July 15, 2020
On July 13, RTW Retailwinds, Inc. (fka New York & Company, Inc.) filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of New Jersey. Documents in the case state, “The Debtors determined that commencing store closing sales and inventory liquidations at all of their locations is the best option available to maximize value for all stakeholders.” As of the petition date the Debtors operated 387 stores, all of which are leased, and all of which will close.
The Company said it expects to pay suppliers and vendors in the normal course of business, and use cash collateral, upon Court approval. Under a previous amendment to its credit facility with Wells Fargo Bank, the Company anticipates the full repayment of the remaining $12.7 million balance outstanding by August 31. Click here for a list of closures.
Brooks Brothers Group, Inc filed a voluntary Chapter 11 petition on July 8. The Company operates more than 200 stores in North America and 500 worldwide; management has decided to permanently close about 51 stores, a decision it attributes to the COVID-19 pandemic. Most of those closures have already begun, and the Company has moved inventory from the targeted stores to distribution centers. For the remaining stores, management is proceeding with plans to reopen the majority it closed due to the pandemic. Recent reports say two apparel firms, WHP Global and Sparc Group LLC, are interested in bidding on the Company. Both companies are reportedly looking to keep most Brooks Brothers stores open and provide financing to support the Chapter 11 process. Brooks Brothers has secured $75.0 million in DIP financing from WHP Global, which is backed by Oaktree Capital and BlackRock, and owns Anne Klein and Joseph Abboud, but reports say it is in talks to provide an even larger loan.
Sparc Group is a partnership between Simon Property Group, the largest U.S. mall operator, and Authentic Brands Group, the licensing firm that acquired Barneys New York out of bankruptcy last year. Sparc is also reportedly interested in buying Lucky Brand Dungarees, DIP out of bankruptcy, which would add to its portfolio that includes Forever 21, Nautica, and Aeropostale. Click here for a list of closures.
In the J.C. Penney Company, Inc. case, management announced the Company is permanently closing two stores in New York City: (i) the two-level, 150,000-square-foot Manhattan Mall location, which has been closed since mid-March due to the coronavirus pandemic and will not reopen; and (ii) the Kings Plaza store in Brooklyn, which is currently open but will close on September 27. Liquidation sales will begin next week. Remaining stores in New York City are located in: (i) Bay Plaza Mall in the Bronx, (ii) Queens Center in Elmhurst, (iii) the Staten Island Mall, and (iv) Gateway Center in Brooklyn. At this time, nearly all of the Company’s 850 stores have reopened after temporarily closing due to COVID-19. The Company has been announcing store closings in phases. On June 4, it disclosed the first phase of 154 store closures; it is in the process of liquidating 136 of these units and is expected to announce additional closings. Click here for a list of closures.
At a hearing on July 8, a lawyer for the Company stated it would deliver a business plan to its bankruptcy lenders that day, as planned. One of the milestones in the case is the lenders’ approval of the business plan by today; if they do not approve, the Company could be forced to liquidate. The lawyer stated that the deadline might be extended following “incredibly productive” discussions with lenders. He noted that a possible extension should be viewed as a “complete positive” because “nobody wants a liquidation.” He also said that the Company requested a previously discussed $225.0 million draw on the DIP Facility, which was conditioned on approval of the business plan. The initial budget projects the drawdown to occur during this week.
According to reports, Alimentation Couche-Tard is considering the sale of as many as 1,250 of its locations to head off possible antitrust concerns, as it considers an acquisition of the 3,800-unit Speedway chain from Marathon Petroleum. Couche-Tard is also reportedly seeking about $4.00 billion in financing, which would likely be contingent on a deal to buy all of Speedway’s locations.
In January, Marathon began exploring a sale of Speedway rather than a spinoff and attracted several other major buyers, including Blackburn and U.K.-based c-store retailer EG Group, which through EG America LLC, owns about 1,700 locations in the U.S. In March, Seven & I Holdings, the Japan-based owner of 7-Eleven, was reported to have been close to a deal to buy Speedway for about $20.00 billion before the pandemic hit.
