January 29, 2020
On Monday, Lucky's Market Parent Company, LLC, DIP filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. The proceedings have been designated as case number 20-10166.
The Debtors filed first day motions seeking approval of store closing procedures (prior to filing the Debtors commenced the wind-down of 32 of their 39 stores); payment of PACA/PASA claims; and authorization to use cash collateral.Click here for a list of the Company’s store closings.
On December 5, 2019, Kroger announced that after a portfolio review, it decided to divest its interest in Lucky’s and recognized an impairment charge of $238.0 million. According to Court filings, Kroger holds $301.2 million principal amount of secured debt and a 55% equity interest in Lucky’s. In addition, Kroger guarantees the debtors’ liability under approximately 31 leases, as well as a $5.9 million new markets tax credit loan. Lucky's attributed its bankruptcy filing to failure to achieve “four-wall profitability” across its entire store portfolio after the it expanded into new markets, where competing chains like Sprouts Farmers Market, Fresh Thyme Farmers Market and Earth Fare were also expanding. The filings also noted that Lucky's posted about $22.0 million of store operating losses and an approximately $100.0 million net loss. For the fiscal year-to-date through the week ended January 18, 2020, Lucky's experienced a 10.6% drop in comparable store sales compared to the prior year.
Separately, Kroger announced plans to construct a 350,000 square-foot high-tech fulfillment center in Frederick, MD through its partnership with Ocado Group, which will provide and maintain the digital/robotic equipment used at the facility. A groundbreaking date has not yet been set, but Company officials indicated it would take roughly two years after groundbreaking to open the site. According to published reports, county officials agreed to reduce permit fees by up to $150,000 for the project and offered about $5.0 million in commercial and industrial tax credits over the next 10 years. Maryland’s Department of Commerce provided a $2.0 million conditional loan through Advantage Maryland, formerly the Maryland Economic Development Assistance Authority and Fund. State property records show the former tenant was Toys “R” Us, which purchased the property in August 1995 for $716,800; it closed the DC in early 2018 after filing for bankruptcy protection.
Express announced plans to close 100 stores by fiscal 2022. This includes nine stores closed in 2019, 31 more locations by the end of January 2020, and 35 stores by the end of January 2021 (click here to request updates on the closings). The net impact to sales will reflect a reduction of $90.0 million by 2022; however, the Company expects a $15.0 million annualized increase in EBITDA by 2022 from eliminating fixed operating costs of closed stores and utilizing remaining stores and online for sales growth. In addition to its fleet optimization, Express identified $80.0 million in annualized cost reduction opportunities, which entail $55.0 million in expense savings and $25.0 million in its go-to-market (GTM) transformation. Workforce reductions make up the majority of expense savings, and the GTM process will enable more relevant product and marketing, greater speed to market, and better cross-functional workflow efficiency. There will be $38.0 million in planned cost increases, including wage inflation, minimum wage hikes, higher incentive compensation, and technology investments. On January 14, the Company announced a 10% reduction to its workforce at the corporate office and New York City design center.
Last week, greeting card and stationery company Schurman Fine Papers, parent company of the Papyrus, American Greetings and Carlton Card store chains, filed for Chapter 11 bankruptcy protection, with plans to close all 254 North American locations during the subsequent four to six weeks. Other retailers will continue to sell cards from the three brands. In its filing, the Company cited “the general downturn in the brick-and-mortar retail industry,” overexpansion during the 2007 - 2009 recession, and that it was forced to renovate and close a large number of underperforming stores that it acquired from American Greetings Corp. In 2009, Schurman sold off its wholesale business, including the Papyrus brand, to American Greetings while taking on American Greetings’ retail store division. Click here to request a list of closings.
Gap Inc. is no longer considering the spin-off of Old Navy into a standalone public company, given the cost and complexity of the split and the Company's poor performance in recent quarters. The Company is also making changes to its management team, including the departure of Gap brand CEO, Neil Fiske. He will be replaced by Mark Breitbard, currently President and CEO of Banana Republic. There are no changes to Old Navy's senior management team.
J.C. Penney announced it will shutter six stores by April 24, along with its call center in Lenexa, KS. The closures, part of “a careful and ongoing review of [its] store portfolio,” will leave the Company with approximately 850 stores nationwide. Last year, J.C. Penney said it would close18 full-line stores and nine home and furniture stores. Click here to request a list of closings.
