list.
By the end of August, Dick’s Sporting Goods will have opened 11 new stores, including four namesake locations, one combination Dick’s/Golf Galaxy, five Warehouse Sale clearance outlets, and one Overtime by Dick’s location (see chart below for details). The Warehouse Sales clearance outlets are pop-ups that offer deep discounts on customer-favorite footwear and apparel brands. The new Overtime by Dick’s format will offer an expansive assortment of apparel, footwear, and equipment from name brands at up to 90% off regular prices. New markdowns will be added throughout the year to keep inventory levels fresh. Following the openings, Dick’s will have 729 namesake stores, 96 Golf Galaxy stores, 10 Warehouse Sale locations, and four Overtime locations nationwide. Click here to request a list of future openings and closings.
Amazon and Simon Property Group have reportedly been in discussions about converting stores being closed by J.C. Penney and Sears into fulfillment centers. Both Penney’s and Sears are operating under Chapter 11 bankruptcy protection and are closing dozens of stores across the country. Penny’s has 63 stores in Simon malls and Sears has 11. Should Amazon DCs start replacing department store anchors and ultimately impacting foot traffic, in-line mall tenants would most likely seek changes in their co-tenancy agreements to lower their rents.
In the RTW Retailwinds bankruptcy case, the Debtors entered into a stalking horse asset purchase agreement, under which Sunrise Brands, LLC will purchase the Company’s e-commerce business and related intellectual property, including its websites, for $20.0 million, plus the assumption of certain liabilities. The agreement is subject to final approval by the Bankruptcy Court. Sunrise Brands is an online apparel retailer selling knits, sweaters, sportswear, outerwear, bags, and other lifestyle accessories. Documents in the case do not yet indicate the dates for qualified bids, an auction, or a sale hearing. Click here to request a list of future closings.
On August 5, Urban Outfitters announced that it plans to build a new 880,000 square-foot omnichannel distribution center in Wyandotte County, KS. This facility, which will be built on ancillary land at Kansas Speedway, will enable growth of its digital business at all of its brands, and reach digital customers more readily and efficiently. The Company expects to start this project in October, to be completed over the next four years, totaling approximately $350.0 million in capital expenditures.
Kroger announced the launch of a contactless payments pilot across its QFC division, located in Seattle, WA, allowing customers to use their mobile device for checkout. The pilot includes the acceptance of Apple Pay, Google Pay, Samsung Pay, Fitbit Pay, mobile banking apps, and contactless chip cards.
In other news, the Company’s home delivery service Kroger Ship has partnered with marketplace platform Mirakl. The partnership will add 50,000 items from third-party sellers to the Kroger lineup. New items will include organic merchandise, international food, housewares and toys. Kroger’s marketplace products are expected to launch this fall.
In the J. Crew Group bankruptcy case, management said it has reached agreements with landlords to improve lease terms on its J. Crew and Madewell store portfolio. Under the agreements, the Company expects to achieve cash savings of $70.0 million in 2020, which includes the benefit of one-time waivers and deferrals, and $60.0 million in 2021, assuming sales are in line with projections. The Company has reopened 458 stores, representing 95% of its total store fleet. The Disclosure Statement has been approved, and the hearing to consider confirmation of the Plan of Reorganization is scheduled for August 25. Click here for more information.
Delivery company DoorDash announced the launch of DashMart, a new type of convenience store, offering both household essentials and local restaurant favorites for delivery in 30 minutes. DashMart is currently available in Chicago, Minneapolis, Dallas, Salt Lake City, Phoenix, Redwood City, CA, and Cincinnati and Columbus, OH. The Company plans to launch in more cities across the country over the coming months, including San Diego, Baltimore, Denver, Sacramento, and Concord, CA. This latest strategy puts DoorDash in direct competition with many of its retail delivery clients, including more than 2,500 national convenience stores with which it currently partners.