In other news, Alimentation Couche-Tard and CrossAmerica Partners LP, its former affiliate, will pay a $3.5 million civil penalty to the FTC to settle allegations that the companies violated an order requiring the divestitures of 10 retail fuel stations in Minnesota and Wisconsin to FTC-approved buyers by June 15, 2018.
Dunkin’ Brands plans to permanently close 450 Dunkin’ locations by the end of 2020. The stores set for closure are all located in Speedway gas stations, which are owned by Hess. Dunkin’ and Hess have reportedly terminated their partnership. Dunkin’ is reportedly looking to focus on its larger standalone restaurants.
According to a new study by UNC-Chapel Hill’s Kenan-Flagler Business School, Lidl pushed competitors in the Long Island, NY retail grocery market to cut prices as much as 15% since opening its first stores in the region in late 2019. It is important to note that the study was commissioned by Lidl US, and analyzed prices of 47 grocery products, including dairy, meats, produce, and canned and frozen goods, at ALDI, BJ’s Wholesale Club, Costco, King Kullen, Stop & Shop, Target, Trader Joe’s and Walmart before and after Lidl entered the market. Prices were collected during visits of 27 stores on Long Island between April 2019 and March 2020.
Based on data collected immediately before the pandemic caused supply shortages, Lidl’s prices were reportedly 45% lower than Trader Joe’s and over 30% lower than other national retailers. The findings show Lidl’s price-cutting effect is erasing the steepest increase in food prices seen by consumers in decades. Lidl opened the first of its currently four Long Island stores in December 2019 as part of its 2018 acquisition of Best Market, which had 24 Long Island stores. So far, four other Lidl store conversions have been announced, which would give the Company two stores in Long Island’s Nassau County and six in neighboring Suffolk County.Click here to request a list of future openings.
Big Y has extended its price freeze through September 2 and expanded the list from 10,000 to 15,000 grocery items.
In other news, Big Y appointed Theresa Jasmin as CFO following the recent retirement of William T. Mahoney. Ms. Jasmin joined Big Y in 2005 and most recently served as VP of finance.
On July 1, Cardenas Markets opened a new store in Whittier, CA. Cardenas operates 59 grocery stores and focuses on serving the Hispanic community. According to the Company, the location is a great fit for a Cardenas, as the population is 80% Hispanic within a three-mile radius.
Superior Grocers rebranded its second small-format store under its new banner, The Market by Superior, in La Mirada, CA. The 29,000 square-foot store contrasts to its more traditional, larger stores, and features enhanced assortments tailored to its surrounding community. The first The Market location, at 25,000 square feet, opened in September 2019 in Los Angeles.
BJ’s Wholesale Club will open a new store in Chesterfield, MI on July 31. The Company currently operates two other warehouse clubs in the state. Click here to request a list of future openings and closings.
Yesterday, Moody’s raised all ratings on BJ’s, including the corporate family rating, which was upgraded to Ba2 from Ba3. The outlook is “stable.” Moody’s commented, "Today’s upgrade recognizes the continuing improvement in BJ’S quantitative profile resulting from continued strong operating results as well as the recent reductions in debt of over $300.0 million."
Costco’s June sales (five weeks ended July 5) increased 11.1% to $16.18 billion. Total Company comps, excluding the impacts from changes in gas prices and foreign exchanges, jumped 14.4%, consisting of growth of 13.6% in the U.S., 12.2% in Canada, and 22.1% in Other International. E-commerce sales rose 86.7%. For the year-to-date period (44 weeks ended July 5), sales increased 8.1% to $136.37 billion. Total Company comps jumped 8.1%, consisting of growth of 9.1% in the U.S., 6% in Canada, and 10.2% in Other International. E-commerce sales rose 43.4%. Click here to request a list of future openings and closings.