Hudson’s Bay Company (HBC) announced that it has received the updated valuation it had requested from its independent valuator, TD Securities, as well as new fairness opinions provided by J.P. Morgan, Centerview Partners and TD Securities. Accordingly, the Special Committee of the HBC board has reaffirmed its unanimous recommendation that the privatization transaction with a group of existing shareholders is in the best interests of HBC and fair to the Company’s other shareholders. The board recommends that minority shareholders vote in favor of the transaction at the special meeting to be held on February 27 to approve the transaction. On January 3, HBC announced that it had entered into an amended agreement pursuant to which, subject to certain conditions, the Company will be taken private by the Continuing Shareholders, and the Minority Shareholders will receive increased consideration of C$11.00 in cash per common share. The previous offer was C$10.30 per share. At the same time, HBC announced an agreement with activist shareholder The Catalyst Capital Group, under which Catalyst agreed to vote the 32.2 million common shares it controls in favor of the transaction. The Company has not provided an update on holiday sales but has noted that recent revenues have been lower than anticipated. With cash burn continuing, revenues declining and new debt required to fund the transaction, HBC is under review for a credit rating downgrade.
SCHEELS All Sports will open a new 110,000 square-foot store in Missoula, MT in the second half of 2021. The store will replace a J.C. Penney location slated for closure during the second quarter of 2020.
Amazon will open an 855,000 square-foot distribution center in Memphis, TN, its 10th DC in the state. In Middle Tennessee alone, Amazon has accumulated about seven million square feet of commercial real estate since its arrival in 2012.
Golub Corporation will close an underperforming Price Chopper store in Troy, NY on February 29.
Walgreens provided high-level commentary on plans to introduce expanded healthcare services across their U.S. store network. Contrary to the in-house model taken by rival CVS through their MinuteClinic and HealthHUB formats, Walgreens intends to leverage partnerships with multiple healthcare providers to rollout the concept across the country over a 5-year period. Pending the successful evaluation of several in-flight pilots, this would entail scaling to 1,000+ health care locations, each staffed by a physician and surrounded by a suite of services, including opticians, dental diagnostics, and other offerings.
On January 22, Topgolf Entertainment Group introduced Lounge by Topgolf, a new, indoor lounge concept featuring an upscale bar and restaurant with an elevated, virtual gaming experience. The first venue was opened in Kirkland, WA in a 9,200 square-foot space. It includes four entertainment bays and a VIP bay, all powered by Topgolf Swing Suite technology, as well as a private event space.
According to Golf Datatech, golf rounds played through the first 11 months of 2019 grew 1.3%, which followed a 4.8% decline for the full year of 2018, largely attributed to poor weather. According to the National Golf Foundation (NGF), course participation has been stable at about 24 million golfers in recent years. However, there has also been increased interest in off-course play with the growth of entertainment facilities like Topgolf, which is rumored to be considering an IPO valued at up to $4.00 billion. NGF reported off-course participation grew by over 10% in 2018 to approximately 9.3 million. These virtual arenas have been particularly popular with younger participants. Click here to request a list of future openings.
According to reports, Simon Property Group and Authentic Brands Group are considering an offer to purchase and operate Forever 21, Inc., DIP. This follows reports that management recently sent a letter to suppliers indicating that it is short on cash and could be forced to liquidate if a buyer does not emerge. The letter asked suppliers to ship goods on credit while talks continue with a potential unnamed buyer. The letter purportedly proposed paying suppliers half of what they are owed for goods delivered between January 20 and February 4, with a cash payment in the week following receipt of the goods. The other 50% of the payment owed to suppliers would be deemed a superpriority administrative claim in the bankruptcy proceedings, ranking behind lenders and above general unsecured creditors.
Separately, the Debtors filed a motion to extend the periods during which they have the exclusive right to file a Chapter 11 Plan and to solicit acceptances by 90 days, through and including April 27 and June 25, respectively. The exclusive period within which to file a Plan was scheduled to expire Monday. This is the Debtors’ first request for an extension of the exclusive periods. Click here to request a list of closing locations.
Amazon’s Whole Foods will open two new stores including a 47,000 square-foot store in Richmond, VA and a 41,000 square-foot store in Delray Beach, FL. The store opening dates are January 20 and January 29, respectively. Click here for a list of the Company’s planned new locations.
Last week, Fairway Group Holdings Corp., DIP filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York to complete its strategic sale process. The Company has entered into a Stalking Horse Asset Purchase Agreement with Village Super Market, Inc. for the purchase of up to five New York City Fairway stores and its distribution center for $70.0 million. A lawyer for Fairway subsequently stated that the offer could be reduced to three units in Manhattan. Village has an option to withdraw its offer for stores in Harlem and Chelsea as well as for the distribution and food preparation center. We previously estimated that total senior secured debt totaled over $170.0 million. In addition, Fairway will execute a Court-supervised sale process to continue negotiating the sale of its remaining nine store locations. The Debtors plan to continue to conduct business and serve customers at its stores, and expect no interruption in service during the Court-supervised process, assuming it can negotiate new trade credit.
