July 29, 2020
On July 23, ascena retail group, inc. (owner of Ann Taylor, LOFT, Lane Bryant, Justice, and Lou & Grey) filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the Eastern District of Virginia. The proceedings have been designated as case number 20-33113. As part of a prearranged Plan of Reorganization, the Company announced it has entered into a Restructuring Support Agreement (RSA) with more than 68% of its secured term lenders. The RSA contemplates “a significant reduction in ascena’s debt by approximately $1.00 billion and increased financial flexibility to enable the Company to continue its focus on generating profitable growth.”
Throughout the restructuring process, the Company’s brands will continue to operate. Currently, ascena is operating with approximately 95% of its store base reopened. As part of the balance sheet restructuring contemplated by the RSA, the Company will reduce its footprint by closing a significant number of Justice stores and a select number of Ann Taylor, LOFT, Lane Bryant and Lou & Grey stores. This includes the exit of all stores across brands in Canada, Puerto Rico and Mexico, and the closure of all Catherines stores. In addition, ascena has entered into a stalking horse agreement with City Chic Collective Limited (a retailer of plus-sized women’s wear) to sell the Catherines intellectual property assets and to transition its e-commerce business to a subsidiary of City Chic. The Company intends to conduct the sale process pursuant to Section 363 of the Bankruptcy Code. The final number of store closings will be determined based on the ability of ascena and its landlords to reach agreements on sustainable lease structures. The Company said it believes the Plan “is in the landlords’ long term interest,” and it is optimistic that its landlords will “partner with the Company to keep as many stores open as possible.”
The Court granted interim authorization for the Debtors to use cash collateral. The Debtors did not request interim approval of a DIP Facility. The Debtors stated that as of the petition date, they had $433.7 million in cash on hand. They plan to use cash collateral and proceeds from operations during the interim period, until August 20, when a hearing on final approval of both the DIP Facility and use of cash collateral is scheduled. Click here to request a list of future closures.
Reports state that Neiman Marcus Group may close up to a total of 10 of its 43 department stores. This follows our report on July 24 that four department stores are closing, in addition to 17 Last Call stores. The 103,000-square-foot store in Natick, MA is considered to be at risk, while other potential closures include stores in Dallas, TX; St. Louis, MO; and Westchester, NY. All of the Bergdorf Goodman leases will be assumed. Click here to request a list of closures.
Separately, unsealed documents filed in the case reportedly indicate that the Company improperly inflated its value by billions of dollars prior to its 2018 spinoff of the Mytheresa e-commerce business. The Creditors’ Committee maintains that this resulted in a fraudulent transfer, which could potentially enable the claw-back of additional value into the bankruptcy estate. The Committee leveled the allegations against Neiman’s owners, including private-equity firm Ares Management Corp. and the Canada Pension Plan Investment Board (CPPIB). Mytheresa is estimated to have a value of approximately $1.00 billion. The issue is further complicated by the fact that the Company’s Plan of Reorganization would shield Ares and CPPIB from any future litigation over Mytheresa. A spokesman for Ares reportedly said the unsealed documents provide no new evidence and “make the same meritless claims” as have been made in the past. Moreover, he said, two national law firms advised Neiman that the MyTheresa spinoff was legal and permissible.
Sparc Group LLC, which is comprised of Simon Property Group and Authentic Brands Group, has made a $305.0 million stalking horse bid for Brooks Brothers, which filed for bankruptcy on July 8. The offer, which is subject to higher bids and Court approval, is to purchase substantially all of the Company’s global business operations as a going concern and a commitment to keep at least 125 of Brooks Brothers’ stores open for business. Sparc may face competition from a group of Italian investors, Club Deal 8, which is expected to present a bid, according to reports.
WHP Global, the new brand-management firm that to date has purchased Anne Klein and Joseph Abboud, is also reportedly interested in buying Brooks Brothers. Brooks Brothers was founded in 1818 and at the time of its bankruptcy filing had more than 200 stores in the U.S. and Canada, as well as 500 international locations in 45 countries. Simon Property Group and Authentic Brands Group previously provided Brooks Brothers with an $80.0 million DIP loan to carry it through its restructuring. Simon and ABG most recently submitted a stalking horse bid of $191.0 million for Lucky Brands, DIP’s assets, which is still subject to Court approval. The two firms also acquired Aeropostale out of bankruptcy in 2016 and Forever 21 in 2019 (in a deal with Brookfield Property Partners). A Court hearing to approve the stalking horse bid for Brooks Brothers and bidding procedures will take place on August 3. The Company is requesting that the deadline for competing offers to be set for August 5, and that a hearing to approve the sale take place on August 11. Click here to request a list of closures.