On July 9, Meijer announced that it opened five supercenters across the Midwest. The new 160,000 square-foot supercenters are located in Manitowoc, WI; Sycamore, IL; Bad Axe, MI; and Brimfield and Lorain, OH. Click here to request a list of future openings.
Walmart will reportedly introduce a new annual membership program called Walmart+ that will cost $98 per year, by the end of July. In addition to same-day delivery of groceries and other items, the program will also provide fuel discounts and early access to discounts. Walmart reportedly planned to introduce Walmart+ in February but pushed the launch back due to COVID-19. It is the Company’s latest strategy to compete better with Amazon’s Prime and Prime Now service, as well as Target’s Shipt. In May, Walmart accelerated rollout of Express Delivery, a new service that delivers items in less than two hours. Express Delivery costs $10 on top of the existing delivery charge, but there is no markup on item price. In addition, Walmart has expanded its paid grocery delivery membership program, called “Delivery Unlimited,” to at least 1,400 stores. For a fee of $98 per year or $12.95 per month, customers can purchase groceries online and either have them delivered to their homes or pick them up at a local Walmart store.
In other news, Walmart has set up a health insurance company dubbed Walmart Insurance Services LLC and is looking to hire licensed insurance professionals. Walmart has had health centers at its stores since 2019.
In other news, yesterday Flipkart said it raised $1.20 billion in an investment led by its majority owner Walmart, valuing the Indian e-commerce firm at $24.90 billion. In 2018, Walmart invested $16.00 billion for a more than 70% stake in Flipkart. The latest investment round included other existing Flipkart shareholders, and the funding will be made in two tranches over the remainder of fiscal 2021. Flipkart did not disclose details on the size of Walmart’s stake in the company following the latest deal. Flipkart commented it would use the funds for the “continued development of its e-commerce marketplace as India emerges from the COVID-19 crisis.”
Amazon intends to open a fulfilment center in Little Rock, AR in 2021. The 825,000 square-foot facility is the first of its kind for Amazon in the metro area. Amazon will also establish an 85,000 square-foot delivery station in the city in late 2020.
In other news, Amazon is launching a new fleet of larger trucks, similar to those used by UPS and FedEx. The Company has ordered more than 2,200 heavy-duty Utilimaster "walk-in" delivery trucks. Amazon is under pressure to be able to make one- and two-day deliveries promised to customers who subscribe to its $119 annual Prime service.
Dollar Tree previously announced that it was rewarding hourly-paid store and distribution associates with a $2.00 per hour premium for all hours worked from March 8 through July 11 at an estimated total cost of $135.0 million. The Company will be extending the “reward pay” through July 18, at an estimated incremental cost of $7.5 million.
Walgreens reported disappointing 3Q20 results for the period ended May 31, as the COVID-19 pandemic significantly eroded the U.K. Boots retail business whose comps plummeted 48%, which led to a $2.00 billion impairment charge to the segment. U.S. retail comps were up 3%, including 1.9% growth in the front-end, as higher baskets offset lower traffic. Also, growth in rural locations outpaced declines in urban locations. However, U.S. operating profit fell 38% due to the adverse mix shift to essentials and online, and higher pandemic related costs. June U.S. comps remained positive, and the Company now expects U.S. comps to grow at least 2% in 4Q20, although margins will continue to be held back by the unfavorable mix shift. Despite the lower overall Company profits, free cash flow grew by 24% in the YTD period, to $2.44 billion.
Walgreens introduced FY20 adjusted EPS guidance of $4.65 – $4.75, including estimated COVID-19 impacts of $1.03 – $1.14 per share.
