August 19, 2020
In the Stein Mart bankruptcy case, the Debtors filed motions seeking interim authorization to close all 281 of the Company’s stores (click here to request the list). GOB sales will be conducted by a joint venture comprised of Hilco Merchant Resources, Gordon Brothers Retail Partners, Great American Group, Tiger Capital Group, and SB360 Capital Partners. GOB sales will continue through October 31.
The Company estimates that the liquidation of inventory, equipment, fixtures, leases, and intellectual property will produce a gross recovery in the range of $250.0 million, which it believes “is likely to be sufficient to pay the cost of the liquidation process and Chapter 11 administrative expenses, and repay secured creditors, but it is unlikely to produce any meaningful funds for other creditors.” The Company noted that a previous merger agreement with Kingswood Capital Management, LLC (a private investment firm) was terminated in April.
According to sources, Academy Ltd. has “confidentially filed paperwork for an initial public offering that could happen as soon as this year.” The Company is reportedly working with Credit Suisse Group AG and KKR Capital Markets on the potential public listing, and other banks may soon be added. There is also speculation that the process of exploring an IPO may trigger takeover interest in the Company. Since 2017, the Securities and Exchange Commission has allowed companies to file preliminary IPO documentation, without having to make the details public.
The Company’s $1.45 billion term loan due in June 2022 traded at $90.90 on Monday, just below the one-year high of $91.06 on Friday.
Previously on July 1, Yum! Brands’ largest U.S. franchisee, NPC International Inc., filed for Chapter 11 bankruptcy, citing competitive pricing pressures, high labor costs, and reduced dine-in traffic. On Monday, the Company and NPC announced an agreement to close up to 300 unprofitable locations out of NPC’s 1,227 Pizza Hut restaurants. As of June 30, Yum! and franchisees operated a total of about 7,150 total restaurants in the U.S. Though no specific restaurants have been slated for closure as of yet, Yum indicated that the majority of the restaurants that will be closed are traditional dine-in locations that have underperformed during the COVID-19 pandemic. NPC will pay all outstanding advertising, digital, and royalty fees owed to Yum. NPC plans to sell its Pizza Hut business following the closures, and yesterday's agreement does not affect NPC’s Wendy’s business, which includes about 400 franchised units.
A California Superior Court ruled that Amazon can be liable for injuries from defective products sold on its marketplace by third parties, a significant risk to the Company, given that an estimated 50% of units sold on the platform are from third parties. This decision overturned a prior ruling that stated that the Company was a service provider versus a product provider. As other retailers, such as Walmart, begin to develop their own marketplaces, this is an added risk and will be particularly detrimental if other states mimic this ruling.
Amazon is reportedly planning to open two brick-and-mortar stores in the Washington, D.C. market. The Company posted several openings for store managers and associate managers for Amazon Go grocery locations in the region. It was previously reported that Amazon had obtained permits to construct two physical stores in Washington, D.C., measuring 8,000 and 12,700 square feet. Beyond the two city stores, reports have surfaced that Amazon plans to open as many as three 30,000 square-foot grocery stores in the D.C. suburbs. The future locations were identified as a former Shoppers store in Virginia’s Fairfax County; a former Giant store in Chevy Chase, MD; and the Point 50 shopping center in Fairfax, VA. Amazon also operates two bookstores in the D.C. area, as well as a new 4-star that recently opened in Bethesda, MD.
Amazon is opening a new, one million square-foot fulfillment center and delivery station in Forney, TX. The fulfillment center is expected to launch in 2021 and will be used to ship larger-sized items. Amazon is also planning to open a new 200,000 square-foot delivery station in Forney later in 2020. Packages are transported to delivery stations from Amazon fulfillment and sortation centers, and then loaded into vehicles for delivery to customers.
In other news, Amazon has reportedly ended its relationship with a number of small delivery companies across several states, including Pennsylvania, Wisconsin, Georgia, and New York, which accounted for about 1,200 drivers.
Finally, Amazon has launched an internet pharmacy in India, marking its entry into the country’s online medicine market. Amazon Pharmacy will make its debut in Bangalore and could expand to other Indian cities. Click here for a list of Amazon future openings.