On July 21, in the GNC Holdings bankruptcy case, the Court issued a final order authorizing the Debtors to access up to $200.0 million in DIP term loan financing, of which $100.0 million is a roll-up of outstanding prepetition term loans. GLAS Trust Company LLC is the administrative agent. Separately, the Creditors’ Committee filed an objection to the proposed bidding procedures in connection with the planned sale of the Company’s assets. The objection notes that there is not sufficient time for potential purchasers to participate in the process. As background, as of the petition date, the Debtors intended to proceed with Harbin Pharmaceutical Group Holding Co. as the stalking horse bidder. However, Harbin has not yet executed a binding agreement. Click here for a list of closures.
The Committee noted that in the absence of a stalking horse purchase agreement with Harbin, the sale timeline must be extended by at least three weeks (from August 28) to allow for a marketing process that will give potential bidders until September 18 to bid on the Debtors’ assets. Harbin is an affiliate of the Debtors’ largest shareholder.
ALDI plans to open a new distribution center in Loxley, AL. The 564,000 square-foot warehouse is expected to serve more than eight million customers and more than 80 ALDI stores in southern Alabama, Louisiana, and the Florida Panhandle, according to the Company. The Company reportedly has three future ALDI sites planned for Northwest Florida (2 in Pensacola and one in Navarre) expected to be built in 2021. Click here to request a list of future openings and closings.
Amazon will open a new 576,000 square-foot delivery station at Liberty Park Commerce Center in Sterling Heights, MI. Amazon has three other delivery stations in the metro Detroit area in Romulus, Wixom and Hazel Park.
In other news, Amazon will start publicly listing the names and addresses of US-based third-party sellers on its Marketplace platform as a measure to fight counterfeiters, effective September 1.
Finally, Amazon announced it would create an additional 1,000 jobs in Ireland, bringing its workforce in the country to 5,000.
Best Buy announced a permanent 4% increase of its starting hourly wage for all domestic employees, to $15, effective August 2. Since the early stages of the pandemic, all hourly retail associates and supply chain employees who were working received incremental hourly appreciation pay. That pay started March 22 and ends August 1, to be replaced by the permanent wage increase.
On April 19, the Company temporarily furloughed 51,000 domestic hourly employees, including nearly all part-time employees. At that time, it retained 82% of its full-time store and field employees, and on June 15, began bringing employees back from furlough. About half of the 51,000 furloughed employees have returned so far.
At the beginning of 2Q21, Best Buy began welcoming customers back to its stores via in-store consultation services, by appointment only. On June 15, customers were allowed to shop without appointment at more than 800 stores. As of June 22, almost all of the Company’s stores were open for shopping. Quarter-to-date sales increased 2.5%, including domestic sales growth of 2% and international sales growth of 8%. Quarter-to-date online sales were up 255%, with sales between June 15 and July 18 remaining strong at 185%.
On July 22, Empire Company Limited, parent of Sobeys, outlined its new three-year strategy, called Project Horizon, to deliver an incremental $500.0 million in annualized EBITDA by the end of fiscal 2023 (excluding any impact from COVID-19 on sales and cost). This builds on Project Sunrise, the Company’s previous three-year strategy that resulted in $550.0 million in net benefits and was completed in June. As part of Project Horizon, the Company will grow market share by supporting and investing further in its store network, improving store productivity, scaling up grocery e-commerce, growing its private label portfolio, continuing the Western discount business expansion, and increasing the Farm Boy grocery chain’s footprint in Ontario. Sobeys will also build on its cost and margin discipline. The Company plans to accelerate its investment in physical assets through renovations and conversions, among other things. Store investment, along with the expansion of the FreshCo and Farm Boy banners, are reflected in the Company’s estimates of future capital spending, which is expected to average $700.0 million annually over the next three years. Empire is accelerating its plans for the remaining two Voilà e-commerce customer fulfillment centers (CFCs) across Canada and introducing Ocado’s store-pick solution in areas where the CFCs will not deliver, or are not yet built; it will begin in Nova Scotia at the end of the summer before expanding and moving West. Regarding its private label portfolio, the Company said after two years of improving its positioning and branding, it will review the specific role of private brands in each category and determine which categories and banners to expand. Together with its supplier partners, Sobeys intends to further grow sales of private label brands through increased distribution, shelf placement, and product innovation. Empire also indicated it will optimize its supply chain and logistics networks as well as consolidate certain procurement processes.
