July 1, 2020
On June 23, GNC Holdings 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 20-11662.
On June 24, the Company filed motions seeking authorization to:
- Reject leases on 248 stores (click here to request the list), effective as of the petition date. These units will close immediately. The leases to be rejected are deemed not marketable and unlikely to generate material value for the Debtors’ estates. Additionally, the Debtors plan to close an additional 726 stores (click here to see the list) in Canada and the U.S. Lease negotiations are ongoing, and the Debtors said that their ability to negotiate more favorable lease terms and rent reductions will determine whether or not to close additional stores. As of May 31, the Debtors operated 2,501 Company-owned stores in the U.S. (including Puerto Rico) and 132 Company-owned stores in Canada. There were over 917 domestic franchise stores operated by 344 franchisees. Each store occupies between 1,000 and 2,000 square feet.
The Debtors entered into a $760.0 million stalking horse purchase agreement with Harbin Pharmaceutical Group Holding Co., Ltd. for a going concern sale of the business. If the transaction is consummated in a timely manner, it will be implemented instead of a Plan of Reorganization. The Debtors hope to consummate a sale or exit Chapter 11 this fall.
On June 23, J.C. Penney identified an additional 14 stores it plans to close (click hereto request the list) as part of the second phase of closings. This follows the start of GOB sales at 136 stores (Phase 1), part of a group of 154 units initially considered for closing. Objections to the Phase 2 closings must be filed by July 2.
Albertsons launched its IPO on Friday, and its shares began trading on the NYSE under symbol ACI. However, the launch price of $16 was below the expected range of $18 - $20, and on the first day of trading, shares closed at $15.45. Click here to request a list of openings and closings.
Microsoft Corp. announced plans to permanently shutter all of its Microsoft Store physical locations, which includes 70 U.S. units, seven Canadian units, and one unit each in Puerto Rico, the U.K., and Australia (click here for a complimentary list of closures). Four high-profile stores in New York City, London, Sydney, and Redmond, WA will be turned into “Microsoft Experience Centers” where customers will be able to experience products, see demos, explore device bars, and learn about technology. All purchasing will be fulfilled via the Company’s digital storefronts, including Microsoft.com. The Company’s stores have been closed since March due to the pandemic. Microsoft expects to record a charge of $450.0 million during 4Q20 for asset write-offs and impairments.
On June 25, CEC Entertainment, Inc. 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 20-33167. The Company cited financial strain resulting from prolonged COVID-19-related venue closures. Management said it expects to use the Chapter 11 process to “continue discussions with financial stakeholders, as well as critical conversations with landlords, to achieve a comprehensive balance sheet restructuring that supports re-opening and longer-term strategic plans.” CEC franchised locations operate under separate legal and financial structures and are not included in the Chapter 11 filings but may be affected by it.
Later that day, the Debtors filed a motion seeking authorization to pay prepetition claims of critical vendors and 503(b)(9), PACA/PASA, and lien claimants in the ordinary course of business. Documents in the case state that as of the petition date, the Debtors owed $16.0 million in accounts payable and accrued expenses to these claimants; they seek authority to pay claims of up to $2.75 million on an interim basis and $5.75 million on a final basis.
On June 26, the Debtors filed a motion seeking authorization to reject leases on 46 stores. Approximately 27 of the units were closed due to COVID 19, four were closed due to lock outs, three were closed due to expiring leases, and 11 were permanently closed prior to COVID-19. The status of one of the units was not described. The Debtors stated that they may seek post-petition financing, should the need arise during the cases. On June 29, the Court issued interim orders authorizing the Debtors to pay critical vendor claims of $1.0 million, 503(b)(9) claims of $500,000, and PACA/PASA claims of $750,000. A hearing is scheduled for July 23, at which time the Debtors will seek approval to pay the following on a final basis: critical vendor claims of $2.0 million, 503(b)(9) claims of $1.0 million, and PACA/PASA claims of $1.5 million. Click here to request a list of future closings.
Last week, Smart & Final Extra! opened a new 29,680 square-foot store in Turlock, CA. The store is in the same shopping center as a 99 Cents Only store, Big 5 Sporting Goods and Rite Aid. Smart & Final operates a distribution center in Turlock that opened in 2013 and nearby stores in Merced and Modesto. Click here to request a list of future openings.
Lucky’s Farmers Market Holding Company filed a motion June 23 seeking to establish bid procedures for the sale of its assets related to certain real property located on Martin Luther King Jr. Boulevard in Panama City, FL. M.B.D. Properties has been identified as the stalking horse purchaser, with its $3.3 million bid. Lucky’s Market is asking the court to set August 10 as the deadline to submit bids and August 12 as the date to hold an auction. Lucky’s Market has also proposed August 10 as the deadline to object to a sale to the stalking horse purchaser and August 14 as the deadline to object to the sale in general. A hearing for the bankruptcy court to consider final approval of the sale will take place on August 17.