The day before releasing the poor earnings, the Company announced a partnership with VillageMD, where it plans to add 500-700 clinics in its stores, including expanded telemedicine services, staffed with doctors. Both Walgreens and CVS Health are attempting to transition their retail business by expanding health care offerings, hoping they can attract patients by providing more convenient and lower-cost treatment options, particularly for those with chronic conditions. The two are also looking for ways to improve sales and profitability, as prescription reimbursement rates continue to fall, and they face growing online competitive encroachment for both the front-end and pharmacy businesses. Walgreens is betting doctors will do the trick to instill confidence in consumers to go to a drug store for healthcare; or is this going too far, an unnecessary additional cost over the nurse practitioners and physician assistants available at CVS Health? Investors weren’t impressed, as WBA shares were flat after the VillageMD announcement, and then fell 8% after the earnings announcement.
Luby’s was notified on July 1 by the NYSE that the Company has regained compliance with the NYSE’s continued listing standards. On April 20, Luby’s was notified of its noncompliance; the average closing price of its stock had fallen below $1.00 per share over a period of 30 consecutive trading days. Luby’s announced on June 3 that it would immediately pursue the sale of its operating divisions and assets, including its real estate assets, and distribute the proceeds to stockholders after payment of debt and other obligations. During the sale process, certain of the Company’s restaurants will remain open to continue serving guests.
In the 24 Hour Fitness Worldwide, Inc. case, an order was entered authorizing the rejection of leases associated with 164 of the Company’s approximately 445 units (click here to see the list). The group of 164 locations includes 133 underperforming locations that will be permanently closed, 29 clubs that were permanently closed prior to COVID-19, and two leases for clubs that were never opened.
Rouses Markets partnered with Deuce Drone to test a drone delivery system this fall. It will begin testing the system at a store in Mobile, AL. Deuce Drone solves the last-mile delivery problem for brick-and-mortar retailers by enabling drone shipment from existing stores, providing a solution for same-day delivery that allows retailers to compete with major e-commerce players.
Shipt has partnered with Fresh Thyme Farmers Market to offer same-day grocery delivery to 10 million households in 30 metro areas. In addition, customers in Detroit, Lansing, Grand Rapids and Kalamazoo, MI, will be able to get same-day delivery of beer and wine from Fresh Thyme.
REI reportedly plans to lay off 400 store employees this week, representing less than 5% of its retail workforce. Sources cite an email sent by CEO Eric Artz to staff members saying that the Company was able to bring back “nearly all employees who have the skills needed” and “who were available for the hours and shifts required for current customer demand”; some employees reportedly did not wish to return to their positions. REI closed its 164 stores on March 16 and furloughed most of its employees in early April. In mid-May, the Company began reopening its stores, where it employs roughly 13,000 workers. Nearly all of its stores are now operating curbside pickup only or allowing limited in-store customers. The latest job cuts follow the elimination of roughly 300 positions three months ago at REI’s headquarters in Kent, WA.
Bass Pro Shops has begun the process of hiring 5,000 new team members nationwide across its namesake and Cabela’s banners. The Company cited an “unprecedented” wave of interest in families and individuals returning to nature where they can “social distance” on hiking trails and in boats. Bass Pro was able to keep substantially all of its stores open during the pandemic due to its gun business, which allowed it to qualify as an essential retailer.
Town Sports International announced it received a non-compliance notice from the Nasdaq on July 7. The notice indicated that due to the Company’s failure to file its 1Q20 report for the period ended March 31, it no longer complies with Nasdaq’s continued listing requirements under Rule 5250(c)(1). The Company has until September 8 to submit a plan to regain compliance. The notice has no immediate impact on the listing of the Town Sports’ common stock. Management noted it is working diligently to complete the report and file it as soon as practicable.
Sources say Barnes & Noble refreshed more than 350 of its 614 U.S. stores while they were temporarily shuttered due to COVID-19. Small teams moved furniture around, painted walls, and brought in new books. CEO James Daunt, who took over last summer after Elliott Advisors acquired Barnes & Noble, had reportedly planned to close locations on a rotating basis for a few weeks at a time over the next two years or so to refurnish and refurbish. However, the lockdowns across the country gave the Company a chance to refresh more than half of its stores without disrupting business. Management describes the stores as more open and easier to shop, with a lower quantity but higher variety of book titles.