According to reports, a $1.75 billion bid for J.C. Penney submitted by Sycamore Partners is higher than other offers, including a $1.70 billion bid by Hudson’s Bay Company, and a joint $1.65 billion bid from mall operators Simon Property Group and Brookfield Property Partners. The reports indicate that Sycamore would merge J.C. Penney with Belk Inc., a struggling department store chain with 300 stores located mostly in the south. Sycamore is the private equity sponsor of Belk, as well as other retailers including Talbots, Staples and The Limited. The Sycamore plan involves rebranding approximately 250 J.C. Penney stores to Belk in markets where the two retailers do not overlap, and the rest of the J.C. Penney locations would be liquidated. J.C. Penney operated 850 stores when it filed for bankruptcy protection on May 15. In June, it announced plans to permanently close at least 154 stores. Sycamore’s bid remains subject to approval by the Court, as well as J.C. Penney’s lenders, creditors and board. It should be noted that a second source said that all of the bidders are still in contention, stating “The three bids are being analyzed and because there’s not a big difference between them, it means that all three are seeing a similar valuation.” Click here to request a list of closures.
A franchisee of Yum! Brands’ Pizza Hut will permanently close 17 Pizza Hut restaurants in Western New York, which had initially shut down temporarily due to COVID-19 restrictions.
Wegmans has reportedly moved up the opening of its new Harrison, NY store from the fall to August 5. Originally scheduled to open in the spring, the store’s debut was delayed due to the pandemic.Click here to request a list of future openings.
Lidl is reportedly selling off store properties across North Texas and San Antonio that it bought in the early stages of its entrance into the U.S. The Company is said to have put 15 undeveloped properties in the Dallas-Fort Worth area up for sale as well as three in San Antonio. Lidl still owns undeveloped properties in the state that it has not listed for sale, including four sites in North Texas, and it is unclear if the Company plans to hold onto these sites or eventually sell them. Lidl is currently focused on opening stores along the East Coast. It recently opened four converted Best Market stores on Long Island and will open two more over the next two weeks as part of a wave of conversions for the 27 stores it acquired in late 2018. It has also opened eight stores in Georgia and has additional locations in the works. Lidl announced earlier this year it is building a distribution center in Covington, GA to support its growth in the Southeast.Click here to request a list of future openings.
After recently resuming its growth plans, BJ’s Wholesale Club announced plans to open two new club stores in New York in early 2021. The locations in Long Island City and Newburgh will bring its store count to 221. Click here to request a list of future openings.
Last week, Walmart disclosed plans to open “Walmart Health” centers in Florida beginning next year, as it expands its low cost health care services. The Florida facilities will feature an array of primary medical services, dental care, and behavioral health services as part of a new model being replicated in other markets. More details will be disclosed later on specific locations, but the first center will open in the Jacksonville market. Executives said the new Florida centers build on the first 10,000 square-foot facility that opened last fall in Dallas, GA that has proven successful. Centers in other markets are about 6,800 square feet, which are still much larger than the 19 Walmart Health “Care Clinics” that take up about 1,500 square feet inside stores elsewhere in Georgia, South Carolina, and Texas. The Company says the Care Clinics remain an important part of their health care offerings but are more limited in service.
Subsequent to the Florida announcement, Walmart said it will also open at least six additional Walmart Health clinics in the greater Atlanta area by the end of 2020. In June, it said it would open two clinics in the Chicago, IL area by the end of the year as well.