Fairway Group Holdings Corp. filed a motion on August 5 seeking authorization to sell its store in Westbury, NY to Bogopa Enterprises for $900,000 in cash. The lease for the Westbury store will be assumed and assigned to Bogopa. The buyer will assume all cure costs up to $300,000 and is entitled to a $150,000 purchase price credit. The Debtors will be responsible for any additional cure costs but will retain the right to terminate the asset purchase agreement if the cure costs exceed $400,000. Bogopa previously agreed to purchase the assets of two other Fairway stores in Red Hook, NY and Douglaston, NY. On August 5, a judge overseeing Fairway’s bankruptcy proceedings approved both sales for a combined price of $3.8 million. Bogopa operates 26 Food Bazaar Supermarkets in the New York, New Jersey and Connecticut area.
Cumberland Farms, which was acquired last year by EG Group, opened a new store-within-a-store concept called Farmhouse Fresh To Go in Westborough, MA. It offers a wide variety of freshly made sandwiches, bakery products, and specialty coffee drinks. Cumberland Farms, which operates nearly 600 locations across the Northeast and Florida, plans to roll out Farmhouse Fresh To Go shops to several Cumberland Farms locations across New England by the end of the year.
In the J.C. Penney Company bankruptcy case, on August 8, the DIP lenders extended the deadline by which they must: (i) select a winning bid for the operating company (Opco), (ii) complete negotiations regarding terms of a go-forward transaction, and (iii) approve the business plan. The deadline was extended to tomorrow, from August 7. We previously noted that if the lenders do not approve the business plan, the Company could potentially be forced to liquidate. Concurrently, the first lien lenders extended the corresponding deadlines included in the Restructuring Support Agreement. Additionally, the status conference set for yesterday was rescheduled to tomorrow.Click here to request a list of closures.
Publix plans to close its two GreenWise Market specialty stores in Mount Pleasant and Lexington, SC on August 29. Both GreenWise Markets went into operation in 2019, with the 21,500 square-foot Mount Pleasant store opening on May 23 and the 21,400 square-foot Lexington store opening on December 4. The Company commented, “We have made the difficult decision to close both GreenWise Market locations in South Carolina. Both locations were acquisitions that fit our needs at the time of opening. However, as our concept has evolved, the locations have space constraints [approximately 21,000 square feet] that will not fit our current vision for GreenWise Markets.” Publix has announced the opening of three more GreenWise Markets, all in Florida. It plans to open a GreenWise unit in Fort Lauderdale, though no timetable was announced, and two more in Tampa and St. Augustine in 2021. Publix currently operates seven other GreenWise Markets in Tallahassee, Lakeland, Boca Raton, Ponte Vedra and Odessa, FL; Mountain Brook, AL; and Marietta, GA.Click here to request a list of future openings.
Dollar General is planning to expand with the opening of a traditional distribution center in Walton, KY and three DG Fresh cold-storage facilities in Bowling Green, KY; Ardmore, OK; and West Sacramento, CA. Representing an approximately $65.0 million investment, the Walton location will be the Company’s 18th traditional distribution center. Construction on the 630,000 square-foot facility is expected to begin next month, with the location expected to come online by January 2021. Dollar General currently operates more than 580 stores in Kentucky. The Company’s addition of three new DG Fresh facilities is part of its strategic, multi-phased shift to self-distribution of dairy, deli and frozen products. As of May, Dollar General was self-distributing to more than 9,000 stores from six DG Fresh cold storage facilities. Construction of the 160,000 square-foot DG Fresh facility in Ardmore, OK is currently scheduled to begin this fall, with completion slated for spring 2021. The facility is expected to provide dual distribution synergies with Dollar General’s traditional dry facility that opened in Ardmore in 1994. The Company is currently finalizing construction on its 200,000 square-foot DG Fresh facility in West Sacramento. The location will complement Dollar General’s West Coast distribution operations, which include a distribution center in Lebec, CA that opened in 2012. Operations for the DG Fresh facility in West Sacramento are expected to begin this fall, and the Company plans to begin construction of a 160,000 square foot DG Fresh facility in Bowling Green by this fall and complete the project by summer 2021. Click here to request a list of future openings.
