May 13, 2020
On May 10, Stage Stores filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of Texas. The proceedings have been designated as case number 20-32564. The Company said it will simultaneously: (i) solicit bids for a going concern sale of the business or any of its assets, and (ii) initiate an orderly wind-down of operations. The wind-down of operations will terminate at certain locations if the Company receives a viable going-concern bid.
Management said it will take a phased approach to reopening its stores in the coming weeks to commence the liquidation of its inventory. The Company currently anticipates that the first phase of opening 557 stores will begin on May 15, the second phase of 67 stores is expected to start on May 28, and the balance of the chain (114 units) is expected to open starting June 4. Click here to request more information.
On May 7, Neiman Marcus Group filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the Southern District of Texas. The proceedings have been designated as case number 20-32519. As part of a prearranged Plan, the Company entered into a Restructuring Support Agreement (RSA) with a significant majority of its creditors “to undergo a financial restructuring, substantially reducing its debt load and interest payments and supporting continued operations during the COVID-19 pandemic and beyond. The binding agreement with holders representing over two-thirds of the Company’s outstanding debt demonstrates broad commitment across creditor classes.”
On May 8, the Court granted interim authorization for Neiman Marcus to pay prepetition claims held by critical vendors and 503(b)(9) claimants of up to $25.0 million and $5.0 million, respectively. It also allowed access of up to $275.0 million of a $675.0 million new money DIP Facility. A hearing to consider final approval is scheduled for June 2. Click here to request more information.
On May 5, Nordstrom announced plans to permanently close 16 of its 110 full-line stores. The Company will incur non-cash impairment charges associated with these closures. Nordstrom is also restructuring its regions, support roles and corporate organization for greater speed and flexibility. This restructuring is expected to result in expense savings of approximately $150.0 million, or 30% of the Company’s previously announced plans for net cash reductions of more than $500.0 million in operating expenses, capital expenditures, and working capital. These actions, combined with its initial savings plan of $200.0 million – $250.0 million, represent a reduction in non-occupancy-related overhead expenses of approximately 20%. Nordstrom’s 380 stores have been temporarily closed since March 17, and the Company plans to reopen stores in a phased, market-by-market approach where allowed by local authorities. Given this phased approach, Nordstrom is shifting its Anniversary Sale event from July to August. Click here to request a list of the 16 closing locations.
Today, Buffalo Wild Wings will open its first “GO” model restaurant in Georgia, focusing on takeout and delivery orders. The 1,800 square-foot GO unit will feature a walk-up counter, digital menu boards, condensed seating and televisions for guests to enjoy while waiting for their orders. Customers order ahead and then pick up their meal from heated takeout lockers for a “contactless” experience.
COVID-19 Reopenings
As of May 8, 16 JCPenney stores across Arkansas, Colorado, Georgia, Nebraska, Oklahoma, Tennessee, Texas, and Utah are open for in-store shopping and contactless curbside pickup. Another 15 stores across Arizona, Arkansas, Florida, Kentucky, Missouri, Nebraska, Texas, and Virginia are open for contactless curbside pickup only. For online customers, JCPenney is now offering free shipping on orders of $49 or more and has extended its flexible return policy for an additional 30 days. The Company closed its 846 stores on March 18. The store openings come as bankruptcy rumors continue to swirl. JCPenney’s missed two debt interest payments and the grace periods on both expire this week. Management commented that it missed the interest payments in order to evaluate certain strategic alternatives, none of which have been implemented at this time.
Meanwhile, JCPenney and Sephora reaffirmed their long-standing partnership to operate Sephora inside JCPenney stores. Both companies resolved outstanding legal matters and said they have agreed to “mutually beneficial” revisions to their joint enterprise operating agreement. Sephora’s contract with JCPenney runs through 2024.
As of May 11, Kohl’s Corporation announced that roughly 280 stores in 14 states are now open, with new health and safety measures. Stores are open in Alabama, Alaska, Arizona, Arkansas, Georgia, Idaho, Mississippi, Montana, Oklahoma, South Carolina, Texas, and Utah, as well as a majority of its stores in Florida and Tennessee. The Company closed its 1,159 stores on March 20, and about three-quarters of its stores remain temporarily closed.