Walmart plans to build a $220.0 million distribution center in Dorchester County, near Ridgeville, SC. The new storage and cross-dock facility will span three million square feet. This direct import distribution center, which will take approximately 14 months to build, will supply several regional distribution centers supporting approximately 850 Walmart stores and Sam’s Clubs across South Carolina and beyond. Once fully operational, the new distribution center is expected to increase volumes at the Port of Charleston by approximately 5%.
Earlier this month, Walmart led a $1.20 billion equity round to increase its majority stake in Flipkart to 82%. Prior to this, Walmart had a 77% stake in Flipkart that was acquired for $16.00 billion in 2018. Flipkart announced on Thursday it has acquired Walmart’s operations in India (a separate entity) and plans to launch a new digital marketplace next month. With the acquisition, Flipkart will integrate Walmart India’s 5,000 employees and its 28 member-only Best Price cash and carry wholesale stores. The move consolidates all of Walmart’s India operations into Flipkart. The new digital marketplace, called Flipkart Wholesale, will provide wholesale goods to kiranas in India. Kiranas are independent retailers and small businesses, similar to neighborhood stores, that sell a variety of retail products. Flipkart Wholesale is set to launch in August and will initially provide grocery and fashion products.
Meanwhile, Flipkart said that it plans to offer 90-minute deliveries for groceries and home accessories, including mobile phones and stationery items, as part of its new service dubbed Flipkart Quick. It will debut in select locations. It did not specify a launch date. Click here to request a list of openings and closings.
As of July 23, BJ’s Restaurants said 70% of its restaurant dining rooms were open, in a limited capacity, compared to 95% in late June. The decline in open dining rooms was attributed to certain counties throughout California and elsewhere ordering rollbacks of their dine-in reopening plans. The Company’s 2Q20 revenues declined 57.5% to $128.0 million, and comps fell 57.2%. BJ’s reported a net loss of $29.0 million.
According to published reports, Alimentation Couche-Tard, Seven & i Holdings Co. and private equity firm TDR Capital are expected to make an offer on Marathon Petroleum Corp.’s (MPC) retail arm this week. Citing sources familiar with the dealings, Couche-Tard is looking to team up on any acquisition to stave off potential FTC antitrust concerns. The Company is reportedly looking for a partner to take at least 850 of the Speedway convenience stores and is said to be in talks with private equity firms, including Cerberus Capital Management, on a joint bid. Meanwhile, TDR has raised financing for an all-cash bid. Additionally, some smaller companies and buyout firms are in talks about partnering with a larger player on a bid, including Murphy USA Inc.
In the 24 Hour Fitness bankruptcy case, the Court held a meeting on the status of proceedings. This followed a postponement of the hearing on final approval of the DIP Facility, after gyms in California were forced to close again in response to a rise in COVID-19 cases. The following points were made during the meeting:
- The lenders agreed to extend the deadline for final approval of the DIP Facility (the Court previously granted interim approval to access up to $50.0 million of the $250.0 million DIP Facility);
- The Debtors are modifying the budget and need “another week” to negotiate details of the DIP Facility with lenders; and
- A number of landlords have challenged the DIP Facility over the deferral of some rent payments. An attorney for the Debtors stated that if agreements cannot be reached with landlords, the Debtors would consider invoking force majeure clauses in leases to support the decision to not pay rent. Generally, such clauses allow postponement or suspension of one or both parties’ performance of obligations when circumstances arise that are beyond the parties’ control and make performance of the contract impractical or impossible. Click here to request a list of closings.
On July 21, Bed Bath & Beyond and 1-800-FLOWERS.COM entered into a settlement agreement with respect to the litigation related to the previously announced sale of PersonalizationMall.com (PMall). 1-800-FLOWERS.COM agreed to move forward with its purchase of PMall for $245.0 million and expects the transaction to close on or before August 3. Upon closure of the transaction, the Company will withdraw its litigation against 1-800-FLOWERS.COM. Click here to request a list of future closings.
On Monday, Reitmans reported that the Québec Superior Court granted the Company an extension until October 16 to reorganize its operations. Reitmans initially filed for creditor protection on May 19, pursuant to the Companies’ Creditors Arrangement Act (CCAA). The Company is working with Ernst & Young, the Monitor appointed under the CCAA process, and expects to provide updates on its progress. Additionally, the Company expects to be delisted from the Toronto Stock Exchange today and is working to transition to the TSX Venture Exchange.