Hy-Vee announced that all of its store locations that offer Hy-Vee Aisles Online grocery pickup now accept Supplemental Nutrition Assistance Program (SNAP) / Electronic Benefits Transfer (EBT) as payment at time of pickup. SNAP/EBT beneficiaries can shop online for groceries and collect their orders curbside at a Hy-Vee store. Pickup service is available at more than 250 Hy-Vee stores throughout its eight-state operating region. Hy-Vee cannot currently accept SNAP/EBT payment for home delivery orders.
In other news, Hy-Vee will open a new, 35,000 square-foot store in St. Peter, MN on August 18. Click here to request a list of future openings.
The Home Depot plans to open three distribution centers in the Atlanta, GA area over the next 18 months. The largest of the three facilities, due to open in the next few months in Locust Grove, will be a 650,000 square-foot distribution center that will focus on fast replenishment to stores in the Southeast. A new “flatbed delivery center,” set to open in Stonecrest in 2021, will offer same-day and next-day delivery of bulk and oversized orders to Pro and DIY customers. The third facility will be an order-fulfillment operation due to open in late 2021 in East Point, offering same-day and next-day delivery of the most popular products primarily ordered by institutional business customers for their maintenance, repair, and operations (MRO) needs. The new facilities will support increased demand by Home Depot’s professional and DIY customers for flexible delivery and pickup. The Company’s online sales jumped 80% during its 1Q ended May 3 and accounted for 15% of its total sales. In 2017, Home Depot announced a $1.20 billion investment to open about 150 supply chain facilities over a five-year period, with the goal of expanding its same-day and next-day delivery options to 90% of the U.S. population.
Wawa will close its store in Center City, PA due to challenges brought on from the COVID-19 pandemic. The store opened in September 2015.
Walmart has further delayed the launch its Walmart+ program, designed to compete with Amazon Prime’s subscription service. Walmart+ was initially scheduled to launch in late March or April but that was pushed back to July due to the pandemic. No further details on a new launch date have been provided, and it is unknown if the program will be launched nationally or initially on a regional level. Click here to request a list of future openings and closings.
Biglari Holdings is selling 15 Steak ‘n Shake restaurants the Company closed during the last 12 months. Keen-Summit Capital Partners LLC and its local partners at NAI Global have been retained to run a sale of the portfolio, with a bid deadline of August 31 and auction date of September 4. Steak ‘n Shake said it expects that additional properties will be sold by Keen-Summit Capital Partners through an auction next month. The locations being sold are in Alabama, Florida, Illinois, Indiana, Iowa, Michigan, Missouri, Ohio, Pennsylvania, and Texas, and range between 3,734 and 7,041 square feet.
King Kullen is selling its 60,000 square-foot headquarters in Bethpage on Long Island, NY. Terms were not disclosed. Ahold Delhaize and King Kullen terminated their merger agreement due to unforeseen changes resulting from COVID-19 pandemic.
In the Sur La Table bankruptcy case, the Debtors notified the Court that the successful bidder at the auction for substantially all of the Company’s assets was a joint venture between CSC Generation (an e-commerce business) and Marquee Brands LLC (a brand owner). The winning bid was $88.9 million.
During the auction, the successful bidder increased the guaranteed minimum number of store leases to be assumed from 40 locations to 50 locations. The stalking horse bidder, CF SLTD Holdings LLC (an affiliate of Fortress Investment Group and provider of the DIP Facility), was declared the backup bidder. The hearing to approve the sale was adjourned to tomorrow from yesterday.
