October 23, 2019
On Monday, Destination Maternity Corporation, DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the District of Delaware. Reports state that the Company is trying to find a buyer in bankruptcy, but if it cannot, it will likely be forced to liquidate. The Company operated 446 stores and 491 leased departments within Macy’s, buybuy BABY, and Boscov’s as of August 3, 2019. Click here to request a list of future closings.
On October 15, Hamilton Beach Brands announced the wind down of the retail operations of its subsidiary, The Kitchen Collection, and the closure of all of its 160 stores by the end of 2019 (click here to request a list). Conway MacKenzie is serving as financial advisor and Hilco Merchant Resources will assist management during the sale process of Kitchen Collection inventory and store fixtures. Liquidation sales will commence at all Kitchen Collection stores in the next few days and continue through the holiday selling season. During the third quarter ended September 30, 2019, Kitchen Collection expects to record a non-cash, pretax impairment charge of $1.0 million related to property, plant and equipment, and a valuation allowance of $1.9 million related to deferred tax assets primarily for state net operating losses. During the fourth quarter ending December 31, 2019, Kitchen Collection expects to incur $4.0 million – $6.0 million in expenses primarily for severance obligations and professional fees. The Company expects the total cash expenditures relating to the wind down of retail operations, excluding cash expenditures, to be $6.0 million – $8.0 million. These charges and expenses do not include lease termination obligations as those amounts are subject to negotiation and are not known at this time.
On September 2, it was reported that Transform Holdco (New Sears) is closing 100 Sears and Kmart stores through December 2019. Previously, on August 7, the Company announced that 26 Sears and Kmart locations (5 Kmart and 21 Sears) would close in late October. On October 18, published reports stated that the Company has borrowed an additional $150.0 million to fund operating losses. The lenders include Edward Lampert, chairman of ESL Investments, Inc., and hedge fund Cyrus Capital Partners, which had provided funding to Sears Holdings Corporation, DIP while it navigated bankruptcy last year. The new financing, which is reportedly secured by assets including the Company’s real estate and intellectual property, is necessary to pay for holiday season inventory. Additionally, the amount provided is less than the $200.0 million the Company had sought; however, Transform is still negotiating with lenders to be able to borrow the full amount. For the latest list of future closings, please click here.
American Eagle Outfitters plans to hire nearly 10,000 part-time seasonal store associates for its American Eagle and Aerie store teams. The Company hosted a hiring event on October 20. Click here to request a list of future openings.
Gap’s Hill City brand, a direct-to-consumer premium men’s activewear brand launched last year, opened a store in San Francisco, CA. The 12-month pop-up is designed to test the operations of a physical space. Hill City is also entering into wholesale partnerships, with select items to be available at Huckberry.com, Need Supply, Neighborhood Goods, a Runner’s Mind and Ships (in Tokyo). In addition, Gap’s Athleta brand will feature in-store Hill City shops in seven locations. Click here to request a list of the Company's future openings and closings.
Whole Foods has recently announced new store openings with more on the way. Last week, the Company opened a 45,000 square-foot store in West Seattle, WA and a 34,500 square-foot store in Beverly, MA. Plans call for additional store openings in the weeks ahead that include a 45,000 square-foot store in Long Beach, CA; a 70,000 square-foot store in Tysons Corner, VA; a 47,000 square-foot store in Parsippany, NJ; a 40,000 square-foot store in Tempe, AZ; and a 28,500 square-foot store in South Lake Tahoe, CA.
E-commerce handbag retailer Rebag opened its ninth brick-and-mortar location in San Francisco, CA. The 1,450 square-foot shop, located in Union Square, features the “Rebag Bar” where customers can sell a bag or exchange a previous purchase for at least 70% of the original price. Rebag is opening stores in areas of high online traffic, and it plans to increase its store portfolio to 30 in the medium term. Rebag’s increased retail footprint will include standalone stores, as well as a continued presence in major luxury malls. The Company now has four stores in California, as well as four in New York and one in Florida.
On October 17, Wawa opened three new stores in Florida, bringing its store count in the state to 200. The new stores are located in Naples, Nokomis and Ormond Beach. Wawa entered the Florida market in 2012.
On October 16, Sprouts Farmers Market opened new stores in Jupiter, FL and Vista, CA. Click here for a list of the Company’s planned new locations.
