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September 16, 2020


According to published reports, Petco’s private equity owners, CVC Capital Partners (CVC) and Canada Pension Plan Investment Board (CPPIB), are looking to sell Petco or launch an IPO. The reports indicate the Company is being valued at $6.00 billion, including debt, which could mean a 15x EBITDA multiple based on our analyst’s estimates. CVC and CPPIB purchased the Company for approximately $4.70 billion in January 2016. Both owners are seeking potential advisers and reviewing strategic options, and formal efforts for a sale or IPO will not occur until FY21; this is five years from the initial purchase, or around the time when private equity sponsors typically look to exit their investments.

August U.S. retail sales remained positive at 0.6%, though trends continue to decelerate significantly on a month-over-month basis, as the benefits of the stimulus, additional unemployment, and pent-up demand wane. Consumer spending continues to be concentrated in the home and electronics categories, as the duration of the work from home/ remote learning situation is unknown. Electronics sales rose 80 bps from July, corroborating commentary from retailers, such as Best Buy, which stated sales the first three weeks of 3Q rose 20% from the prior year. Similarly, home improvement retailers, such as Home Depot and Lowe’s, as well as home furnishers, including Wayfair and At Home, also had robust starts to 3Q, with most anticipating this continues the remainder of the year. Click here to request a copy of the full report.


On September 10, Century 21 Department Stores filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York. The proceedings have been designated as case number 20-12097. The Company announced plans to wind down its retail operations following its insurance provider’s non-payment of $175.0 million due under policies put in place to protect against losses stemming from business interruption, such as that experienced as a direct result of the COVID-19 pandemic.

The Debtors filed motions seeking interim authorization to commence GOB sales at all 13 stores (), with store-closing sales to conclude by November 30. On September 14, the Court issued an interim order authorizing the Debtors to use cash collateral.

The Debtors have not indicated any plans to seek access to a DIP Facility. In the previously filed motion, the Debtors stated that they “require immediate access to cash to ensure that they are able to conduct their store closing processes, sell other assets and preserve the value of the estates. The Debtors have no unencumbered cash, and the prepetition secured lenders have security interests in substantially all of the Debtors’ assets. As such, there is no unencumbered cash to support the Debtors’ ordinary course business operations, let alone the added costs of administering the Chapter 11 cases.” A hearing to consider final approval is scheduled for September 30. Click here to request a list of future closures.


According to reports, attorneys for J.C. Penney Company told the Court that a tentative agreement has been reached with Simon Property Group, Brookfield Property Partners, and first lien lenders to purchase the Company’s assets. The agreement is incorporated in a non-binding letter of intent, which the Debtors will formalize into a stalking horse asset purchase agreement over approximately the next 10 days. The $1.75 billion transaction would include $300.0 million in equity from Brookfield and Simon, as well as $500.0 million of financing from the current DIP and first lien lenders. The transaction would include a $2.00 billion asset-based exit facility led by Wells Fargo. The Company plans to publicly file a letter of intent this week, and the transaction will be submitted for Court approval at a later date. There will be a division of the Company’s real estate assets (propco) and its operating unit (opco). The propco portion would include 160 of the Company’s owned properties that would be put into a public REIT, while its distribution centers would be put into separate REIT.

On September 14, the Debtors filed a motion to extend the periods during which they have the exclusive right to file a Chapter 11 Plan and solicit acceptances by 120 days, through and including January 10, 2021 and March 11, 2021, respectively. The exclusive period within which to file a Plan expired on September 14. A hearing date has not been scheduled. The exclusive period to file a Plan will be automatically extended through the date of the order. The U.S. Trustee provided notification that the Creditors’ Committee was reconstituted to remove Simon Property Group Inc. This follows Simon’s entry into a tentative agreement (as part of a group including Brookfield Property Partners and certain first lien lenders) to purchase the Company’s assets. The tentative agreement is intended to become the basis of a stalking horse asset purchase agreement.

Separately, reports state that Authentic Brands may join Simon and Brookfield in their bid for the Company. Further details are not currently available. The Debtors cancelled an auction of certain real estate assets that was scheduled for yesterday; they reserved the right to hold the auction on a later date. Click here to request a list of closings.


Stater Bros. FY19 results were broadly in line with the trend of the last few years; the top line inched up due to gains from two new stores, and the Company continued to remodel stores focusing on modern and more upscale amenities like improved signage and wider aisles, and fresh and full-service offerings such as delis, hot-bakery, sushi, meat and seafood departments. The remodels are likely to differentiate Stater from other market players, particularly given Aldi’s rapid expansion in its markets. Though the balance sheet remains somewhat levered, Stater Bros is believed to be profitable with a stable capital structure including significant owned assets. Like others in the segment, we expect the Company is currently benefiting from the shift of food sales to at-home in 2020, which is leading to improved cash flow and profitability. 