The Gap began selling facemasks in its stores and online at the onset of COVID-19 and now has begun selling them directly to companies and governments, though corporate customers must meet a minimum of 100,000 masks per order. The Company indicated it has sold about 10 million facemasks so far to customers, which include the state of California, New York City, and Kaiser Permanente.
On July 8, Sur La Table, Inc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of New Jersey. The proceedings have been designated as case number 20-18367. The Company plans to consummate a restructuring and going-concern sale, subject to Court approval, filing customary motions that will permit it to “maintain operations in the ordinary course.” Management commented, “With the support of our lenders, Sur La Table has secured the necessary DIP financing to complete the Court process.” The Company contemplates the sale of its retail stores, after the rationalization of its national store footprint and closure of certain stores. The Debtors filed motions to close 56 stores (click here to see the list), while pursuing a going concern sale for up to 70 units; just before the petition date, Sur La Table closed five of the 56 stores and will not be conducting GOB sales in those units. GOB sales have commenced at 51 stores and will conclude no later than August 31.
Sur La Table has entered into a stalking horse asset purchase term sheet with affiliates of Fortress Investment Group. Following the sale, the Company will be comprised of its remaining retail stores, in-person and online cooking classes, and its e-commerce business. As of July 4, approximately 121 Sur La Table stores across the country had reopened in accordance with CDC, federal, state and local guidelines.
In the Pier 1 Imports, Inc. bankruptcy case, Retail Ecommerce Ventures LLC (REV), the stalking horse bidder, was named the highest bidder at the bankruptcy-supervised auction of the Company’s intellectual property, data, and e-commerce assets. REV won the auction with a bid of $31.0 million, up from its initial stalking horse bid of $20.0 million. Sycamore Partners is the backup bidder with a $30.9 million offer. Last year, REV purchased the brand assets of dressbarn and its e-commerce business from Ascena Retail Group Inc., the parent company of Ann Taylor and Lane Bryant. A hearing to approve the sale is scheduled for July 30. Click here for a list of closures.
In the Modell’s Sporting Goods bankruptcy case, yesterday the Court issued an order extending the periods during which the Debtors have the exclusive right to file a Chapter 11 Plan and solicit acceptances, through and including November 6 and December 31, respectively. The exclusive period within which to file a Plan expired July 9, but it was extended automatically through the date of the order. Click here for a list of closures.
In the Tuesday Morning bankruptcy case, the Debtors filed a motion to extend the initial 120-day period to assume or reject leases by up to 90 days, from September 24, to the earlier of: (i) 210 days from the petition date (December 23), or (ii) the effective date of a Plan of Reorganization or Liquidation. The Debtors stated that GOB sales at 136 of the Company’s 687 stores (click here to see the list) began on June 8, and the sales process is expected to run for at least 10 weeks. They said it is probable, although not certain, that they will reject the leases tied to the closing stores; however, they will not be able to complete their analysis of the leases before September 24. Additionally, the Debtors said they are current on all rental payments. A hearing on the motion is scheduled for July 29.
The Court issued final authorization for the Debtors to access a $25.0 million DIP term loan, secured by the Company’s real estate assets, including its corporate headquarters and warehouse/distribution complex in Dallas, TX. The facility is being provided by Franchise Group, Inc., an operator of franchised businesses, including Liberty Tax Service, Buddy’s Home Furnishings, American Freight, and The Vitamin Shoppe. The DIP term loan is separate from the $100.0 million DIP ABL Facility, which was approved on a final basis on June 27.