Sparc Group, the joint venture between Simon Property Group and Authentic Brands, received Court approval for its purchase of Lucky Brand Dungarees, which filed Chapter 11 in early July. The purchase price was $140.1 million. Sparc Group was also the successful bidder for Brooks Brothers for $325.0 million. That sale remains subject to Bankruptcy Court approval and would involve keeping at least 125 Brooks Brothers stores open (out of about 200 in North America). Sparc has previously acquired Aeropostale, Forever 21, and Nautica. Lucky Brand operates 112 stores and 98 outlet locations in North America. It identified 13 locations as “initial closing stores.”
In the Modell’s Sporting Goods bankruptcy case, the Court authorized the sale of the Modell’s trademarks, domain names, social media assets, customer transaction data, the “Gotta Go to Mo’s” jingle and other intellectual property to Retail Ecommerce Ventures, LLC for $1.9 million. Retail Ecommerce Ventures acquired the Dressbarn intellectual property and ecommerce business from Ascena Retail Group, Inc. in 2019. Separately, the deadline for qualified bids on the remaining 103 leases (click here to request the list) is this Thursday (August 20). If multiple bids are received, an auction will be held shortly thereafter, with a sale hearing scheduled for August 25.
REI is pursuing a sale of its nearly completed, eight-acre corporate campus in Bellevue, WA, as it moves to a “less centralized” approach to its headquarters presence in the Seattle area. REI, which transitioned to nearly 100% remote work for its headquarters staff in early March, began construction on the site in 2018, with an intended mid-summer 2020 move-in date. Given the current environment with remote working becoming a more normalized model, REI has had to reexamine where and how its corporate employees work. Rather than a single location, REI’s “headquarters” would span multiple locations across the region (including an existing one in Georgetown as well as new satellite campuses on the Eastside and in South Puget Sound). In addition to providing more flexibility for employees, the headquarters sale would also have financial benefits for the Company, and it would enable important investments in customer innovations.
Lowe’s Companies announced plans to update its supply chain in an effort to bolster home delivery services for professional and DIY customers. Over the next 18 months, Lowe’s plans to open 50 cross-dock delivery terminals, seven bulk distribution centers and four e-commerce fulfillment centers. The upgrades will enable the Company to provide same and next-day delivery and faster e-commerce shipping across the U.S. Lowe’s will open a West Coast fulfillment center in Mira Loma, CA in October. The facility will be the Company’s second direct fulfillment center after opening a similar site in 2018 in Nashville, TN.
In the Stage Stores bankruptcy case, the Court entered an order confirming the Chapter 11 Plan. The Plan notes that the Debtors remain engaged in negotiations with a prospective going concern buyer; if the negotiations fail, the Company may liquidate. In support of the Plan, the Creditors’ Committee stated that regardless of the outcome, confirmation of the Plan will provide the highest possible recovery to unsecured creditors. A post-confirmation administrator, to be selected by the Committee, will wind down the Debtors’ estates, monetize remaining assets, reconcile and administer claims, and make distributions. Click here to request a list of closures.
On August 20, AMC will open 100 theaters, selling tickets at $0.15 per ticket in honor of the Company’s 100th anniversary. About 300 more AMC theaters will reopen the following week. 2020 ticket prices will resume, though social distancing requirements will significantly reduce seating capacity. The Company plans to have two-thirds of its more than 600 theaters in the U.S. open in time for the September 3 release of the movie Tenet. Theaters will also feature The New Mutants from Disney, which is set to release on August 28.
In the Tuesday Morning bankruptcy case, the Debtors identified 22 additional stores (click here to request the list) they intend to close as part of a third wave of closures. GOB sales will commence on August 31, unless objections are filed.
In the J.C. Penney Company bankruptcy case, the Debtors provided details about the planned auction of 142 owned stores (Click here to request a list of closures). The average base rent is $3.44 per square foot, the average gross rent is $4.76 per square foot, the average current term remaining is three years, and the average total term remaining is 23 years. The stores range from 20,900 square feet to 222,500 square feet; 124 of the leases are for one-story units. The deadline for qualified bids is September 9, an auction will commence on September 14, and a sale hearing is scheduled for September 28.