Reitmans is currently fully operational through its e-commerce websites and 516 physical stores, all of which reopened in conformity with Canadian provincial and regional governmental guidelines.
Albertsons reported a 93% increase in 1Q20 EBITDA, driven by 26.5% growth in comps and a stronger gross margin. Comps benefitted from an increased basket and a 276% uptick in digital sales, which offset fewer store visits as customers continued to reduce their trips to stores due to the pandemic. The e-commerce business saw an acceleration of the Company’s Drive Up and Go (DUG) curbside service, which is now available in 731 stores, up from 600 at the beginning of the year. The Company also expanded delivery, with its own delivery service in nearly 65% of its stores and third-party delivery in more than 90% of stores. Albertsons plans to expand its DUG offerings to nearly 1,400 stores by the end of this fiscal year and is targeting 1,600-plus stores within two years. Overall, the improved sales leverage more than offset incremental COVID-19 costs totaling approximately $615.0 million (during the 16-week 1Q20 period), including approximately $400.0 million in one-time or nonrecurring expenses. The Company said that as it continues to optimize its procedures and procurement of PPE and cleaning supplies, it expects to incur fewer ongoing COVID-related expenses during 2Q20.
During its investor call discussing 1Q20 results, management outlined its strategic priorities, including expanding fresh offerings and increasing private brand penetration from 25.4% in 2019 to a higher-than-industry average of 30% in the next few years. Private brands O Organics and Open Nature grew faster than the Company’s overall business, with 31% and 28% improvement, respectively. Another strategic priority is driving productivity, focusing on operational efficiencies to help offset cost inflation and fuel reinvestment in the business. This includes leveraging Albertsons on a national scale as well as further investments in technology and automation. Although management withdrew FY20 guidance, given its strong performance in 1Q20 it expects to meet or exceed $3.70 billion of EBITDA for the year. Management also pulled forward an additional $100.0 million in planned capex for investments in technology and e-commerce, and now expects to incur $1.60 billion in total capital expenditures in FY20. While it remains focused on further debt reductions, the Company will also be authorizing an annual dividend of $0.40 per share. Management noted it continues to see elevated identical sales in the mid-teens since the end of 1Q20 and expects gross margin in 2Q20 to be relatively flat. Gross margin, excluding fuel, increased 80 bps in 1Q20, primarily attributable to lower shrink expense as a result of the significantly higher-than-normal sales volumes. Management noted that promotions increased in the back half of the quarter, as supply chain constraints eased, but were still not back to pre-COVID-19 levels.
The Company said it believes the tentative agreement with the UFCW will help it avoid risks of future anticipated increases in contributions. Although it currently doesn’t have plans to withdraw from other multi-employer plans, management’s preferred strategy is to restructure the plans by freezing them and then putting in place either a 401(k) or similar variable plans. Click here for a list of future openings and closings.
Skechers reported 2Q sales decreased 42% to $729.5 million, primarily attributable to a 37.8% decrease in its international business and a 47.3% decrease in its domestic business. With nearly all stores closed for at least some period of the quarter, direct-to-consumer sales decreased 47.1%, but e-commerce sales surged 428.2% (the Company did not provide the percent of total sales). Comps in its direct-to-consumer business fell 45.6%, including a 35.9% decline in the U.S. and a 66.9% decline internationally. Gross margin increased 210 bps as a result of a favorable mix of online and international sales. Operating loss was $61.0 million, compared to income of $111.1 million last year.
The Company indicated that more than 90% of its stores have reopened. There are 508 Company-owned domestic stores, 304 Company-owned international stores, and 377 joint-venture stores. Another 2,386 stores distribute, license or franchise Skechers’ products. Skechers ended the quarter with total cash of $1.56 billion, inclusive of the $490.0 million drawdown of the Company’s senior unsecured credit facility during 1Q.