On June 25, Apple re-closed 14 of its retail locations in Florida due to a resurgence of COVID-19 cases. Of the 18 Apple stores in Florida, only two currently remain open, one in Jacksonville and the other in Sarasota. The tally of closed U.S. Apple stores is currently at 32, which represents 10% of the Company’s 272 stores. In addition to Florida, Apple began reclosing stores in Arizona, North Carolina and South Carolina. Apple had taken a staggered approach to reopening its stores that started in late May.
McDonald’s said that it has made the “difficult decision” to close its corporate store in Times Square, a move that was in the works prior to the coronavirus pandemic. Customers will be served a few blocks away at a new flagship store.
On June 26, Sportsman’s Warehouse opened a new store in Kalamazoo, MI. The Company ended 1Q20 with 105 stores in operation, including two in Michigan. Other 2020 openings include Parker, CO (opened in February) Brentwood, CA (opening August) and Corona, CA (opening October). The Parker store brought the Company’s Colorado store count to seven, while the Brentwood and Corona locations will bring the Company’s California count to 13. Brentwood continues Sportsman’s presence in Northern California, while Corona will be its first location in Southern California. The Company recently acquired 10 Field & Stream stores from Dick’s Sporting Goods and converted them to Sportsman’s Warehouse stores. Those locations were in New York (2), Pennsylvania (3), North Carolina (2), Michigan (2) and Kentucky (1).
Lidl signed a lease for a 27,800 square-foot space previously occupied by a Big Kmart in Frederick, MD. The store is expected to open in 2021. Click here to request a list of future openings.
Lululemon Athletica announced that it will acquire MIRROR, an in-home fitness company, for $500.0 million, using existing liquidity; this includes more than $800.0 million in cash, an existing $400.0 million revolving credit facility, and a new one-year $300.0 million revolving credit facility. With gyms closing due to COVID-19 and the jump in consumers taking up fitness in their homes, this is an opportunity for lululemon to expand its customer base and improve engagement. The Company made an initial investment in MIRROR in mid-2019, which also included a content partnership between the brands. MIRROR, launched in 2018, offers an interactive digital workout platform featuring in-home live and on-demand classes. The deal is expected to close in 2Q20.
Topgolf Entertainment announced plans to open a new store in Augusta, GA on July 3. This will be the Company’s first completely open-air venue, and it will feature 36 climate-controlled, outdoor hitting bays; the venue will offer food and beverage, a nine-hole miniature golf course, and backyard-style lawns with fire pits. Topgolf operates 60 locations across the U.S. and internationally; 17 units remain temporarily closed. Click here to request a list of future openings.
Yesterday, Cinemark Holdings announced updates to its reopening plan, given the recent shifts in new studio content. The Company expects to start reopening on July 24, with additional theaters to reopen in the subsequent weeks. Cinemark will initially be showcasing Hollywood classics at discounted prices and will be operating at limited capacity with reduced hours. Upcoming summer blockbusters include Unhinged on July 31, Tenet on August 12, and Mulan on August 21.
On June 23, Amazon announced that it had amended and restated its $7.00 billion credit agreement with Bank of America dated April 27, 2018. The Company has extended the term of the facility to June 23, 2023; the original maturity date was April 27, 2021.
In other news, Amazon said it would spend $500.0 million on one-time bonuses to its front-line employees and partners working through the coronavirus crisis. Employees and partners who have been with the Company through June will receive bonuses ranging from $150 to $3,000.
Meanwhile, workers at six Amazon sites in Germany decided to go on strike, protesting the lack of safety at logistics centers after some staff tested positive for coronavirus.
Amazon also announced that it will acquire an autonomous vehicle company Zoox, Inc. in a deal worth a reported $1.00 billion (details were not disclosed). Zoox, which is developing an autonomous vehicle for a ride-hailing service that people would request on their phones, will keep running as a separate business. Autonomous delivery would fit with Amazon’s plans to deliver more of its packages on its own and rely less on UPS and the U.S. Postal Service. In recent years, it has expanded its fleet of planes and built package sorting hubs at airports.
This morning, Citi Trends announced it has reopened 564 of the 574 stores it closed in mid-March, with the remaining stores expected to be open by the end of July. Substantially all associates who had been furloughed were reinstated. Total sales for the 2Q through June 27 jumped 25% compared to the prior year. Comps for reopened stores increased 53%. Based on quarter-to-date performance, Citi Trends estimates 2Q sales will increase in the mid-teens, with meaningful margin expansion and leverage in expenses, and improvement in EPS compared to the prior-year period.
