October 24, 2023
The Court provided interim authorization for RITE AID CORPORATION, DIP to pay certain prepetition claims of 503(b)(9), lien and critical vendor claimants, in an aggregate amount not to exceed $138 million; provided that any payment above $1 million to a single party (or group of affiliated parties) will be subject to Required Consenting Noteholders' approval.
The Debtors are authorized to condition payment of trade claims upon each trade claimant’s written agreement to (a) continue—or recommence—providing goods and services to the Debtors in accordance with trade terms (including credit limits, pricing, timing of payments, availability, and other terms) at least as favorable to the Debtors as those in place during the twelve months prior to the Petition Date, or as otherwise agreed by the Debtors in their reasonable business judgment, and (b) agree that such specified trade claimants shall not cancel on less than 90 days’ notice any contract or agreement pursuant to which they provide goods or services to the Debtors. As part of any critical vendor trade agreement, the Debtors agreed to waive any preference actions. A final hearing on the matter was scheduled for November 16, 2023. The Debtors also received Court approval of certain dates and protocols in connection with its Plan confirmation, including setting February 20, 2024 as the starting date for the confirmation hearing.
The Debtors also received approvals from the U.S. Bankruptcy Court for several of its "First Day" motions. The Court granted interim approval to access up to $3.45 billion in DIP financing. The Company believes this financing will provide sufficient liquidity to support it throughout this process. Among other things, the Court has authorized the Debtors to continue to pay associate wages, salaries, and benefits without interruption, the procedural consolidation and joint administration of these Chapter 11 cases and pay vendors and suppliers in full for goods and services provided on or after the filing date of October 15, 2023.
The Court also approved the Bidding Procedures and Store Closing Sales motion.
As previously announced, Rite Aid reached an agreement with certain of its senior secured noteholders under which it may acquire the Rite Aid Retail assets, through a credit bid transaction, subject to potential receipt of higher or better offers. Additionally, as previously announced, Rite Aid has also entered into an agreement with MedImpact Healthcare Systems, Inc., an independent pharmacy benefit solutions company, pursuant to which MedImpact will acquire Rite Aids’ Elixir Solutions business for $575 million. Under the terms of the agreement, MedImpact will serve as the “stalking horse bidder” in a court-supervised sale process. Accordingly, the proposed transaction is also subject to higher and better offers.
The Company disclosed it owns 99 stores averaging 16,821 feet and according to A&G have a property value between $157 million and $275 million.
WEGMANS opened an 87,500 square-foot store in lower Manhattan, NY. The location has a sushi bar and an omakase, which is a coursed sushi experience. The prepared food section also includes fresh-made salads, hot sandwiches, soups, pizza, wings, and hot Asian cuisine options. The onsite dining room will open during the first half of 2024. Wegmans operates 109 stores, including 49 in New York. This is the first Wegmans in Manhattan and it joins nearby locations in Brooklyn and Westchester County. Next year, Wegmans is opening a 100,000 square-foot store in Lake Grove on Long Island.
GROCERY OUTLET BARGAIN MARKET will open its first store in Ohio in Boardman on November 16. The Ohio store will grow the Company's footprint to eight states, joining 450 independently-operated locations in California, Washington, Oregon, Pennsylvania, Idaho, Nevada, New Jersey, and Maryland. October openings include locations in Kingston, WA (October 12), Fontana, CA (October 19), New Castle, PA (its first in western Pennsylvania on October 26), and Cameron Park, CA (October 26).
TRADER JOE'S plans to open a new 12,000 square-foot store in Lakewood Ranch, FL on October 26. The Company operates 23 locations in Florida and 545 overall. In addition, a Forest Hills, NY store is set to open by the end of 2023, and a site in Middletown, NJ is slated to open next year. The Company has over 30 stores in New York and 18 in New Jersey.
WAKEFERN'S ShopRite will close five stores and gas stations in the Albany, NY metro area. The stores, located in Albany, Colonie, Niskayuna, Slingerland, and North Greenbush are set to shut on December 9. Meanwhile, Wakefern opened a Philadelphia, PA area store in Drexel Hill on September 1 and this week is opening a store in Sussex, NJ.
WALMART opened a 1.5 million square-foot fulfillment center in Lancaster, TX on October 17, which allows the Company to fulfill more orders more quickly. Walmart is opening at least five fulfillment centers dedicated to e-commerce during the next three years, including the Lancaster facility and a facility scheduled to open in Stockton, CA in 2026. The first location opened in summer 2022 in Joliet, IL servicing customers across Illinois, Indiana, and Wisconsin. Along with a recently opened facility in McCordsville, IN, a hub is also slated to open in Greencastle, PA.
Engaged Capital, an activist investment firm, disclosed a stake in VF CORPORATION, parent of Vans and The North Face. Engaged Capital unveiled a turnaround plan for VF which includes unwinding duplicative costs, restoring brand autonomy, addressing the capital structure, and shaking up the board to include members "who will prioritize value creation." It's unclear how many shares Engaged Capital owns, but it's thought to be one of the top 10 shareholders.