Gap plans to reopen 800 stores before the end of the month, including Gap, Old Navy, Banana Republic, Athleta, Jane and Jack, and Intermix locations. The first stores opened in Texas this past weekend. To ensure the safety of customers and employees, the stores have closed all fitting rooms, added Plexiglas barriers to registers, and are limiting the number of shoppers inside at one time.
Meanwhile, the Company has continued to serve customer demand through its e-commerce platform, which represented about 25% of FY19 sales. It currently offers ship from store at more than 1,000 locations in 48 states, and curbside pickup in dozens of stores, with plans to double those counts this month. Gap said that online demand “accelerated meaningfully” since COVID-19. The Company has suspended rent payments while its stores are closed and has undertaken a strategic review of its real estate portfolio, with the long-term aim to have a smaller, healthier fleet of stores. Last week we reported that the Company signed a licensing deal with IMG to expand into categories beyond apparel, including furniture, baby care, and textiles. This is in an effort to lessen its dependency on its own stores and the apparel category, the latter of which has been weak in recent years.
On May 7, Gap announced the closing of its $2.25 Billion Senior Notes Offering and $1.868 billion ABL credit facility. The Company repaid the outstanding $500.0 million borrowed under its prior credit facility, and there were no borrowings outstanding at the close under the new ABL. This was in efforts to ensure a more adequate liquidity position in 2Q versus the 1Q.
On May 8, Bed Bath & Beyond updated its reopening plans, including the extension of its store-fulfillment services to more of its footprint. The Company will have a phased approach to reopening, subject to local regulations, and expects the majority of its stores across all banners to remain closed until at least May 30. The reopening plan includes expanding BOPIS and contactless curbside pickup services to at least 200 additional locations (for a total of 750 stores, or 50% of its store fleet across North America). It will also extend its fulfillment capabilities to support increased online demand, slowly reopen 20 of its namesake and Christmas Tree Shops by May 22, and implement a new store safety plan. In conjunction with these actions, the Company will extend its furlough of store associates through at least May 30 and will pay 100% of healthcare premiums for these employees. Click here for a list of future closings.
As of May 5, more than 50% of Shoe Carnival’s base of 390 stores had reopened in states where officials had eased or canceled closure orders for non-essential retailers. As a result, the temporary reductions in the annual base salaries of the Company’s named executive officers and senior management team, and the temporary reductions in the cash retainer fees paid to the board, are no longer in effect.
Genesco began opening certain locations on May 1, where state and local officials allowed malls to operate. The core Journeys business is currently operating in more than 300 locations, and the Company plans to reopen more than 400 stores by the end of May. Genesco will reopen 30 Johnston & Murphy locations this week and up to an additional 40 locations next week. Management also anticipates a more aggressive schedule afterwards, including many more reopenings in June. Its 1,250 stores have been closed since March 18.
Duluth Trading announced that on April 30 it amended its credit agreement with BMO Harris Bank to provide for an additional $20.5 million Delayed Draw Term B Loan. The amended credit facility currently provides for borrowing availability of up to $150.5 million, increased from $130.0 million previously, consisting of: (i) an $80.0 million revolver; (ii) $50.0 million in a delayed draw term loan; and, as noted above, (iii) a $20.5 million Delayed Draw Term B Loan.
Duluth Trading also said it reopened 20 of its 62 stores on May 4, where COVID-19 restrictions have been eased. The Company is preparing to reopen the balance, as other states lift their mandates. Duluth Trading indicated that it partnered with landlords, suppliers and vendors to materially reduce costs, extend payment terms, and cancel merchandise receipts to improve projected cash flow.
Belk, which operates 288 stores in 16 southern states, has reopened 252 locations in North Carolina, South Carolina, Georgia, Tennessee, Arkansas, Oklahoma, Florida, Texas, Alabama, and Mississippi. All stores have reduced operating hours, and the Company is limiting the number of people inside at one time to uphold social distancing standards. Fitting rooms will remain closed. Belk also launched curbside pickup at most locations, including all stores that have opened so far. The Company’s remaining 36 locations in six states (Virginia, Kentucky, Louisiana, West Virginia, Maryland, and Missouri) remain closed.