Four of Southeastern Grocers’ BI-LO stores in Columbia, SC have or will close their pharmacies as a result of a pending sale of the stores to Ahold Delhaize’s Food Lion. Pharmacies in other area stores that are not part of the sale will remain open. According to a BI-LO representative, “All BI-LO stores not included in the Food Lion transaction will continue operating normally while we actively explore strategic options for these stores.” Click here to request a list of SEG future openings and closings.
In the Modell’s Sporting Goods bankruptcy case, the Court issued final authorization for the Debtors to resume GOB sales at 107 of the Company’s 137 stores (click here to see the list). A joint venture composed of Tiger Capital Group, Great American Group, and SB360 Capital Partners is conducting the going-out-of-business sales.
Cardenas Markets will open its first store in the Los Angeles metro area on July 1, in Whittier, CA. The store will occupy a former Stater Bros. location.
H.E. Butt opened a new 101,000 square-foot Spring Green Market in Richmond, TX on June 24. Click here to request a list of future openings and closings.
Meijer will open a 155,000 square-foot store in Bad Axe, MI on July 9. The store was originally slated to open this spring but was delayed due to the pandemic. The 3,500 square-foot Meijer Express convenience store and gas station opened May 7. New 155,000 square-foot stores are also set to open in Brimfield and Lorain, OH on July 9.
Meanwhile, construction is underway on Meijer’s new automated warehouse in Tipp City, OH. The Company invested about $10.0 million on the 370,780 square-foot DC. Click here to request a list of future openings.
Barnes & Noble is downsizing, laying off a number of employees at its corporate office, as well as 64 employees from its store on the Upper East Side of New York City. The Company commented that the store is too large and expensive for its needs and will close by September, though there are plans to return to the area with a smaller store in the future. The Company’s plans for smaller-format locations include two stores that open this month in Illinois and Florida. The Company was taken private in 2019 by private equity firm Elliott Advisors after facing multiple years of declining sales and profits, due to changing consumer behavior and competition from Amazon.
Restaurant Brands International provided an update on the worldwide operations of its three banners, Burger King, Tim Hortons, and Popeyes. As of last week, nearly all U.S. Burger King locations were open, and comparable restaurant sales are trending approximately flat year-over-year. Drive-thru sales are driving the recovery from declines in the mid-30s in March, as most dining rooms remain closed or at reduced seating. Tim Hortons is 90% open in Canada and generated comps in the high negative teens, compared to peak declines in the negative mid-40s in mid-March. U.S. Popeyes restaurants are nearly 100% open for takeout and delivery, and generated comps in the high 20s last week.
AMC Entertainment Holdings pushed back the reopening of its 450 locations by two weeks to July 30. The new opening schedule aligns with the updated release dates of major blockbusters. The Company now plans to reopen all 600+ of its U.S. locations by early August.
In the Pier 1 Imports bankruptcy case, the Court approved the Disclosure Statement, which notes that the Debtors were unable to finalize a going concern sale and the Consenting Term Lenders, DIP Lenders, and the Creditors’ Committee ultimately reached an agreement in principle to conduct a full-scale, orderly wind-down of the Debtors’ operations and close any remaining stores. It is noted that COVID-19 still presents risks regarding the Debtors’ wind-down and liquidation efforts that may restrict the Debtors’ ability to keep their stores open. Distributable proceeds will be split between: (i) holders of 503(b)(9) and administrative/priority claims, and (ii) the Term Lenders. The Plan provides a mechanism for the payment of all landlords in full for post-petition obligations under store leases, while general unsecured creditors are not projected to receive any recovery. The Disclosure Statement provides that holders of 503(b)(9) and administrative/priority claims and general unsecured creditors that do not object to the Plan will receive a waiver of all estate causes of action under section 547 (preference/avoidance actions).
PriceSmart opened a new warehouse club in Liberia, Costa Rica on June 17, bringing the total number of warehouse clubs in operation to 46. The Liberia club is the eighth club in Costa Rica. The Company also announced that it is resuming construction of a new warehouse club in Bogota, Colombia; PriceSmart expects to open what will be its 47th warehouse club in 2Q21.
Earning Reports
La-Z-Boy’s 4Q20 sales dropped 19.1% to $367.3 million, reflecting two months of temporary closures related to COVID-19. Management noted that the 4Q started with a 20.4% increase in same-store sales for February. However, its entire store network (155 locations) was closed for the last four weeks of the quarter beginning March 29, and most stores remained closed into 1Q21, driving comps down 35% for the 4Q. By July 1, about 6,000 furloughed workers will have returned to work. However, the Company decided to permanently close its Newton, MI manufacturing facility and reduce its global workforce by 10%. Upholstery segment sales (53% of total sales) decreased 21.7% to $253.3 million, and retail segment sales (38% of total sales) decreased 8% to $139.7 million. 4Q20 operating income fell 63.9% to $13.4 million, and operating margin decreased to 3.7% from 8.2% last year. Click here to request a copy of the 4Q Sales Report.