UNIQLO opened two stores on Long Island, NY, one an 8,700 square-foot shop in South Huntington and the other a 9,700 square-foot space in Valley Stream. These locations join an existing location in Garden City and bring Uniqlo's total U.S. store count to more than 50. Uniqlo is embarking on an international expansion campaign that will give it up to 500 more locations, including about 200 in North America where there are currently 70 units.
CAMPING WORLD is acquiring Travelcamp RV, which has 12 locations in Florida (seven), Georgia (one), North Carolina (two), South Carolina (one), and Texas (one). The acquisition is expected to close and the stores transition to Camping World over the next 90 days. After closing, the Company expects these locations to be primarily stocked with either Thor or Forest River products. Camping World continues to target increasing its dealership count to 320 locations over the next five years, up from 203 at the end of 2Q23.
SCHEELS will open a 240,000 square-foot Cedar Park, TX store in Fall 2026, bringing its store count to 35. The Company currently has 32 stores in operation and two others scheduled to open in 2024, in Meridian, ID and Tulsa, OK. It recently opened a 250,000 square-foot location in Chandler, AZ.
TENNIS WAREHOUSE, an e-commerce retailer that sells tennis products nationwide and in Europe and Australia, recently acquired Swetka's Tennis Shop in Mountain View, CA. Swetka's opened in 1969 and has been a family-run business since. Tennis Warehouse operates two retail locations, San Luis Obispo, CA on the West Coast and Alpharetta, GA on the East Coast.
ACE HARDWARE has relocated its headquarters to a former McDonald's corporate campus in Oak Brook, IL, from its previous space, also in Oak Brook. Construction on the 250,000 square-foot site began in February and was completed in mid-September.
In other news, Ace Hardware plans to open a new retail support center in Kansas City, MO. The new facility, spanning 1.5 million square feet, is projected to be fully operational in 2025.
Z GALLERIE, the Los Angeles, CA-based contemporary furniture retailer, filed for Chapter 11, citing liabilities between $50 million and $100 million. The Company, which is owned by CSC Generation Holdings Inc. and does business as part of DirectBuy Home Improvement, filed in the U.S. Bankruptcy Court in the District of New Jersey. According to the filing, Z Gallerie has 21 locations in nine states. CSC bought DirectBuy/Z Gallerie out of bankruptcy in July 2019 for $20.3 million. The Debtors plan to retain Stump & Co. as their investment banker to market their assets. If the Debtors are unable to implement a going-concern transaction, they will pursue an orderly liquidation of the remaining assets, and close stores in the coming months.
Earlier this month, TOYS 'R' US announced plans to open new brick and mortar stores in the U.S. WHP Global, its parent, stated it will open new stores in 2024, with 24 "flagship" stores, as well as a separate rollout at airports and on cruise ships. The first of the new stores is set to open for the upcoming 2023 holiday season in Dallas/Fort Worth International Airport. The new stores are a partnership with Go! Retail Group, which characterizes itself as a family of brands. Currently, the Company operates one location (20,000 square feet) at American Dream mall in New Jersey, and in all 494 Macy's stores. RetailStat analysts recently issued a Spotlight Report on TRU Kids. Click here to view the report.
WALGREENS reached a settlement of $192.5 million in a class action lawsuit filed by investors in Rite Aid. The investors alleged that Walgreens provided misleading information in 2017 regarding the proposed merger between the two pharmacy chains. The lawsuit claimed that Walgreens downplayed antitrust regulatory concerns, ultimately leading to the abandonment of the merger plan.
In the first signs of potential stress in its ongoing transition into value based primary care, Walgreens is planning to close 60 VillageMD clinics as part of its target to cut $1 billion in costs in FY24. Management also said it is reducing SKUs by removing slow-moving product categories. Meanwhile, there continue to be reports that pharmacy staff from Walgreens and now other chains including CVS are planning a nationwide walkout and multiple rallies at the end of October to protest unsatisfactory working conditions. In recent weeks, some pharmacy staff from Walgreens locations around the country and CVS stores in the Kansas City area held separate walkouts. There is some speculation that pharmacists may be considering a push for unionization.
LONDON DRUGS recently commented on potential store closures around Vancouver due to crime and safety concerns. President Clint Mahlman stated, "We are having to face the reality of closing some stores. Not just because of financial losses, but more importantly, because we want our employees to feel safe coming to work." However, in a follow up clarification, the Company commented, "London Drugs has no immediate plans to close stores, and this will only be seriously considered as a last resort." The Company continues to evaluate stores based on staff and customer safety. London Drugs operates 79 stores in Canada, including 52 in British Columbia (about half are in Vancouver).