In the GNC Holdings, Inc. bankruptcy case, the U.S. trustee appointed the Committee of Unsecured Creditors, whose members include: The Bank of New York Mellon Trust Company, as Trustee; Brookfield Properties Retail; Simon Property Group; Woodbolt Distribution d/b/a Nutrabolt; Adaptive Health; Redcon1; and Misty Fair, individual and class plaintiff. Click here for a list of closures.
Last week, Big 5 Sporting Goods provided select preliminary 2Q20 results for the period ended June 28. Quarterly sales decreased 5.4% to $228.0 million, and comps dropped 4.2% compared to a 0.7% uptick in 2Q19. During the first half of the quarter, comps decreased 28.2%, but as stores reopened, comps in the second half jumped 15.5%. Merchandise margins increased approximately 175 bps, reflecting margin strength in May and June. Quarterly operating expenses benefited from reduced payroll costs, lower advertising costs, rent abatement, and other expense savings. The Company ended the quarter with borrowings under its revolving credit facility, net of cash, of roughly $18.0 million, reflecting a $38.0 million improvement on a year-over-year basis and a $62.0 million improvement compared to the end of 1Q20. Big 5 expects to report full results by the end of this month. Beginning on March 20, the Company temporarily closed about one-half of its locations in response to state and local orders related to the COVID-19 outbreak. As of the end of 2Q, all of Big 5’s stores that were temporarily closed had reopened for in-store shopping. The Company currently operates 431 stores, down from 434 stores last year.
Bed Bath & Beyond’s (BBBY) 1Q sales fell 49.2% to $1.31 billion, driven by the decline in store sales due to the COVID-19-related closures. E-commerce sales jumped 85% as consumers took advantage of increased fulfillment options like BOPIS and curbside pickup; online sales comprised two-thirds of the Company’s total 1Q sales. The mix shift to lower-margin products, as well as the channel shift to digital, weighed on gross margin, down 780 bps, to 26.7%, while adjusted EBITDA fell to a loss of $283.4 million from $144.0 million last year. During 1Q, BBBY closed 21 Bed Bath stores and announced plans to close 200 stores over the next two years. BBBY’s plan to convert 25% of its stores into fulfillment centers and the acceleration of its rollout of BOPIS / curbside pickup enabled e-commerce growth, which has continued into 2Q.
This morning, BBBY announced that both cash flow and comps for June were positive. Monthly sales were down 7%, with weak in-store sales partially offset by an 80% increase in online sales.
On July 13, Bed Bath & Beyond appointed Neil Lick as SVP, owned brands. Mr. Lick will lead a newly formed team that expects to develop and launch a portfolio of customer inspired owned brands beginning in 2021. Mr. Lick joins the Company after 22 years at Williams-Sonoma, where he held various leadership positions within merchandising, product development, inventory management, and corporate social responsibility.
PriceSmart announced 3Q results this week that highlighted the difference in the geographical response to the COVID-19 pandemic. 3Q was a rollercoaster ride for the Company, finishing with revenue up 1.4% but comps falling 3.6%. The Company reported strong March sales, up 17% on 15.7% comp growth, but the rest of the quarter trended down, with April comps down 19.2% and May comps falling 6.7%. The results show the differing responses across the Company’s 12-country footprint, and contrast with the strong results that U.S. retailers reported for most of 1Q.
Barnes & Noble Education’s (BNED) 4Q20 sales (for the period ended May 2) declined 23.2% to $256.9 million. Beginning in early March, BNED’s sales and profitability began to decline rapidly as stores closed. The Company took immediate expense-reduction actions to mitigate the impact of closed stores and to preserve liquidity. It continued to serve institutions and students through its campus websites.
Retail sales (91% of total sales) declined 25.4% to $238.5 million, and comps decreased 34.7%. Wholesale sales (7% of total sales) increased 33.7% to $18.8 million. Direct to student sales (2% of total sales) increased 20.9% to $6.6 million. Overall, adjusted EBITDA loss was $20.7 million, compared to EBITDA of $19.7 million last year.