According to reports, a lawyer for the Debtors said that constructive negotiations toward a going concern sale are ongoing, and that the Company believes it is close to an agreement. He said the Company has received multiple bids so far, including from first-lien lenders, who submitted a bid for both the property and operating units (Propco / Opco), as well as three additional offers for the operating company, which would comprise retail operations, some real estate, inventory, and intellectual property. Other reports state that Simon Property Group Inc. and Brookfield Property Partners LP are in advanced talks to purchase the retail operations. The Company reviewed a competing offer from private-equity firm Sycamore Partners that had a slightly higher price; however, Simon and Brookfield reportedly offered certain concessions on lease agreements that the Company and its lenders viewed as providing better value. There has also been speculation that Simon and Amazon have recently been exploring the concept of converting department store space into Amazon distribution hubs.
Rent the Runway announced it does not plan to reopen any of its five physical locations in New York, Chicago, Boston, Washington D.C., and San Francisco. The San Francisco store, which opened in May 2019, was its most recent and largest location at 8,300 square feet. Looking ahead, Rent the Runway will focus its investments on its online business. It will also grow its network of drop-off boxes or kiosks where customers can return their rented items (as opposed to mailing the items back). To date, the Company has partnered with WeWork, Nordstrom, and West Elm to place boxes in their stores. The New York flagship store will be turned into a permanent drop-off site.
Hy-Vee will open a 22,000 square-foot store in Decorah, IA this fall that will feature a Starbucks and an adjacent wine-and-spirits storefront. Hy-Vee also recently opened two Dollar Fresh brand locations in nearby Cresco and Waukon.
Meanwhile, a new Wahlburgers has opened in a Hy-Vee store in downtown Des Moines, IA, replacing a former Market Grille. It is the fifth Walburgers to open in an Iowa Hy-Vee. The Company announced in March its plans to turn all of Hy-Vee Market Grille restaurants into Wahlburgers, with plans to open a total of 20 restaurants by the end of the summer. Click here to request a list of future openings.
According to published reports, Apollo Global Management was close to buying Big Lots, but talks collapsed last week due to terms tied to the Company’s agreement this year to sell and lease back some distribution centers to Oak Street Real Estate Capital. According to people familiar with the matter, the talks with Apollo are unlikely to be revived. The leaseback terms would also make it difficult for another private firm to acquire the Company. Big Lots, which operates about 1,400 stores in 47 U.S. states, said in June it expected to receive $550.0 million after expenses and taxes from the leaseback deal.
Walmart is partnering with Instacart for same-day deliveries in four test markets — Los Angeles, San Francisco and San Diego, CA, and Tulsa, OK. The partnership will enable Walmart to compete with Amazon’s Whole Foods, heating up the competition for home-delivery dollars. Sam’s Club has a previously existing relationship with Instacart that will remain intact. The COVID-19 pandemic resulted in a dramatic increase in the sale of food to be consumed at home. Walmart currently delivers from almost 3,000 of its stores and generated just over $225.00 billion in grocery sales during its last fiscal year. Instacart partners with over 400 North American retailers including other major grocers such as Albertsons, Costco, Kroger, and Wegmans.
In other news, Walmart Canada broke ground on a new 550,000 square-foot distribution center in Vaughan, Ontario. The facility, which is expected to become operational in 2024, will handle general merchandise and food products. More than 70 million cases of products from more than 3,000 suppliers will pass through the Vaughan DC annually, which the Company claims is the highest volume of any Walmart facility in Canada. The facility is in addition to a new 300,000 square-foot distribution center currently under construction in Surrey, British Columbia. Walmart Canada is also renovating an existing distribution center in Cornwall, Ontario. The DCs are part of a suite of investments Walmart Canada is making in an effort to generate “significant” growth and to improve the Company’s online and in-store shopping experience. Walmart Canada operates more than 400 stores in Canada. Click here to request a list of future openings and closings.
After reducing its store hours amid the pandemic, Walmart extended the store-closing time at more than 4,000 of its 4,700 stores to 10 p.m. from 8:30 p.m., effective last Monday.
Walmart’s e-commerce platform Flipkart has partnered with HipBar, which is 26% owned by Diageo India, to deliver alcohol in two Indian states. The local governments of eastern West Bengal and Odisha states have said that Flipkart can be associated as a technology service provider of HipBar, an Indian mobile application for home delivery of alcohol. on Monda
Giant Eagle opened a new 20,000 square-foot Community Market on August 16. The store replaces a former ShurSave IGA.