On Friday, Inspire Brands completed its acquisition of Jimmy John’s Sandwiches, creating a $14.00 billion restaurant company that is the fourth largest in the U.S. The Company now operates more than 11,200 restaurants under the Buffalo Wild Wings (1,200+ restaurants with $3.80 billion in sales), Arby’s (3,400+ units with $3.90 billion in sales), Sonic Drive-In (3,500+ restaurants with $4.50 billion in sales), and Rusty Taco banners (300+ units with $25.0 million in sales). Jimmy John’s has over 2,800 restaurants in 43 states and about $2.10 billion in annual sales. Inspire is majority owned by affiliates of Roark Capital, which was created in February 2018 after Arby’s Restaurant Group acquired Buffalo Wild Wings for $2.90 billion. Click here to request a sample list of Inspire Brands future openings.
On October 21, Hudson's Bay Company entered into a definitive agreement with a group of HBC shareholders (Shareholder Group) to take the Company private. Under the terms of the agreement, the common shares of HBC not held by the Shareholder Group (who collectively own approximately 57% of the Company’s common shares), will be purchased at a price of $10.30 per share in cash, or total consideration of C$1.03 billion. This price represents a premium of approximately 62% to HBC's closing share price on the Toronto Stock Exchange on June 7, 2019, the last trading day prior to the announcement of the Shareholder Group's initial privatization proposal, and a premium of approximately 52% to the 20-day average closing share price on that date. The price also represents an increase of 9% over the Shareholder Group's initial proposal on June 10, 2019 of $9.45 per share. The Shareholder Group is comprised of individuals and entities related to, or affiliated with, Richard A. Baker, Governor and executive chairman of HBC; Rhône Capital L.L.C.; WeWork Property Advisors; Hanover Investments (Luxembourg) S.A.; and Abrams Capital Management, L.P. The going private transaction has been opposed by some activist investors, who believe the bid is inadequate. Catalyst Capital currently owns about 16% of the shares and may attempt to organize enough votes to block the transaction. Creditntell analysts note the potential going private transaction comes at a pivotal time for the Company as it has been struggling to turn operations around. On a TTM basis, HBC generated just C$352.0 million of EBITDA (a 3.8% margin, below our monitored industry average of 7.7%), and burned over C$900.0 million of cash.
For the latest list of Hudson Bay’s future closings, please click here.
In other news, on October 17, Barneys, DIP entered into a $271.4 million stalking horse purchase agreement with Authentic Brands, which will purchase substantially all of Barneys’ assets, subject to exclusions, including certain leases. Authentic plans to license the Barneys brand to Saks Fifth Avenue (owned by Hudson’s Bay), which plans to open Barneys shops in certain of its stores. Under the agreement, all seven of the remaining Barneys stores will close, including its two Manhattan locations and its Beverly Hills store, although the ultimate disposition of the flagship Madison Avenue location is still under discussion. The stalking horse group includes B. Riley Financial Inc., which may undertake store closings and monetize inventory and other assets. Authentic’s original plan was to potentially operate several Barney’s locations while the revised plan calls for the closure of all locations. This may depend on Authentic’s ability to negotiate rent concessions, especially at the flagship New York City and Beverly Hills locations. Competing bids must be received by today (October 22); an auction (if necessary) is scheduled for October 24, with a sale hearing commencing on October 31.
BJ’s Wholesale Club expanded its same-day delivery service of alcohol products to four more states. Clubs in Florida, Ohio, North Carolina and Virginia join those in Massachusetts and Connecticut now providing the service. In Ohio, North Carolina and Virginia, delivery is offered only for beer and wine. BJ’s partners with Instacart for online grocery delivery service.
Schnuck Markets announced that beginning January 1, 2020 it will no longer sell tobacco products, including cigarettes, cigars, chewing tobacco and snuff. The Company will continue to sell off its existing inventory through the end of the year
Lidl US plans to open four more supermarkets on Long Island, NY by next summer, including stores in East Meadow, Oakdale, Patchogue and Lake Grove. This brings the total number of announced openings on Long Island to eight, including two in Nassau County and six in Suffolk County. The new stores are part of Lidl’s acquisition of 27 Best Market stores, comprised of 24 on Long Island, two in New York City and one in Holmdel, NJ last November. The transaction closed in early 2019.
Kroger is standardizing date labels for its Our Brands food products, with easier-to-understand product quality and safety information. All labels will either include “Use By” to represent food safety, or “Best if Used By” to represent food quality. Kroger’s date label transition has already started and will be completed in 2020. In other news, on October 16, Kroger opened a new 65,000 square-foot store in Atlanta, GA. The store features a Starbucks, expanded prepared food offerings, and a pub.