On September 14, Town Sports International Holdings, Inc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware. The proceedings have been designated as case number 20-12168. The Company, which operates the New York, Boston, Philadelphia and Washington Sports Clubs, attributed the filing to disruptions caused by the coronavirus outbreak. Management said it plans to keep operating while it “works out a plan to pay creditors and turn the business around.” The filing comes after talks collapsed over financing. Town Sports was previously considering a transaction to buy the indoor cycling studio business of Flywheel Sports, which was owned by Kennedy Lewis Investment Management, LLC. The Company, which has around 600,000 members, originally wanted to use part of the financing from Flywheel’s owners to replace a term loan that is due in November. However, the transaction was unable to be consummated.


In the RTW Retailwinds bankruptcy case, the Court approved the sale of the Company’s IP assets to Saadia Group LLC, a real estate company, for $93.6 million, including $66.0 million in cash and the assumption of certain liabilities. The sale will close on October 1. Under the agreement, Saadia will acquire the Company’s e-commerce business and all related intellectual property, including the websites and, plus associated rental subscription businesses. Saadia said it intends to keep operating the e-commerce business as a going concern. It did not assume any leases as part of the sale.


American Eagle plans to permanently close 40 – 50 stores this year and is reviewing another 500 leases for possible closures in the next two years as leases expire. This store-fleet optimization is being driven by strong digital demand, which rose nearly 50% in 2Q. The Company ended 2Q with 1,098 stores.


Amazon is reportedly opening its second Amazon Go Grocery store located in Redmond, WA near Microsoft’s headquarters. The concept is an expansion of the high-tech shopping experience first unveiled at its Go convenience stores two years ago. Amazon Go Grocery stocks many of the items found in full-size grocery stores but uses an array of cameras and sensors to log what people put in their carts as they shop, eliminating checkout lines. The Amazon Go Grocery format is said to be larger than the original Amazon Go stores, which are more of a convenience format, but smaller than the new Amazon Fresh grocery stores that the Company is rolling out. This Amazon Go Grocery will differ from the first location by offering a selection of hot food items prepared in an onsite kitchen. The Redmond store is also catering more heavily to parents on the go with expanded baby product offerings. Click here to request a list of future openings.

Indian conglomerate Reliance Industries is reportedly ready to sell to Amazon a 40% stake in its Reliance Retail Ventures that would be worth as much as $20.00 billion. The two entities have been in negotiations since this summer, when it was reported Amazon was interested in a 10% piece of the business. Reliance Retail runs supermarkets, India’s largest consumer electronics chain stores, a cash-and-carry wholesaler, fast-fashion outlets, and an online grocery store called JioMart, in which both Alphabet and Facebook have invested.

In other news, Amazon is hiring as many as 100,000 full and part-time employees to work in its growing network of fulfillment centers across the U.S. and Canada ahead of the holiday shopping season. It will offer starting wages of least $15 an hour. The new jobs include benefits and signing bonuses of as much as $1,000 in select cities, and access to training programs.

Meanwhile, Amazon is reportedly planning to expand its “Flex” driver program, which includes independent contractors that handle Amazon grocery deliveries using their personal vehicles. These contractors will now not only be handling deliveries but will also gather and bag the products; products are currently gathered and bagged in stores by Amazon employees earning at least $15 an hour. This a way for Amazon to control costs as independent contractors are not eligible for additional benefits like medical insurance or sick pay.


Camping World released its long-term goals, initiatives, and 2021 outlook. The Company believes it can grow adjusted EBITDA in the mid-single digits over the next five years, with a goal of generating more than $500.0 million in adjusted EBITDA in 2021, up from a projected range of $460.0 million – $490.0 million in 2020. Annually, the Company is targeting a minimum adjusted EBITDA margin of 7.5% and SG&A margin of 68%. The Company’s EBITDA is approximately $333.1 million, or a 6.7% margin, for the TTM period ended June 30. The Company’s goal is to have a net leverage ratio of less than 2x by year end.

Currently, each of the Company’s 2.1 million Good Sam members generated average annual revenue of $1,850; the Company aims to grow both its file size and average revenue per member by 10% in the next 36 months. It also launched proprietary technology this year called the Good Sam RV Valuator, which it believes could benefit its used vehicle revenue growth by up to an additional 5% annually. The Company also announced a number of new initiatives, including:

  • Plans to launch a new peer-to-peer RV rental marketplace in spring 2021, which it believes will expand the RV community, provide Good Sam Members an opportunity to yield a return on their RV investment, generate opportunities to source used inventory, and introduce the breadth of products offered by the Company to a larger consumer base.
  • Plans to launch a mobile service marketplace in spring 2021 that allows Good Sam Members to schedule service appointments and request immediate support from independent repair centers and mobile service providers. In exchange for a monthly fee, independent repair centers and mobile service providers will be provided a platform to join the network.