On August 5, the Court entered final orders authorizing the Debtors to, among other things:
- Close 56 stores (click here to request a list). Shortly before the petition date, the Debtors closed five of the 56 stores and moved the inventory in those stores to other stores or the distribution center. They surrendered possession of the five stores to the applicable landlords and will not be conducting store-closing sales in those units. GOB sales have commenced at 51 stores, and they will conclude no later than August 31. The stores occupy an average of 5,800 square feet.
Earning Reports
COVID-19 led to a 28.4% increase in CVS Health’s 2Q EBITDA, although the Retail/Long-Term Care segment saw lower profits. The increase in EBITDA resulted in reduced benefit costs due to the deferral of elective procedures and other discretionary utilization in the Health Care Benefits (HCB) segment, partially offset by reduced volume and increased COVID-19-related operating expenses in the Retail/LTC segment. Total retail comps grew 2.6%, including a 4.6% increase in pharmacy comps and a 4.5% decrease in front-end comps. Although the pandemic continues to add a high level of uncertainty to its outlook, management went ahead and raised its EPS guidance (due to a favorable tax treatment) and its operating cash flow target to at least $11.00 billion. Management expects approximately $2.00 billion of COVID-19-related investments in FY20, of which about 40% was incurred in 2Q. Approximately $1.50 billion will impact HCB, including higher operating expenses, refunds, rebates and credits to support customers, members and clients. Looking ahead, HCB membership will be negatively impacted by higher unemployment and increases in Medicaid membership. For Retail/LTC, management expects approximately $400.0 million of COVID-19-related investments, with $240.0 million incurred in 2Q. Overall, the Company estimated COVID had a $525.0 million to $575.0 million impact on Retail/LTC 2Q results.
The Wendy’s Company announced results for its second quarter ended June 28 and provided an update on its operations during the COVID-19 pandemic. 2Q U.S. system-wide sales declined 4%, mainly attributable to a 4.4% decrease in comparable restaurant sales growth. Monthly comps returned to positive territory in June, with 5.1% growth, after the Company recorded 14% and 1.9% declines in April and May, respectively. This improvement was sustained going into the third quarter, as July comps were up 8.2%. As of August 2, 34 U.S. and 93 international restaurants remain temporarily closed, meaning 99% of U.S. restaurants and 90% of international restaurants are open for off-premise or dine-in service. 70% of restaurants have reopened dining rooms, and further re-openings will be conducted at each restaurant owner’s discretion, subject to local restrictions. The Company previously drew down $120.0 million in March and increased the capacity of the facility by $100.0 million in June, but as of the end of July had no outstanding borrowings.
Grocery Outlet’s 2Q sales increased 24.5% to $803.4 million, driven by comp growth of 16.7%. An increase in average basket size was partially offset by declines in store traffic. Adjusted EBITDA increased 34.7% to $60.6 million. For the 3Q period, quarter-to-date comparable store sales growth is tracking at approximately 10%.
During the quarter, the Company opened seven new stores, ending the quarter with 362 units in six states. Grocery Outlet currently expects to open 30 – 32 stores this year, with no closures planned. The Company continues to build its real estate pipeline to support 10% annual unit growth. Click here for a list of future openings.
Yesterday, Bed Bath & Beyond announced that while June sales fell 7%, July sales rose 2%; this was driven by robust online growth, up 80% in June and 70% in July. Cash flow was also positive in both months. Nearly all of the Company's 1,500 stores have reopened.
Bed Bath & Beyond also announced that it has lifted the suspension of its planned debt reduction, given its better-than-expected operating performance. The Company will commence a cash tender offer to purchase up to $300.0 million aggregate principal amount of its 4.195% Senior Notes due 2034 and 5.165% Senior Notes due 2044; there is a tender cap of $75.0 million and $225.0 million on the two sets of notes, respectively.