On Monday, the Court authorized the Debtors to access up to $15.0 million of a $25.0 million DIP Facility on an interim basis. Terms of the DIP Facility provide for up to an additional $5.0 million on a final basis, and up to an additional $5.0 million under a delayed-draw facility. The $15.0 million initial draw and $5.0 million to be provided on a final basis are characterized as “new money”. The DIP Facility is subject to a rollup of $42.8 million (outstanding borrowings under the prepetition credit facility). The proposed budget indicates that the Debtors plan to repay $62.8 million ($20.0 million in new money under the DIP Facility plus the $42.8 million roll up) with proceeds from an asset sale transaction, which it estimates at $82.1 million.
According to 7-Eleven’s president and CEO Joe DePinto, the Company has reached a major milestone, surpassing 70,000 stores globally. Mainly through area franchise agreements, 7-Eleven operates in 17 countries and will enter India this year. The chain is also set to return to Indonesia, after exiting the market in 2017.
Six former Shopko locations across Iowa will reopen as Hy-Vee Dollar Fresh stores later this summer. Hy-Vee announced purchase agreements Monday for Shopko buildings in Cresco, Dyersville, Hampton, Oelwein, Vinton, and Waukon; terms of the sale were not disclosed. The Company’s Dollar Fresh banner sells food in smaller communities.
Wegmans will open a 103,000 square-foot store in West Cary, NC this summer. Wegmans is set to open two other locations in 2020, including stores in Harrison, NY and Tysons Corner, VA. Click here for a list of the Company’s planned new locations.
The Vitamin Shoppe announced a partnership with LA Fitness to open shops inside its health clubs. To date, the Company has opened shops in nine LA Fitness health clubs, with three on the East Coast (Union, NJ; Huntington Station, NY; and Farmingville, NY) and six in Florida (Boca Raton, Tampa, Lakewood Ranch, Dunedin, Palm Harbor, and Lake Mary). The 300 square-foot shops are operated and staffed by The Vitamin Shoppe and offer a 900-SKU assortment of sports nutrition products, vitamins, minerals and supplements, as well as healthy snacks and beverages. The Vitamin Shoppe will monitor the concept through its first quarter — concluding at the end of March — to determine whether to open more units. The Company is also in the early stages of exploring other avenues of distribution, including potentially a department store partnership. The Vitamin Shoppe currently operates about 750 stores nationwide.
In other news, The Vitamin Shoppe has debuted a private-label brand, called Vthrive The Vitamin Shoppe, which includes vitamins, minerals, supplements and essential oils with a focus on clean formulas and high-quality ingredients.
In the Fred’s, Inc., DIP Chapter 11 case, the Debtors filed a Plan of Liquidation and a proposed Disclosure Statement, which provide for the wind-down of the bankruptcy estate, including creation of a liquidating trust. The estimated recovery percentage for holders of allowed general unsecured claims has not yet been determined. The Disclosure Statement indicates that general unsecured creditors will receive a pro rata share of the net proceeds from asset sales and causes of action (including preferences/avoidance actions), less “any amounts that the Liquidating Trustee in its reasonable discretion determines to be necessary to be held to wind up the Debtors’ affairs and administer the liquidating trust.”
On Friday, the Court issued an order extending the periods during which the Debtors have the exclusive right to file a Chapter 11 Plan and to solicit acceptances thereof, through and including May 6 and July 7, 2020, respectively. The previous period to file a Chapter 11 Plan expired on January 7. Our analysts note that the Debtors’ Plan of Liquidation and proposed Disclosure Statement both lacked significant details. The extension of time will be necessary for the Debtors to file completed versions of these documents and to solicit acceptances.
Tomorrow, a Smart & Final Extra! store will open and replace an existing store in Hanford, CA. The new store will be about 35,000 square-feet.
CVS Health is introducing its HealthHub format in nine pharmacy locations in the greater Tampa, FL area as it continues with its expansion of the format. The new HealthHub locations in Tampa follow recent openings in 15 pharmacy locations in Houston and 16 pharmacy locations in Atlanta. The new store format features a broader range of health care services to help patients better manage chronic conditions, more products and services focused on overall health and wellness, and personalized care. The Company plans to expand the program to roughly 600 units this year and scale up to 1,500 stores throughout the U.S. by the end of 2021. Management is pleased with early results of the converted units, citing increased traffic, higher front-store margins, and strong utilization of health-related services.
On January 23, Trans World Entertainment announced it agreed to sell substantially all of the assets of its subsidiary, Record Town, Inc. (constituting the For Your Entertainment (fye) segment) for $10.0 million in cash, subject to a net inventory adjustment and other modifications, plus the assumption of certain (undisclosed) liabilities, to a subsidiary of Sunrise Records and Entertainment Ltd., the parent of Sunrise Records in Canada and HMV Records in the U.K. As of November 2, the fye segment operated 206 stores. The transaction assumes $40.0 million in inventory at closing, expected in the first quarter, and Sunrise will assume any inventory related payables. Sunrise did not comment on any potential store closures. Trans World will continue to operate its digital marketplace etailz business, which it acquired for $75.0 million in 2017. Company shares shot up as much as $6.00 to over $8.00 a share on the day of the announcement, before falling back to the low $5.00 range on Friday. Etailz has also struggled.