The Company said it is committed to investing heavily in product development that continues to create more efficient, more responsible, lightweight, innovative and tech-savvy products both with RVs and the products that complement them.


On October 14, Meijer will open a new grocery store concept called Capital City Market in downtown Lansing, MI. The 37,000 square-foot store will focus on fresh, convenient foods and marks Meijer’s third small-format store in Michigan, following Bridge Street Market’s August 2018 opening and Woodward Corner Market’s January 2020 opening. Click here to request a list of future openings.


REI announced that it completed two transactions for total proceeds of $390.0 million. The Company sold its newly completed 400,000 square-foot corporate campus and six acres of land in Bellevue, WA for $367.6 million to Facebook. The Company never occupied the building. Additionally, site developer Wright Runstad & Company and Shorenstein Properties purchased an undeveloped two-acre portion of the property for $22.4 million. Last month, REI announced its intention to pursue a sale of the Bellevue campus and shift to a more distributed work model. Management did not indicate how it plans to use the proceeds. At December 28, 2019, the Company did not have any debt, and there was $97.4 million of availability under a $100.0 million unsecured revolver with Wells Fargo. 


Giant Eagle has partnered with Grabandgo, a provider of checkout-free technology, to make the service available to its GetGo Café+Market convenience store in Pittsburgh, PA. Giant Eagle hopes to roll out more Grabango-powered convenience and grocery stores in the near future. 


J. Crew Group announced it has emerged from Chapter 11. The Company said lenders, led by hedge fund Anchorage Capital Group LLC, have exchanged $1.60 billion of the Company’s debt for equity. Anchorage is now the majority owner of J. Crew. To fund its operations, the Company has a $400.0 million exit term loan due 2027, provided by Anchorage, GSO Capital Partners, and Davidson Kempner Capital Management. It also has access to a $400.0 million asset-based credit facility, due 2025 provided by Bank of America.


Sportsman’s Warehouse plans to open a new store in Chambersburg, PA this month, with a grand opening set for the weekend of September 24. The Company currently operates locations in Altoona, Camp Hill, and Washington, PA. 


Walmart is currently testing two drone delivery services in the U.S. It has partnered with Flytrex to deliver “select grocery and household essential items” from Walmart stores to homes in Fayetteville, NC. Flytrex says its drone can carry 6.6 pounds for 3.5 miles and back with the most recent model having some limitation; it does not fly in the rain and at wind gusts stronger than 18 miles per hour.

Walmart has also partnered with Zipline in Arkansas for drone delivery. Zipline is a startup that made its name delivering medical supplies across Africa. Working with Novant Health, Zipline has been delivering medical equipment and personal protective gear via drone to regions of North Carolina since May. The drone operation with Walmart will deliver health and wellness products initially, with the potential to expand to general merchandise. Trial deliveries for the new service will begin in Northwest Arkansas and cover a 50-mile radius.

Starting today, customers across the country can sign up for Walmart+ for $98 a year or $12.95 a month. Benefits include unlimited free delivery on more than 160,000 items, the options for Scan & Go, and fuel discounts.

Microsoft’s bid for the U.S. business of TikTok, which includes Walmart as a minority investor, was rejected. TikTok’s Chinese parent, ByteDance, has selected Oracle to be its U.S. partner. In a statement, Oracle said, “it is part of the proposal submitted by ByteDance to the Treasury Department over the weekend in which Oracle will serve as the trusted technology provider.”

Internationally, Walmart’s Flipkart plans to create 70,000 new jobs and employ many more as delivery partners and in other roles as it prepares for a surge in online shopping during the busy Indian festive season. Click here for a list of recent and future openings and closings.


Dave & Buster’s Entertainment provided an update on its operations and the reopening of its venues. After closing all venues on March 20 in response to the COVID-19 pandemic, the Company began reopening on April 30, reaching 26 open at the end of May, 66 at the end of June, and 84 at quarter-end on August 2. Currently, 89 of 137 total venues are open, all under reduced hours and limited capacity based on local restrictions. 

As a result of the temporary closures and significant volume declines, the Company’s 2Q sales decreased 85.2% to $50.8 million. Comps decreased 87% and are still down significantly in the third quarter, with a 71% decline in the two weeks ended September 6. Ultimately, Dave & Buster’s recorded an EBITDA loss of $46.0 million and a net loss of $58.6 million. During 2Q, the Company burned approximately $3.3 million in cash per week, and management expects cash burn to continue until it can reach a breakeven point at about 50% to 55% of prior year sales. At the end of the 2Q, the Company’s liquidity consisted of $224.0 million in cash, including $110.6 million in proceeds from a stock offering completed in May. 