RetailStat sources have confirmed that RED LOBSTER MANAGEMENT LLC has hired AlixPartners to provide financial advice to help turn around its lackluster performance. Red Lobster's owner, Thai Union Group, Plc, has also hired Guggenheim Partners for investment banking advice, potentially to aid in the sale of its ownership stake or assets. There have also been unconfirmed reports that Red Lobster has hired a restructuring lawyer in preparation for a potential bankruptcy filing.
Red Lobster has struggled to recover from the pandemic and during 2Q23 reported an operating loss of THB 94 million (about $2.7 million) and a net loss of THB (193 million ($5.6 million). There were improvements compared to an operating loss of THB 281 million ($8.1 million) and net loss of THB 554 million ($16.1 million) in 2Q22, but still reflect weak guest traffic trends and margin pressures from inflation and an increasingly promotional environment. Management indicated that the Company would be increasing promotions to try to win back share, including making its "Ultimate Endless Shrimp" a permanent menu item in June, but inevitably this will have a negative impact on profitability. Red Lobster closed 16 locations in 2022, and anticipates further closures in 2023, though likely not as many. The Company has also recently turned over its management, promoting Horace Dawson to CEO on September 21, 2023, replacing the interim CEO Paul Kenny. Red Lobster's previous CEO Kelli Valade left the Company in April 2022 to become CEO of Denny's.
According to multiple sources, RESTAURANT BRANDS INTERNATIONAL, the owner of several restaurant brands including Burger King, Tim Hortons, Popeyes and Firehouse Subs, has hired FTI Consulting as a financial advisor to assist with the turnaround of Burger King and underperforming franchisees.
Burger King has already seen two sizable franchisees declare bankruptcy in 2023. TOMS King Holdings with 90 stores in Illinois, Ohio, Pennsylvania, and Virginia filed in January 2023 and Meridian Restaurants Unlimited with over 118 stores across nine western states filed in March 2023. Both franchisees cited weak traffic trends and inflationary pressure on both commodity and labor costs for their operational struggles. 82 of the TOMS stores and 70 of the Meridian stores were eventually sold to new and existing franchisees and Burger King itself, with the remainder closing. Another franchisee, EYM King with 26 stores in Michigan, closed all its stores in March and April ahead of the Company terminating its franchise agreement due to unpaid royalties. Five of these stores later reopened after being sold to an existing franchisee.
PRET A MANGER plans to expand its U.S. store base to 300 locations by 2029, up from 58 U.S. locations currently in operation. As part of its growth plans, the U.S. quick-service chain entered into a partnership with existing franchisee Dallas International under which Dallas will operate roughly 50 shops in New York, Pennsylvania, and Washington D.C., and hold the exclusive rights to open shops in these markets. Dallas intends to refurbish a number of stores and work with Pret to develop shop formats, including drive-thru options. The Company will also open more than 10 new Pret shops on the East Coast by 2026. In December 2022, Dallas agreed to develop at least 40 locations in Southern California. Pret is focused on opening more locations in regional and suburban areas as it moves beyond its traditional focus on cities and office-oriented locations.
WAWA plans to expand into Dickson, Lebanon, and Manchester, TN. The chain initially announced plans for Tennessee in 2022, with an eye on targeting the Nashville area and opening its first stores in 2025. The Company said its goal is to fill in the gaps between its primary service areas in the Northeast and Florida. Wawa is also bringing its first stores into North Carolina and Alabama in 2024, and it intends to break ground in Kentucky, Ohio, and Indiana by mid-2024.
September U.S. Retail Sales... The September retail sales report revealed a resilient consumer continued to spend, with sales growing a stronger than expected 0.7% MOM. The gains were fairly broad led by a 1.1% increase in non-store sales followed by a 0.9% gain at food services & drinking places. Gasoline sales also grew 0.9%, driven by an uptick in energy prices. On the negative side, electronics and clothing sales fell 0.8%, while building materials & garden fell 0.2%.
Pausing Interest Rate Hikes... Federal Reserve Chair Jerome Powell suggested that he is pleased with inflation's decline this summer and that the central bank is unlikely to raise interest rates again unless it sees clear evidence that stronger economic activity jeopardizes such progress. "Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully,” Powell said in prepared remarks for a Thursday lunchtime address in New York. “Incoming data over recent months show ongoing progress toward both” of the Fed’s goals to maintain stable inflation and strong employment. Powell's remarks suggested they are prepared to hold short-term interest rates steady at their next meeting on Oct. 31-Nov. 1. That is in part because a run-up in long-term interest rates over the past month could slow the economy, effectively substituting for rate rises if higher borrowing costs are sustained. The Commerce Department will release the inflation figures next week.
The 10-year Treasury yield has now risen nearly one percentage point since the Fed last raised rates at the end of July, an unusually large increase in such a short time frame. The yield climbed to new 16-year highs last week and was hovering around 4.95% before Powell's speech.