In the Sur La Table bankruptcy case, the Court approved the sale of a substantial part of the Company’s assets to a joint venture between CSC Generation (an e-commerce business) and Marquee Brands LLC (a brand owner) for $88.9 million. During the auction, CSC Generation and Marquee Brands increased the guaranteed minimum number of store leases to be assumed from 40 locations to 50 locations. Details of the locations are not available. As of early July, the Company operated 121 units. Additionally, the Court authorized the rejection of five of the Company’s leases in Plano, TX, New York, White Plains, Lake Grove, NY, and Paramus, NJ. Click here to request a list of closings.
Skechers opened a 5,800 square-foot flagship location in Paris, France. According to the Company, the stores was just “a couple weeks away” from its originally scheduled opening when nearly all businesses in the country were forced to shutter in March as the COVID-19 outbreak made its way across Europe. Skechers has stores at the Aeroville Mall outside Paris, at Les Terrasses due Port and Plan de Campagne in Marseille, as well as in Aix en Provence, Toulon, Beziers, Montpellier and Bayonne. Globally, Skechers has 3,615 stores, of which more than 90% have resumed business (including all locations in France). The Company said it would limit store openings for the remainder of the year and proceed with only those that were in development prior to COVID-19.
Cinemark Holdings announced plans to offer $400.0 million in convertible Senior Notes due 2025. The Company also intends to grant initial purchasers of the Notes a 13-day option to purchase up to an additional $60.0 million aggregate principal amount of the Notes.
The Notes will be unsecured and pay interest semiannually. The Company intends to use the net proceeds for general corporate purposes, which may include paying down borrowings under its revolver in order to enhance liquidity.
In other news, on August 14 Cinemark announced the start of its phased reopening, and it will continue reopening through August 28. The Company expects to have all 534 of its theaters open in time to welcome this year’s newest films and has already begun selling tickets for certain classics, such as the anniversary re-release of Inception, and for new films such as Unhinged, which premieres on August 21. Tickets for the highly anticipated Tenet are expected to go on sale very soon.
Earning Reports
Walmart’s total 2Q revenue rose 5.6% to $137.74 billion. Comps in the U.S. (excluding fuel) increased 9.3%, reflecting robust demand in food and other product categories. Online shopping continued to soar, with Walmart’s e-commerce sales growing by 97%, its largest ever growth.Sam’s Club sales totaled $16.40 billion with U.S. comps (excluding fuel) rising 13.3%. Walmart’s operating income was $6.06 billion, an 8.5% increase from last year’s $5.58 billion. Despite higher expenses related to COVID-19 that include higher wages for warehouse workers and bonuses for store employees, as well as more spending to keep its facilities clean, Walmart said its margins improved in the quarter, helped by stimulus checks that had consumers spending on bigger-ticket items like electronics, home furnishings, and apparel.
The results show that the unprecedented spike in demand has remained strong even as restrictions ease, with shoppers using their stimulus checks to shop for discretionary items. However, as stimulus funds tapered off, sales at Walmart returned to normal, recording only a 4% rise in comps in July.
Southeastern Grocers’ sales, profits and cash flow have improved due to the COVID-19 pandemic. For the 2Q period, comps jumped 21%, and EBITDA margin grew 300 bps, as the strong sales offset higher pandemic-related operating costs. The improved operating cash flow, together with proceeds from the sale of the BI-LO pharmacy business, were used to reduce debt by over $400.0 million.
In addition, the Company is in the process of divesting the BI-LO banner. Ahold Delhaize has agreed to acquire 62 stores (including 46 BI-LOs) and a distribution center in South Carolina; the transaction is expected to close in 1Q21. Click here to request a list.
The Company has reduced its store count from more than 700 stores in 2017 to about 545 stores yesterday; the divestment of BI-LO will leave it with about 425 stores.