Key Food Stores Co-operative recently reopened The Food Emporium location in Howard Beach, NY, following renovation and rebranding of the 26,000 square-foot supermarket. The Company purchased the banner via the A&P bankruptcy process, along with many store locations, in October 2015.
Price Rite Marketplace stores (operated by Wakefern) in Queensbury and Schenectady, NY held grand reopenings last week following redesigns. The new stores feature a more open, brighter look with new signage. The stores also expanded their fresh produce and meat sections.
Winn-Dixie has opened the final two stores in Florida that were closed for nearly a year and remodeled after Hurricane Michael. The Panama City stores now feature new concepts such as expanded organic and prepared foods, a new dollar shop section, Shipt delivery, and a liquor store.
Last Wednesday, HAC Inc., the operating company of Homeland grocery stores, announced it entered into an agreement to buy five supermarkets from RPCS Inc. The purchase includes four Food Pyramid locations in Ponca City (2), Stillwater, Bartlesville, OK; and one Ponca City Discount Foods in Ponca City. The stores will be operated by HAC on a rolling schedule beginning in early November. HAC will operate the stores under their existing banners until early 2020, when the Food Pyramid stores will be rebranded as Homeland stores. Homeland also will continue to operate the existing pharmacies, fuel, and convenience stores. All locations will add more Made in Oklahoma and signature Homeland items over the next few months. Plans include replacing registers and upgrading existing facilities. As of 2019, HAC operates 74 grocery stores in Oklahoma, Texas, Kansas, and Georgia under the Food World, Piggly Wiggly, Country Mart, United, Cash Saver, Super Save and Homeland banners. Homeland is HAC’s largest banner, with 30 locations across Oklahoma. HAC, an ESOP, is a variable interest entity of Associated Wholesale Grocers.
Retail Business Services (RBS), the services company of Ahold Delhaize USA, has opened a fresh foods processing facility, operated through its subsidiary Infinity Fresh Kitchen, in North Kingstown, RI. According to the Company, the facility has begun production of fresh items for area supermarkets, including offerings commonly found in deli or grab-and-go sections. It also features a culinary innovation center that will continually test new, fresh, private-brand food concepts. The facility initially serves the Hannaford and Stop & Shop brands. Meanwhile, RBS said it plans to expand its frictionless SCAN IT! checkout technology to roughly 30 stores by the end of 2019. Customers can use their mobile devices to shop the store, scan product bar codes, and exit through a designated checkout lane, or they can use a handheld scanning device at the front of the stores, transfer the order to a mobile phone for payment, and exit using the designated lane. The technology is currently offered at select Stop & Shop and Giant Heirloom Market locations. Click here to request a list of future openings and closings.
Sally Beauty Holdings plans to remodel approximately 100 Sally Beauty Supply stores in the North Texas region, with Dallas-Fort Worth area stores being upgraded similar to the concept store test in Las Vegas, NV. An additional 75 stores outside of the North Texas area will be remodeled or relocated, depending on market assessments and negotiations with landlords. Sally Beauty is also investing in new labor assets and capabilities in digital commerce, brand marketing and strategy, and global sourcing. As part of this effort, Sally Beauty will create approximately 40 new positions at its Denton, TX headquarters. Meanwhile, the previously announced opening of a new 500,000 square-foot automated distribution center in Denton County, TX is on track for opening by March 2020. The facility will create 270 new jobs in the Dallas-Fort Worth area.
Amazon is proposing a 1.4 million square-foot warehouse in Deltona, FL. The city is expected to approve the project on November 4. Meanwhile, the Company is expanding its footprint in Massachusetts with a new “delivery station” in the former NECCO plant in Revere. The Greater Boston “delivery station” is slated to open in 2020. It will seek to speed up deliveries for customers in the Suffolk County area, which includes Revere, Boston, Winthrop and Chelsea. Delivery stations represent the last leg of Amazon’s delivery network and are where packages are sorted and dispatched to customers via couriers. In Massachusetts, Amazon currently has delivery stations in Everett, Dedham and Milford. Click here to request a list of future openings.