Sources say Lord & Taylor plans to liquidate inventory at its 38 locations once its stores are allowed to reopen. According to published reports, the chain is preparing for a bankruptcy process from which it does not expect to emerge. The Company had been exploring its options, including trying to negotiate relief from creditors and finding additional financing. Lord & Taylor’s stores are primarily in the Northeast, which has been hit hard by the pandemic, making the timing of the bankruptcy filing hard to plan. It also has stores in Chicago, IL and Florida. Fashion rental service startup Le Tote acquired Lord & Taylor last year from Hudson’s Bay Company for C$100.0 million (US$71.0 million).
Abercrombie & Fitch is in the process of reopening an undisclosed number of its 647 global stores, which have been closed since March 15. The Company is following guidance from government and health authorities, and reopening stores in locations where regulations allow.
Tailored Brands announced plans for a phased reopening of Men’s Wearhouse, Jos. A. Bank, and K&G stores in the U.S., in accordance with federal, state and local guidelines. The Company expects to open approximately 300 stores by Memorial Day, with the first stores opening in Georgia and Texas this week. Additionally, Tailored Brands is reviewing plans to reopen its Moores Clothing for Men stores in Canada. New safety procedures have been implemented, including temperature checks for employees, the use of hand sanitizer and masks, and social distancing protocols. All three brands will offer contactless payment, and Men’s Wearhouse and Jos. A. Bank will offer curbside pickup for the first time.
Tilly’s expects to reopen 26 of its stores to the public on or about May 15, including certain stores in Arizona, Florida, Texas and Utah, in accordance with the latest guidelines from local, state and federal governments and health organizations. The Company does not know when stores in California will reopen, adding risk to the top line, as these stores represented 50% of FY19 total store sales and account for approximately 40% of its current stores. Tilly’s will be monitoring announcements by mall landlords to determine the pace of future store re-openings. The Company will offer BOPIS and curbside pickup in select locations and operate open stores under reduced hours to allow for extra cleaning.
Due to temporary store closures since March 18, Tilly’s did not pay April and May rent, which totaled $13.4 million. As of May 2, there was $110.7 million in cash on hand, cash equivalents, and marketable securities (including $23.7 million borrowed under the Company’s credit facility). 1Q20 merchandise inventories were up approximately 26.2% in total retail value; Tilly’s canceled a substantial majority of its originally planned inventory receipts from April to June and reduced future inventory commitments through the remainder of FY20. 1Q20 sales fell 40.7% to $130.3 million. Physical store sales were down 57.5% to $47.0 million, while e-commerce sales (25.5% of total sales) accelerated 54.4% to $19.7 million.
On May 11, Ulta Beauty reopened about 180 stores and debuted curbside pickup in more than 700 of its 1,254 locations nationwide. The states included in Ulta’s first phase of store re-openings are Arkansas, Nebraska, Oklahoma, South Dakota, Tennessee, Texas and Utah. A number of the reopened locations will offer hair services with heightened safety protocols. Click here for a list of future openings.
Tuesday Morning is rumored to be considering a bankruptcy filing, according to recent reports, as its already-weak business has been faltering even further under pressures from the COVID-19-related store closures and decline in discretionary spending. The Company is in talks with its lenders, and no final decisions have been made. As previously reported, on March 26, Tuesday Morning drew down $55.0 million on its credit facility to improve its cash position. No update on availability was given. The Company has begun reopening a select number of its 711 stores, which have been closed since March 25, where restrictions have been lifted.
Earning Reports
Ahold Delhaize’s 1Q20 sales were up 14.7% (12.7% at constant exchange rates) €18.20 billion, driven largely by 12.2% comparable sales growth (all comps are excluding gasoline). Comps were favorably impacted by 26.9% in March due primarily to COVID-19. Consumer online sales grew 37.7% in 1Q20. Adjusted EBITDA jumped nearly 23%, benefiting largely from unexpectedly higher sales that preceded the timing of a significant increase in expenses related to COVID-19. This was a phenomenon that was more pronounced in the U.S. than in Europe, as Europe experienced earlier customer stockpiling in late February and therefore saw earlier investments related to COVID-19, while the U.S. experienced later stockpiling in March. In discussing 1Q results, management noted that online sales grew 42% during the quarter. As a result, the Company is in the process of adding surplus online capacity and is raising its FY20 target for U.S. online sales growth to more than 50% (from 30% previously). Further, Ahold Delhaize had 707 click & collect points at the end of 1Q (up from 692 at the end of FY19) and has raised its overall click & collect target to more than 1,000 locations by the end of FY20. Finally, management noted that fewer than 65 Stop & Shop remodels are expected in FY20, as timelines are being pushed out further due to COVID-19. Click here to request a list of future openings and closings.