Casper Sleep’s 2Q sales increased 15.7% to $110.2 million. Direct-to-consumer revenue rose 5% to $81.0 million, driven by strength in the e-commerce channel, partially offset by the loss of sales in the Company’s retail stores due to temporary closures. Stores were closed on March 17 and began reopening on May 14, based on local government guidance. Casper ended the quarter with 59 stores in operation, up from 32 last year, of which 57 were open as of June 30. Retail partnership revenue rose 61.1% to $29.2 million, driven by growth of sales activity with existing partners, an increase in new partners, and the expansion of product offerings. The Company had 18 retail partners as of June 30, up from six last year. Gross margin was up 280 bps to 51.8%. Adjusted EBITDA improved 49.5% to negative $11.4 million from negative $22.7 million last year. CEO Philip Krim commented, “We achieved record e-commerce revenues in Q2 while making significant progress toward profitability, which is well ahead of our expectations.”
Party City’s 2Q sales decreased 54.8% to $254.7 million; retail sales were down 56.3% principally due to the temporary closure of all retail stores during the quarter. All stores were closed on March 18, and curbside pickup was launched on March 25; store delivery was rolled out at select stores on April 5. Stores began opening to in-store customers on May 1, with all stores substantially reopened as of June 22. As of June 5, curbside pickup and store delivery were available at 722 stores. 2Q comps decreased 52.4%; June comps were down 6.5%; however comps, including online sales, increased 6.3% for the cohort of stores that were open for the entire month of June. The Company also commented that July comps were positive though “enthusiasm is tempered by the environment of continued uncertainty.”
North American e-commerce sales (including BOPIS, curbside pickup and delivery) increased 83.2%, or 3.3% excluding BOPIS. Net third-party wholesale revenues decreased 50.3%. North American wholesale trends improved throughout 2Q, down roughly 30% from last June and tracking better for July. Total gross margin decreased 3,094 bps to 6.2% of net sales. Adjusted gross margin fell 1,860 bps to 19.4% of net sales mainly due to deleveraging from lower sales. Adjusted EBITDA was ($42.8 million) for 2Q20, down from $81.0 million during 2Q19.
Natural Grocers by Vitamin Cottage’s 3Q sales, for the period ended June 30, increased 18.1% to $265.1 million due to comp gains of 15.5% which reflected a 31.5% increase in average transaction size, partially offset by a 12.2% decrease in average transaction count. Improved product margins and lower relative occupancy expense improved gross margin 130 bps to 27.3%. EBITDA rose 32.7% to $14.6 million. The Company opened two new stores during the quarter. The balance sheet remains strong with liquidity of $78.6 million, including cash and revolver availability.
Le Chateau’s 1Q sales (for the period ended April 25) decreased 51% to C$17.7 million, primarily due to the temporary closure of all stores beginning March 18. Gross margin eroded to 59%, from 61.9%, due to the sales decline. Adjusted EBITDA was negative C$5.2 million compared to positive C$748,000 last year. The Company stated that this month it reached an agreement with the majority of its landlords concerning its rental obligations covering the period impacted by COVID-19. The impact of the agreements will be reflected in 3Q results (for the period ending October 24). Most of the Company’s 124 stores across Canada are now open.
Camping World reported a 9% increase in sales for its 2Q period ended June 30, as new and used vehicle unit sales rose 18.6% and 7.5%, respectively, despite an initial slow start to the quarter due to COVID-19 lockdowns. 2Q EBITDA more than doubled, with EBITDA margin increasing to 14.1%. CEO Marcus Lemonis said that July sales remained strong, and he believes “2020 will be the Company’s most profitable year ever.” After a pause in 2020, the Company expects to add eight to 10 sites a year over the next three to five years.
Ingles Markets' 3Q sales increased 12% to $1.19 billion. Gross profit jumped 25.4% but was somewhat offset by elevated personnel costs related to the pandemic, which increased operating and administrative expenses by $18.1 million. The balance sheet also continues to improve as the Company has paid down debt; total debt at the end of June was $819.3 million, compared with $854.7 million at the end of June 2019.