Walmart is launching a new in-home delivery service in three markets (representing more than one million customers): Kansas City, MO/KS; Pittsburgh, PA; and Vero Beach, FL. The service not only delivers orders but has them put away in customers’ refrigerators. Eligible customers must designate the refrigerator location in their home or garage; once the smart home technology is installed, customers place an order, and delivery associates wear a proprietary camera when they enter the home. Customers can control access and view deliveries remotely. The fee is $19.95 a month and requires shoppers to purchase a $49.95 smart door lock kit or smart garage door kit. In other news, Walmart has agreed to pay $14.0 million to settle a potential nationwide class-action lawsuit alleging that it discriminated against pregnant women by refusing to offer “light duty” assignments for their medical conditions under a national policy the retailer changed in March 2014. Walmart disclosed Friday that it will record a $2.20 billion charge to earnings, after its U.K. subsidiary Asda Group announced a plan to secure the benefits of members of Asda’s pension. Walmart and Asda said the plan secures a £3.80 billion (US$4.90 billion) “buy-in” in anticipation of a full “buy-out” of the pension scheme and will be enabled by a one-off final pension contribution by Asda of about £800.0 million ($1.00 billion). After the buy-in, pension members will be provided individual annuity policies issued by Rothesay Life, which will be responsible for paying benefits in full. Click here to request a list of future openings and closings.
Cole Haan, an upscale footwear and accessories brand, reportedly submitted a draft registration statement with the SEC relating to a proposed IPO of its common stock. The Company is owned by U.K. private equity firm Apax Partners, which acquired it from Nike in 2013. The size and price range of the proposed offering has not yet been determined. The IPO is expected to commence after the SEC completes its review process, subject to market and other conditions. In its most recent fiscal year ended June 1, 2019, Cole Haan’s sales rose 14% to $687.0 million, and adjusted EBITDA was up 56% to $95.3 million. Cole Haan operates more than 100 stores in the U.S.
Wendy’s is rolling out its new breakfast menu in the first quarter of 2020, marking the Company’s second foray into the morning menu. At its investor day, Kurt Kane, president of Wendy’s U.S. business and chief commercial officer, reflects on the Company’s previous attempt, “The simple truth is we just didn’t build it the right way. It was way too complicated operationally. We had some great tasting products, but they were products we couldn’t execute.” The old breakfast menu featured as many as 45 unique SKUs, $10,000 in equipment costs per restaurant, four staff members to execute, and lacked national advertising; the new menu requires only 18 unique SKUs, no equipment costs, three staff members to execute, and will be advertised nationally. Wendy’s has already rolled out the new model at 300 locations, to positive customer and franchisee feedback. The Company is expecting the daypart to account for 10% of its daily sales. Click here to request a list of future openings.
Yesterday, Dunkin’ Brands announced the rollout of Beyond Meat’s plant-based breakfast sandwich to 9,000 U.S. restaurants starting November 6. The decision follows a successful launch of the sandwich at its New York City restaurants in July; the Company indicated it became one its top-selling sandwiches. The partnership marks Beyond Meat’s first nationwide fast-food rollout.
Macy’s is unveiling a major renovation to its men’s floor at its 34th Street flagship location in New York’s Herald Square. The 14,500 square-foot space features new brands Scotch & Soda, Coach men’s apparel, and a premium denim zone with J Brand, 7 For All Mankind, Fidelity, and Naked & Famous Denim, as well as a revolving assortment of new brands including Desigual, Avirex, Paisley & Gray, INC Onyx, Goorin Bros., and Brooklyn Brigade.
On September 30, it was reported that Sportsman’s Warehouse inked a deal with Dick’s Sporting Goods to acquire all cash, inventory, furniture, fixtures, and equipment and certain other assets related to eight Field & Stream stores (two in New York, three in Pennsylvania, two in North Carolina, and one in Michigan). On October 19, Sportsman’s reopened the eight stores after remodeling them to the Sportsman’s Warehouse banner.
On October 19, JD Sports opened a store in Barnsley, U.K., a 4,000 square-foot unit with a 10-year lease. The Company opened 46 new locations during the first half of fiscal 2019; it also acquired 73 stores and closed 69 underperforming units. There are 2,470 JD Sports stores in its core U.K. and Ireland market, the U.S., and 14 other countries.
In the iPic Entertainment Inc., DIP Chapter 11 case, following an auction the Debtors notified the Court that iPic Theaters, LLC was the successful bidder for substantially all of the Company’s assets, with a credit bid of $50.9 million. Cinemex Holdings USA, Inc. was the backup bidder, with a bid of $48.8 million. The ownership of iPic Theaters, LLC is divided between the Teachers’ Retirement System of Alabama (67%) and the Employees’ Retirement System of Alabama (33%), which are the Company’s DIP Facility lenders. A sale hearing is scheduled for October 28.