Northgate Gonzalez had a relatively quiet but positive 2019. We estimate the top line inched up to $1.00 billion mainly due to a new store in Riverside, CA, its first expansion since 2016, bringing the total store count to 41. That said, competition remains fierce in its market; Aldi is expanding into Southern California, with its low-priced Hispanic private label offerings and ethnic players are increasing their presence including Southern California-based Vallarta Supermarkets and El Super.
Alimentation Couche-Tard recently acquired 17 Gas Stop Holiday fuel stations and convenience stores from franchisees Tom and Melissa Howes in South Dakota and Minnesota. The Howeses were franchisees of Holiday Stationstores, which Couche-Tard acquired in late 2017.
In early December, A.C. Moore was working with Gordon Brothers to complete a consensual, out-of-court resolution after announcing it planned to liquidate and wind down its business. In mid-December, an ad hoc creditors committee was formed; the committee retained Cooley as legal counsel and Berkeley Research Group as financial advisor. On January 8, Gordon Brothers and A.C. Moore presented an initial settlement offer, which the committee’s advisors rejected. The committee and its advisors continue to work towards increasing the overall settlement offer with the goal of reaching a comprehensive agreement by mid-February. This would allow for the solicitation of votes in March and require that unsecured creditors holding 80% of the claims in dollar amount vote in favor of the proposed settlement to be effective. Subsequent to the initial offer rejection, the parties successfully negotiated a significant improvement to an “Early Cash Payout Option,” which will be a component of any final settlement the committee recommends to trade creditors. This option would allow unsecured creditors to receive 20% of their allowed unsecured claim as early as mid-April. The Committee has requested that all creditors continue to forbear from taking any action to collect on any debt incurred prior to November 22 until February 29, 2020, the time at which the advisors expect to have finalized an offer. Click here to request a list of closings.
ABC Supply acquired the assets of Midwest Wholesale Materials (MWM), a single-unit siding, windows, doors, and roofing distributor based in Madison, WI. This represents the fourth ABC Supply location in the Madison market and 18th overall in Wisconsin. MWM will continue to operate from its current location in Madison. The acquisition is ABC Supply’s second completed deal of 2020; earlier in January, the Company acquired the assets of Badger Building Supply. ABC Supply operates more than 790 locations across the U.S.
Grocery Outlet Holding Corp. announced preliminary fourth quarter and fiscal year ended December 28. Quarterly sales growth of 12% to $655.5 million was attributable to 31 net new stores opened over the past year as well as a 5.1% increase in comps resulting from increases in both transactions and basket size. Net income is expected to be $6.3 million – $6.7 million, compared to a loss of $4.6 million last year. Adjusted EBITDA will be $40.5 million – $41.0 million, including $2.0 million of additional costs related to public company compliance requirements. For fiscal 2019, sales rose 11.9% to $2.56 billion, comps were up 5.2%, net income is expected to be $11.9 million – $12.3 million (a decrease of about $3.8 million over last year), and adjusted EBITDA will be $168.8 million – $169.3 million. Click here to request a list of future openings.
Stage Stores reported comparable sales increased 1.4% for the nine-week holiday period ended January 4. For the 48-week YTD period, comps rose 4.2%. CEO Michael Glazer said, “While our positive comparable sales for the holidays did not meet expectations, we remain confident that our off-price strategy will lead to profitable growth in the future. Holiday comparable sales were primarily impacted by lower pre-conversion department store sales relative to our projections, and by the warmer holiday season. We now expect fiscal 2019 comparable sales in the range of 4% to 4.5%. In January, comparable sales are off to a strong start, with the first week increasing double digits. In response to the holiday sales performance, we implemented incremental promotional efforts in the fourth quarter to ensure appropriate inventory levels as we enter fiscal 2020. As a result, we now expect full year 2019 earnings to be approximately $25.0 million to $30.0 million below the low end of the previously announced guidance range.” Creditntell notes that in November the Company guided for a comparable sales increase of 7% to 9% and for a 2019 net loss of $65.0 million to $60.0 million. Consequently, the miss on holiday comps and the downward revision to bottom-line guidance are concerning. Additionally, there is still a lack of clarity about the Company’s ability to convert all of the Company’s stores to Gordman’s, its off-price format, due to liquidity issues. Click here to request a list of Gordmans future openings.
Woodman’s Market’s sales rose to an estimated $1.85 billion during fiscal 2019. Going forward, the top line should get an additional lift with the full year contribution from its 18th store, a 244,200 square-foot unit in Lakemoor, IL that opened in September 2019.