The Sherwin-Williams Company reported 2Q sales decreased 5.6% to $4.60 billion, which the Company attributed to demand softness in The Americas Group and the Performance Coatings Group. The estimated impact from COVID-19 on quarterly sales was 8.2%. Sales in The Americas Group decreased 8.4% to $2.52 billion (54.8% of total sales), and comps were down 6.9%. Performance Coatings Group sales fell 16.5% to $1.10 billion (23.9% of total sales). Consumer Brands Group sales jumped 21.8% to $980.2 million (21.3% of total sales) due to higher volume sales in North America and Europe, partially offset by softer sales in Asia Pacific. EBITDA rose 7.8% to $979.0 million. Looking ahead, for FY20, the Company now expects sales to be flat compared to last year. Sherwin-Williams increased its EPS guidance to $19.21 – $20.71 from $16.46 – $18.46. FY19 EPS was $16.49.
Chipotle Mexican Grill reported results for its second quarter ended June 30 and provided an update on how its operations have been impacted by the COVID-19 pandemic. As of yesterday, 30 of the Company’s 2,669 restaurants are still temporarily closed due to COVID-19, the majority of which are mall and shopping center locations. 2Q sales declined 4.8% to $1.36 billion, driven primarily by a 9.8% drop in comparable restaurant sales that was partially offset by the opening of 37 new restaurants (including three relocations). Comps have improved month-to-month from a decline of 24.4% in April to a 7.7% drop in May and then a 2% increase in June.
LVMH recorded revenue of €18.40 billion in the first half of 2020, down 26.7% from the prior year primarily due to the closure of its stores and manufacturing sites in most countries over a period of several months. 2Q sales decreased 38% to €7.80 billion. First-half U.S. sales declined 22.6% to €4.48 billion (24.3% of total sales), and France sales were down 34.1% to €1.42 billion (7.7% of total sales). Europe sales (excluding France) dropped 32.6% to €2.92 billion (15.9% of total sales). Japan’s sales fell 29.6% to €1.28 billion (6.9% of total sales), and Asia sales (excluding Japan) were down 23.4% to €6.28 billion (34.1% of total sales). Gross margin dropped 440 bps to 61.9%. Operating income fell 68.4% to €1.67 billion.
Bloomin’ Brands provided an update on its operations and its 2Q20 results. As of July 19, 928 Company-operated restaurants have reopened dining rooms with limited capacity, representing 92% of all U.S. locations. In the week ended July 19, overall U.S. comparable restaurant sales were down 18.7%, consisting of a 16.1% decline at restaurants with dine-in service and a steeper 44.6% decline at the 80 restaurants only open for off-premise service. Combined U.S. comps have remained in the negative high teens since late June. Recent increases in reported COVID-19 cases in Florida and Texas, where the Company operates 286 restaurants in total, have caused local governments to tighten dine-in capacity limits, but management indicated that the impact has been minimal thus far. For 2Q ended June 30, revenues declined 43.4% to $578.5 million, largely driven by a 39.4% comp decrease. As of July 23, the Company maintained $502.0 million in liquidity, based on $138.0 million in cash on hand and $364.0 million in revolver availability.
Walmex’ sales continued their brisk pace across the region in 2Q, with revenue improving 9.5%. The growth was propelled by Mexico, with sales up 7.7% on a 6.3% comp improvement; Central America revenue fell 4.1%. The falloff in Central America was due to strict social distancing requirements and limited days of operation in some countries. The Company has expanded its home delivery efforts, resulting in e-commerce growth of 217% across the region. While store growth has been limited, Walmex still opened six new stores in Mexico and across Central America.
Tractor Supply Company’s 2Q20 sales increased 34.9% to $3.18 billion, and comps were up 30.5%, driven by comparable transaction count (14.6% vs 1% last year) and comparable average ticket (15.8% vs 2.2% last year). The Company attributed the comp increase to unprecedented demand for spring and summer seasonal categories, along with growth in everyday merchandise, including consumable, usable, and edible products. All geographic regions had robust comp growth, and e-commerce sales experienced triple-digit sales growth. Gross margin rose 155 bps to 36.4% due to lower depth and frequency of sales promotions, favorable product mix, and lower transportation costs. Operating income jumped 55.7% to $447.7 million. Tractor Supply opened 18 new stores, ending the quarter with 1,881 locations. Petsense opened three new stores and closed three underperforming locations, ending the quarter with 180 locations.