In a recent SEC filing, Kona Grill, Inc., DIP said that as a result of the sale of substantially all of its assets, the debtors have ceased ordinary business operations. On October 7, the ONE Group Hospitality, Inc.’s subsidiary, Kona Grill Acquisition, LLC (KGA), completed the acquisition of Kona Grill for about $25.0 million. Kona Grill said the debtors now expect to engage only in the liquidation of their remaining assets and winding up their affairs. Proceeds from the asset sale are expected to be applied to the costs associated with administering the Chapter 11 cases and reducing the amount outstanding of the Company’s senior secured indebtedness.
According to reports, Harbin Pharmaceutical Group, an investor in GNC Holdings, is considering a potential bid to take the Company private. Harbin initially acquired a 40% stake in GNC in February 2018 for $300.0 million in convertible preferred shares, and later in February 2019, the companies created joint ventures to operate ecommerce businesses in Hong Kong and China (Harbin owns 65% of these joint ventures, GNC owns 35%). Potential obstacles to Harbin making an offer include regulatory concerns and GNC's current debt load, which exceeded $850.0 million as of June 30, 2019 (representing a 4x debt to TTM EBITDA). GNC has been working to refinance that debt, as significant amounts are scheduled to mature in the next few years, including $151.0 million in convertible notes on August 15, 2020, and $438.5 million in term loans in March 2021. Management expects to complete any refinancing transaction before the end of this year.
Earning Reports
Albertsons Companies announced results for its second quarter and 28 weeks ended September 7. Quarterly sales increased 1.1% to $14.20 billion, driven by a 2.4% uptick in identical sales, its seventh consecutive quarter of positive comps driven by strong online and private label sales. Gross margin increased 60 basis points to 27.8% and benefited from better-than-expected fuel margins, and improved shrink expense. The improved sales and gross margin were partially offset by higher labor costs, investments in digital initiatives, and incremental rent expense from sale-leaseback transactions, as EBITDA increased 3.5% or 10 basis points.
McDonald’s third quarter consolidated sales rose 1.1% to $5.43 billion, and comps increased 5.9%, reflecting comp gains of 4.8% in the U.S. segment, 5.6% in the International Operated segment, and 8.1% in the International Developmental Licensed. Quarterly net income decreased 1.8% to $1.61 billion. Year to date, sales decreased 0.8% to $15.73 billion, and profit dropped 1.2% to $4.45 billion. Results for the 2019 YTD period included $80.0 million of pre-tax charges, primarily related to impairment associated with the purchase of McDonald’s joint venture partner’s interest in the India Delhi market, partly offset by gains on the sales of property at the former corporate headquarters. Results for 2018 reflected income tax costs associated with adjustments to the provisional amounts recorded in December 2017 under the Tax Act of $47.0 million for the quarter and $99.0 million year to date. Results for the 2018 YTD period also included $94.0 million of pretax strategic restructuring charges. Looking ahead at fiscal 2019, McDonald’s expects net restaurant additions to add approximately 1% to 2019 system-wide sales growth (in constant currencies) and capital expenditures to be approximately $2.30 billion, of which about $1.50 billion will be dedicated to its U.S. business. Click here to request a list of future openings and closings.
The Tile Shop reported third quarter sales declined 3.7% to $85.9 million, and comps were down 3.5% due to lower customer traffic. Gross margin fell 180 basis points to 68.8% due to higher levels of shrink and damaged inventory write-offs combined with a lower freight collection rate. As a result, adjusted EBITDA dropped 29.7% to $8.3 million. Tile Shop announced plans to voluntarily delist its common stock from the Nasdaq stock market, and suspend public reporting obligations. The Company anticipates November 8, 2019 as the last day of trading on the Nasdaq. The Company’s common stock may still be eligible for trading on the over-the-counter (OTC) market, but management noted there cannot be assurances regarding any such trading. The Company intends to deregister with the SEC on November 12, 2019, and will subsequently not be required to file quarterly and annual reports. Management noted that it still intends to file its annual form 10-K for the year ending December 31, 2019.
Sleep Number’s third quarter sales increased 14.5% to $474.8 million, and comps were up 10%. Retail sales (92.2% of total sales) were up 9%; online and phone sales (7.3% of total sales) increased 20%; wholesale sales (0.5% of total sales) were up 8%. Gross margin increased 200 basis points to 62.4%, and adjusted EBITDA rose 31.9% to $58.3 million. The Company opened 15 stores during the quarter and closed seven underperforming locations, ending with 602 stores in operation. Average sales per store were $2.8 million, and average sales per square foot were $1,029.