Boot Barn’s 1Q sales declined 20.5% to $147.8 million, as in-store comps were down 27.1%, slightly offset by online sales growth of 51.9%. Top-line pressure was largely due to decreased foot traffic as a result of COVID-19. However, the Company did experience sequential improvement throughout the quarter, with in-store comps turning slightly positive in June. Gross margin contracted 630 bps due to outsized online growth and a lower merchandise margin. Overall, adjusted EBITDA fell a substantial 58.3% to a still-positive $9.1 million; EBITDA margin contracted 550 bps. As of June 27, Boot Barn had $83.1 million in cash, which remains adequate to support near-term operations. While total debt increased 26.9% over last year, due to increased revolver borrowings, the Company has no significant debt maturities until June 2023. During the quarter, Boot Barn opened five new stores and plans to continue expanding its physical footprint around 10% annually over the next few years. Looking forward, management noted that while July got off to a slow start, in-store comps showed sequential improvement from mid-July through the first week of August.
Fiesta Restaurant Group’s 2Q revenues declined 28.9% to $121.9 million, as comparable restaurant sales fell 31.6% at Pollo Tropical and 19.2% at Taco Cabana. Comps at both banners improved each month during 2Q and continued to improve into July, though they were still down 13.8% at Pollo Tropical and 14.4% at Taco Cabana. The Company had reopened some dining rooms during the quarter, but on July 12, management decided to re-close all dining rooms due to a spike in COVID-19 cases in the Company’s primary markets of Texas and Florida. Management indicated that sales from the dining rooms were fairly minimal at the time. On July 10, the Company amended its revolving credit facility to suspend financial covenants through the end of 2020, except for a new minimum liquidity covenant of $40.0 million at the end of 3Q and $30.0 million at the end of 4Q. The amendment also reduced the capacity of the revolver from $150.0 million to $120.0 million, and will further reduce the capacity to $105.0 million at the end of 2020, and then to $95.0 million at the end of 1Q21. At the end of the second quarter on June 28, the Company had $101.4 million in cash on hand against $148.5 million in debt, mainly comprised of revolver borrowings. Following the amendment in July, management repaid $92.5 million in borrowings, leaving $54.0 million outstanding. The Company plans to bolster its liquidity through the sale or sale leaseback of 16 owned properties. The sale process is ongoing and expected to generate at least $1.7 million to $2.0 million per site.
Carrols Restaurant Group announced results for its second quarter ended June 26 and provided an update on its operations. Total revenue was nearly flat year over-year at $368.4 million, as strong comp growth at the Company’s Popeyes locations made up for a slower recovery at its Burger King (BK) stores. BK comps were down 21.7% and 2.9% in April and May, respectively, before returning to 2.5% growth in June. In contrast, Popeyes comps were positive all throughout the second quarter and were up 13.3% in June. Overall, BK comps were down 6.1%, and Popeyes comps were up 17.1% for the quarter. These trends have persisted into July, with BK comps up 2.1% and Popeyes comps up 13.9%. Adjusted EBITDA grew 58% to $38.0 million, representing a 10.3% EBITDA margin, largely as a result of the Company’s efforts to reduce operating expenses during the COVID-19 pandemic.
Chuy’s Holdings announced results for its 2Q ended June 28 and provided an update on its operations amid the COVID-19 pandemic. Revenues fell 41.9% to $65.7 million, as dining rooms were closed for all of April before the Company began reopening them in early May. Nine restaurants that were temporarily closed near the start of the COVID-19 pandemic remain closed, but all 92 of the Company’s remaining restaurants reopened dining rooms at varying capacities as of the end of the quarter. 2Q comps were down 39%, comprised of a 42.8% drop in average weekly customers, partially offset by a 3.8% increase in average check. On a monthly basis, a 55.2% comp decline in April was followed by a 44.8% decline in May and a 21.6% drop in June. A spike in COVID-19 cases in late June and early July in Texas, where 38 of the Company’s restaurants are located, proved to be a moderate setback, with July comps ultimately declining 26.3%.