The hearing in the Rochester Drug Cooperative, Inc. bankruptcy case originally scheduled for September 11 was reset to September 25 in order to provide adequate time for the consideration of objections to the Disclosure Statement detailed in our August 25 update. At the auction for the Rochester distribution center on September 2, the Debtor determined that the bid by IEC Electronics in the amount of $5.25 million was the highest and best offer, and IEC was therefore determined to be the Successful Bidder. A $5.1 million bid from Maguire Family Properties was designated as the Back-Up Bid. The Debtor and IEC are in the process of finalizing and executing the Purchase and Sale Agreement.


The Creditors’ Committee filed an objection to Kings Super Markets' motion seeking access to a DIP Facility. The objection notes that the proposed $100.0 million DIP Facility consists of $17.0 million in new money and an $83.0 million rollup of prepetition debt, which is nearly a 5:1 ratio. The objection also asserts that: (i) the DIP Facility does not provide for the payment of all administrative and priority claims, including claims arising under Section 503(b)(9); and (ii) the DIP Facility imposes milestones which place undue pressure on the Debtors and “grants the DIP lenders excessive control over the decision-making process, while shutting the Committee out of the process altogether.” The Committee also filed an objection to the Debtors’ motion seeking approval of the stalking horse purchase agreement with TLI Bedrock LLC, led by real-estate investor Lawrence B. Benenson. The objection notes that the DIP lenders will be financing a substantial portion of the stalking horse bid, and that the financing and sale-related issues are inextricably intertwined. The objection highlights “a truncated sale timeline dictated by the DIP lenders” and alleges that “the Debtors are plowing full steam ahead to a sales process that is not designed to solicit higher or better offers for the Debtors’ assets.” The Committee proposes modifying the deadlines for the sale process, including moving back the date for qualified bids to October 16 from the current deadline of October 2. The hearing to consider final approval of interim orders, originally scheduled for yesterday, was adjourned to today.


In the GNC Holdings bankruptcy case, the Debtors cancelled the auction for the sale of the Company’s assets as a going concern, and designated Harbin Pharmaceutical Group Holding Co., the stalking horse bidder, as the successful bidder after no other offers emerged. Consideration for the transaction totals approximately $770.0 million, including a $550.0 million cash payment, $210.0 million in second-lien loans, and $10.0 million in convertible notes. A hearing to consider approval of the sale is scheduled for Thursday (September 17).

Papa John’s International announced September 10 the signing of a development agreement under which franchisee HB Restaurant Group will open 49 new restaurants in Philadelphia, PA and southern New Jersey between 2021 and 2028. HB Restaurant Group, which has been a Papa John’s franchisee since April 2019, currently owns 43 restaurants in the Mid-Atlantic area. 


Tuesday Morning Corporation and JPMorgan Chase Bank (the ABL DIP Agent) entered into an agreement to extend the milestone date in the DIP Facility, which requires the Debtors to file either: (i) a Chapter 11 Plan, or (ii) a motion to approve a sale of substantially all assets of the Company. The agreement, which extends the milestone date to September 17 from September 9, is effective immediately without any further action. This is the second extension of the agreement; it was previously extended from August 31 to September 9. Click here for a list of closures.


On September 10, a judge overseeing the Chapter 11 bankruptcy cases of California Pizza Kitchen, Inc. and its seven affiliates (California Pizza Kitchen) signed an order establishing October 15 as the deadline for filing proofs of pre-petition claims, including 503(b)(9) claims. Governmental units will have until January 8, 2021 to file their proofs of claim.


In the Sur La Table bankruptcy case, the Court authorized the Debtors to close 20 stores; these are in addition to the 56 units that were previously authorized. Click here for a list of closures.


Red Robin Gourmet Burgers provided a business update in light of the COVID-19 pandemic. The Company said its comparable restaurant revenues have improved sequentially with the expansion of outdoor seating capacity. As of September 6, Red Robin was operating approximately 349 indoor dining rooms with limited capacity, representing 85% of 412 Company-operated restaurants that are currently open. Weekly net comparable restaurant revenues for Red Robin’s 412 restaurants currently open have improved from being down 35.4% for the week ended August 2, versus the same week a year ago, to being down by only 21.9% for the week ended September 6, compared to that same week in 2019. As of September 6, the Company had liquidity of approximately $104.0 million comprised of cash and cash equivalents and available capacity under its credit facility.