Sprouts Farmers Market reported a very strong 1Q20, with sales up 16.5% to $1.65 billion, driven by a 10.6% increase in comps (9.6% attributable to COVID-19). Gross margin improved 180 bps due to a mix shift and less shrink as customers stockpiled, pushing EBITDA up $50.0 million. Looking forward, Sprouts provided its 2020 and beyond strategic plan. The Company will promote everyday value (fewer and less steep ad promotions), smaller stores with higher returns (21,000 square feet – 25,000 square feet, from 30,000 square feet), quicker expansion (minimum 10% growth around DCs and in growth markets). Sprouts has plans for three new DCs through 2022 (Florida, Colorado, Mid-Atlantic).
Separately, on June 24, the Company will open a new 30,000 square-foot store in Miramar, FL. Click here to request a list of future openings.
Office Depot’s 1Q sales (for the period ended March 28) fell 1.6% to $2.73 billion, driven by a 5% decline in CompuCom and fewer stores opened versus the prior year. As information about the COVID-19 pandemic began to spread in February and early March, Office Depot saw a surge in sales of cleaning and breakroom products, technology, and home office furniture. This continued until the shelter-in-place orders took effect, when demand shifted predominantly to the online channel, though the retailer’s stores were considered essential and remained open. Retail same-store sales rose 2%, offsetting declines from store closures. Sales at the CompuCom and Business Solutions Division (BSD), which slid 70 bps, were pressured, as small to medium-sized businesses deferred certain projects and focused on setting up their employees to work remotely. Growth in adjacent categories, including cleaning and breakroom supplies and technology, were up 25% and 10%, respectively, at BSD and now comprise 39% of division sales. Office Depot’s focus on improving profitability through cost-cutting and the elimination of unprofitable sales is evident in its 1Q results, in which adjusted EBITDA rose 33.1% to $157.0 million. While sales trends have slowed in the current quarter, the Company is increasing its product assortment to include PPE and other essential supplies, which should temper declines. Office Depot closed 12 stores during the quarter and ended the period with 1,295 locations. Click here to request a copy of the 1Q Sales Report.
In other news, Office Depot’s board adopted a limited duration shareholder rights plan and declared a dividend of one right for each outstanding share of Company common stock. The record date for the dividend is May 21, 2020. The Rights Plan expires May 4, 2021. Under the Rights Plan, the Rights will become exercisable if a person or group acquires the beneficial ownership of 10% (or 20% for certain passive investors) or more of the Company’s outstanding common stock.
Natural Grocers’ 2Q20 sales were up 20.4% to $277.5 million, driven by a comp increase of 17% for the quarter; comps were trending around 2% pre-COVID-19 but jumped to 40% during the month of March. Gross margin also improved 40 bps due to increases in occupancy and reduced shrink. Ultimately, EBITDA increased to $21.1 million from $13.4 million, as the gross profit boost more than offset increases in wages, bonuses, temp labor, and operating expenses for cleaning.
During the quarter, the Company opened two new stores, bringing its count to 157 units in 20 states. Natural Grocers has signed leases for three new stores and has acquired the property for one additional new store (Colorado, New Mexico, Oregon and Utah, respectively). The stores will open during FY20 and beyond. The Company also updated it FY20 outlook, revising comp and earnings guidance upward to 5% – 9% and $0.54 – $0.62, respectively.