Looking ahead, Tractor Supply estimates COVID-19-related costs during the 3Q to be $15.0 million – $20.0 million. The Company has prioritized strategic growth initiatives, including building on its “Out Here” lifestyle assortment and convenient shopping format. Over the last few months, the Company has rolled out new technology and services such as curbside pickup, same-day/next-day delivery and its first mobile app. Tractor Supply will continue to roll out new technology and service enhancements, which are expected to add $15.0 million in costs during the 3Q. It also announced permanent wage and benefit changes that will cost about $13.0 million in 3Q. The Company now forecasts FY20 capex of $300.0 million – $325.0 million, up from its previous range of $225.0 million – $275.0 million. It also plans to open 75 – 80 Tractor Supply stores and 10 new Petsense locations. Click here to request a list of future openings.
Carter’s reported 2Q sales decreased 29.9% to $514.9 million, driven by the closure of the Company’s retail stores in April and May, and lower sales to certain wholesale customers as a result of disruptions related to COVID-19. This was partially offset by e-commerce comp growth of 101% in the U.S. and 194% in Canada. Retail sales fell 25.3% to $316.0 million and represented 61.4% of total sales. Wholesale sales decreased 33.7% to $151.7 million and represented 29.5% of total sales. International sales fell 42.6% to $47.1 million and represented 9.1% of total sales. EBITDA eroded 51.4% to $42.6 million.
At the end of 2Q, 97% of the Company’s U.S. stores and 90% of its Canadian stores had reopened. Liquidity of $1.50 billion is comprised of cash and cash equivalents of $1.00 billion and $501.0 million in unused borrowing capacity on the Company’s $750.0 million secured revolving credit facility.
Loblaw’s 2Q sales increased 7.4% to C$11.96 billion, but costs associated with COVID-19 reduced profits. Retail segment sales jumped 7.9%, and food retail same-store sales increased 10%. Drug retail (Shoppers Drug Mart) same-store sales dropped 1.1%, with a pharmacy same-store sales decline of 6.2%, and front store same-store sales growth of 3.3%.
COVID-19 investments amounted to C$282.0 million of which C$180.0 million related to compensation costs, including the one-time bonus for store and DC colleagues of C$25.0 million. Earnings fell C$117.0 million to C$169.0 million, and included C$17.0 million of restructuring and other charges, primarily related to process and efficiency initiatives. Operating income was $404.0 million, down from C$588.0 million last year. E-commerce sales saw a 280% increase, as more customers chose to shop online to avoid going into stores during the pandemic. Year-to-date, almost C$1.20 billion has been spent via digital sales across Loblaw’s grocery, pharmacy, and apparel e-commerce platforms.
According to the Company, while it continues to incur pandemic-related costs, Loblaw is now seeing a lower rate of increase compared to the second quarter, “reflecting a greater degree of stability in store and distribution center operations.”
Yesterday, Francesca’s Holdings released its delayed 1Q20 results and provided an update on the 2Q20 outlook. For 1Q ended May 4, sales dropped 50% to $43.8 million, primarily due to mandated boutique closures beginning on March 25 and continuing through the end of the quarter. Management noted a “strong” sales performance in e-commerce. Gross loss was (6.6%) compared to gross profit of 34.8% in 1Q19.
The steep gross margin decline was primarily due to deleverage in occupancy costs and aggressive markdowns and promotions, as well as increased inventory reserves. As a result, the quarterly EBITDA loss widened to $23.1 million. The Company permanently closed eight boutiques, bringing the total boutique count to 703 at the end of the quarter.
For 2Q ending August 1, sales are expected to be $67.0 million – $71.0 million, assuming a comp decrease of 11% – 16%. Gross margin pressure is expected to accelerate due to more aggressive promotions, as the Company continues to move through the remainder of excess inventory as well as the generally challenging retail environment. Loss from operations is expected to be $21.0 million – $23.0 million, compared to an operating profit in 2Q19. Cash and cash equivalents are expected to be $10.0 million – $12.0 million while average inventory per boutique is expected to decrease in the mid to high-single digit range versus the comparable prior year period. As of July 17, 674 of 702 boutiques had reopened, although the majority of them are operating at reduced capacity and hours in accordance with local regulations. This reflects the re-closure of 22 boutiques in California.
As Francesca’s previously disclosed, and as a result of the COVID-19 pandemic, the Company’s revenues, results of operations and cash flows continue to be materially adversely impacted, which continues to raise substantial doubt about its ability to continue as a going concern.