Kohl’s Corporation’s 2Q sales decreased 23.1% to $3.41 billion, as stores were open 25 fewer days and with fewer operating hours (stores were closed on March 20 and began to reopen on May 8). The store closures were partially offset by a 58% increase in digital sales, which represented 41% of total sales in the quarter, up from 24% a year earlier. The lower sales and gross margin contraction due to increased promotional activity and the higher cost of shipping outpaced lower expenses and pushed quarterly EBITDA down 66% to $208.0 million. Nevertheless, the results represent a significant improvement over the $425.0 million of negative EBITDA reported in 1Q20. Kohl’s ended the quarter with $2.93 billion of liquidity, consisting of cash of $2.43 billion and revolver availability of $500.0 million. Liquidity was bolstered by positive free cash flow and $193.0 million generated by the sale/leaseback of two distribution centers. Free cash flow was aided by a 55% decline in capital expenditures, a 26% reduction in inventory and the suspension of the dividend. Debt increased 52% year-over-year to $4.93 billion due to the draw down of $1.00 billion under the revolving credit facility and the issuance of $600.0 million of new debt in 1Q20. However, Kohl’s has no debt maturities until 2023. While the quarter was still negatively impacted by the pandemic, the Company was able to stabilize operations.
All of Dillard’s locations were temporarily closed by April 9 and were reopened by June 2. All stores remain open and are operating under reduced hours except for one location. Since reopening, sales were approximately 72% of prior-year sales, reflected in the 2Q 35.6% sales decline. However, gross margin expanded 240 bps due to fewer markdowns. Second quarter purchases decreased 62%, and inventory declined 20% year over year, as the Company aligns sales with customer demand. The lower expenses and gross margin expansion offset the lower sales and lifted quarterly EBITDA 148% to $30.5 million. Debt increased 23% year-over-year due to higher revolver borrowings. Dillard’s has no debt maturities until January 2023, when a $45.0 million note matures. The Company ended the quarter with liquidity of $653.3 million, consisting of $82.9 million of cash and approximately $570.4 million in availability under its $800.0 million revolving credit facility. In a sign of confidence, the Company continued to repurchase shares during the quarter. Also during the quarter, the Company permanently closed three locations, in Waterloo, IA (150,000 square feet); Clovis, NM (62,000 square feet); and Lawton, OK (100,000 square feet). The Company’s El Centro, CA location has temporarily closed again under local government mandate.
Advance Auto Parts’ 2Q sales increased 7.3% to $2.50 billion, and comps were up 7.5%, the Company’s highest quarterly growth rate in nearly 10 years. The Company said it benefited from a surge in industry demand fueled by the government stimulus, unemployment benefits, and the impact COVID-19 had on consumer behavior in terms of how they repaired and maintained their vehicles. Gross margin improved 57 bps to 43.9%, driven by improvements in channel mix and supply chain efficiencies. As a result, operating income rose 53.9% to $262.8 million, and operating margin expanded 319 bps to 10.5%. Looking ahead to 3Q, the Company said the first five weeks have seen strong growth in DIY omnichannel and positive comps in the professional category.
iFresh’s much-delayed 4Q results followed similar trends of FY20; sales dropped 30.2%, reflecting the Company outsourcing two of its stores in Massachusetts and closing another. However, profitability improved, and EBITDA moved to positive territory albeit at only $700,000, as the Company was no longer supporting those cash-flow-negative stores. Management did not opine on the net impact of COVID-19; however, several of the Company’s stores were forced to close at least temporarily which weighed on operations. Overall, the Company is still burning cash and remains in default under the credit agreement, which accordingly has no availability and raises substantial doubt about its ability to continue as a going concern. Nonetheless, it continues to trudge along thanks to equity infusions from the owner and selling shares to raise cash.
Cineplex’s 2Q sales (for the period ended June 30) plummeted 95% to C$22.0 million, as theaters were closed throughout almost the entire quarter. As a result, management reported EBITDA fell to negative C$72.5 million, compared to income of C$70.3 million in the prior-year period. Due to the impacts of the pandemic, the Company has taken steps to enhance liquidity, including reducing operating costs and non-essential capital expenditures, eliminating its dividend, working with landlords to abate and defer rent, obtaining relief from certain financial covenants under its credit facilities, and securing about C$304.0 million in net proceeds from the issuance of Convertible Unsecured Subordinated Debentures (subsequent to quarter-end). As of June 30, Cineplex had C$13.8 million in cash (prior to debt issuance) and approximately C$340.0 million in borrowing availability. The Company is also looking to extract value from its owned real estate portfolio, including its head office building in Toronto, to further enhance liquidity. The Company began reopening in select markets during the last few weeks of June, and as of August 14 had reopened over 80% of its theater circuit.