Aaron’s 1Q sales (for the period ended March 31) increased 8.8% to $1.10 billion. Progressive Leasing revenue (60% of total sales) jumped 25.8% to $685.5 million, despite a significant reduction in new invoice volume in the second half of March. Aaron’s Business segment revenue (40% of total sales) dropped nearly 10% to $432.8 million, due to the net reduction of 183 stores during the 15-month period ended March 30, and the impact of a lower lease portfolio balance entering the 1Q20. Same-store revenue was down 4.6%, and customer count declined 6.4%. Company-operated Aaron’s stores had 902,000 customers at March 31, down 9.1% from the prior year. Overall, adjusted EBITDA fell 14.6% to $98.5 million. The Company generated $227.8 million in cash, ending the quarter with $551.0 million in cash, up from $57.8 million at the end of 2019. This includes $300.0 million from a partial drawdown of Aaron’s revolving credit facility. In April, the Company paid $60.0 million in scheduled debt amortization, $175.0 million to satisfy its settlement with the FTC, and $300.0 million to pay down its revolver in full. As of April 30, the Company had a cash balance of $136.5 million, total debt of $287.0 million and available liquidity of $620.0 million.
At the onset of COVID-19, Aaron’s Business closed all 1,129 Company-operated stores (there are also 318 franchised locations), and Aaron’s transitioned to a curbside and e-commerce-only operating model (e-commerce sales were up 50% in April). Approximately 2,000 sales associates were furloughed, while full-time store-based associates who have helped execute the curbside model have received $500 bonuses. In addition, it suspended in-home product delivery and setup, with deliveries to customers’ doors only. The Company began the phased reopening of Aaron’s Business showrooms in late April, where local restrictions have been lifted.
GNC Holdings’ 1Q sales (for the period ended March 31) dropped 16.3% to $472.6 million, and comps were down 10.1%. Excluding the impact of the COVID-19 pandemic, U.S. Company-owned comps declined 4.4%. E-commerce sales grew 25%, driven by improved site performance and increased demand related to COVID-19. E-commerce sales were 10.6% of total U.S. and Canada sales, up from 7.6% in the prior-year period; the Company also launched curbside pickup during the quarter. Adjusted EBITDA fell 53.6% to $31.0 million. As of May 6, approximately 1,300, or 40%, of North American Company-owned and franchised stores remained temporarily closed, as well as 25% of its international locations. The Company has significantly reduced inventory purchases and capital expenditures, and has taken action to decrease costs by nearly $40.0 million in 2020, consisting of employee furloughs, marketing reductions, store hour reductions, and deferral of non-essential spend. It also indicated that some of the temporarily closed stores will be permanently closed in the future. In April, post 1Q end, the Company accelerated ship from store capabilities in over 100 locations. 2Q EBITDA is expected to decline further, prompting the Company to withhold rent while it negotiates with landlords for concessions; thus far, the Company has withheld $19.0 million in April and $16.0 million in May. GNC continues to struggle despite being an essential retailer. The Company has stated that if it is unable to refinance or restructure its debt, there is a risk that it would have a material adverse effect on its liquidity, financial condition and operations. This may result in GNC filing a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Click here to request a copy of the 1Q Sales Report.
Sally Beauty Holdings’ 2Q sales (for the period ended March 31) decreased 7.9% to $871.0 million, and comps were down 7.1%. Comps had been up 4.7% prior to March 12, when demand began to plummet due to COVID-19 (its 5,075 stores, including 158 franchised units, were shut down on March 24). Sally Beauty segment sales (59.6% of total sales) decreased 8.1% to $519.5 million, and beauty systems group sales (40.4% of total sales) dropped 7.6% to $351.5 million. Consolidated gross margin was down 20 basis points to 49.3%. Adjusted EBITDA fell 33% to $91.2 million.
As a result of store closures, the Company has experienced significant increases in e-commerce demand, with shipped sales in the U.S. and Canada up 56% in the 2Q (up 118% in March); shipped sales in April jumped 872%. April shipped sales increased 155% in Europe and 129% at CosmoProf and Armstrong McCall (beauty systems group banners).
The Company began reopening its stores on a rolling basis on April 16, based on the easing of local restrictions. As of May 4, 1,100 Sally Beauty and 375 CosmoProf and Armstrong McCall stores in the U.S. and Canada, and 48 stores in Europe, were open. Ship from store is available at the 1,100 Sally Beauty stores in North America, and same-day delivery is available at 300 of the CosmoProf and Armstrong McCall stores. Curbside pickup is available at 1,500 Sally Beauty stores in the U.S. and 24 in Europe, and at 840 CosmoProf and Armstrong McCall stores.