Darden’s 4Q20 sales fell 43% to $1.27 billion, driven by negative blended same-restaurant sales of 47.7%, which was partially offset by an extra week of operations and the addition of 19 net new restaurants. By brand, same-restaurant sales fell 39.2% for Olive Garden, 45.3% for LongHorn Steakhouse, 63.1% for the Fine Dining, 62.5% for The Capital Grille, 62.5% for Eddie V’s, 65.4% for the Other Business, 58.5% for Cheddar’s Scratch Kitchen, 70.7% for Yard House, 69.9% for Seasons 52, and 66.1% for Bahama Breeze. The Company reported an operating loss of $592.1 million, compared to $339.8 million last year.
For 1Q21 to date through June 21, Darden blended same-restaurant sales declined 33.2%. As of June 22, 91% of its dining rooms were open with at least limited capacity, and the Company has over $750.0 million of cash on hand and access to its $750.0 million credit facility, giving it over $1.50 billion of available liquidity. Click here to request a copy of the 4Q Sales Report.
Nike’s 4Q20 sales dropped 38% to $6.30 billion, and the Company swung to a loss of $790.0 million from income of $989.0 million last year. While revenue in China fell just 3%, North America sales dropped 46% to $2.20 billion. As its 384 U.S. stores reopen (Nike also has more than 750 international locations), the Company expects sales to be flat in FY21. With 4Q e-commerce sales up 75% and representing nearly 30% of total sales, the Company is looking to further invest in its online platform to create a “marketplace of the future” and further expand its direct to consumer (DTC) business. Nike is now expecting to reach 50% penetration by 2023. Meanwhile, the Company is planning to open about 150 – 200 new smaller-footprint stores in North America, Europe, the Middle East, and Africa, similar to the Nike Live concept it has been testing for years. Stores are expected to open in the next few years. The Company plans to convert two stores in New York to the Nike Live model.
Indigo Books & Music reported 4Q20 sales decreased 10.6% to $178.1 million. The Company had to close its 196 stores on March 17, two weeks before the end of the quarter and coinciding with many March school holidays that typically drive meaningful retail activity in the quarter. Gross margin fell 80 bps to 38.5%, and operating loss widened 133% to $76.4 million.
For the year, sales fell 8.5% to $957.7 million, and comps (including online sales) decreased 7.9%. Retail comps were down 8.2% in superstores and 7.4% in small-format stores, primarily as a result of softer traffic and the Company’s actions to prioritize profitability (it was less promotional and eliminated unprofitable sales during the fiscal year). Online sales decreased 7.5% due to the elimination of unprofitable sales and the planned reduction of mass promotions. The decline was partially offset by the acceleration of online sales experienced in late March, driven by store closures. Click here to request a copy of the 4Q Sales Report.
Rite Aid reported stronger-than-expected sales for its 1Q ended May 30, including a 14.2% increase in front-end comps, but EBITDA was lower on a $30.0 million net negative impact from COVID-19 and a lower TSA fee from Walgreens Boots Alliance (WBA). Sales remained strong during the first three weeks of June, with front-end comps up 7.2%. Pharmacy comps were up 2.2% during 1Q, as the initial pull forward of maintenance scripts was partially offset by reduced volume, as doctors’ offices closed and elective procedures were postponed. Management said as states begin to reopen, it is seeing some improvement in acute prescriptions, but it remains a concern, particularly if states begin to shut down again. The Company is updating the exterior of its stores, including a new logo; 25 units have been completed so far, with the balance to be done by next fall, along with a new merchandising initiative. The Company ended 1Q with about $1.70 billion in liquidity, and expects to generate free cash flow this year, including for a working capital benefit of at least $150.0 million. Regarding the recent bankruptcy filing of GNC, DIP, management said it expects that Company to continue operating during the restructuring period and maintain their partnership. Further, management believes that with GNC decreasing its own store count, it may drive more business to Rite Aid. Click here to request a copy of the 1Q Sales Report.
Cineplex’s 1Q20 sales decreased 22.4% to C$282.8 million, with theater attendance down 28.5% to 10.7 million. Box office revenues (32.3% of total sales) dropped 29.1% to C$111.0 million, and theater foodservice sales (25.7% of total sales) were down 23.6% to C$72.7 million. Media sales (11.4% of total sales) declined 7.3% to C$32.2 million, and amusement sales (13.2% of total sales) fell 26.4% to C$37.2 million. Adjusted EBITDA was down 40.9% to C$46.5 million. As of Monday, Cineplex is in the early stages of reopening its locations, which have been closed since mid-March. As a result of loosened provincial government restrictions on social gatherings in certain markets in which it operates, Cineplex resumed measured operations at The Rec Room in Winnipeg, Calgary and Edmonton during the week of June 15. Cineplex also reopened six theatres in Alberta on June 26, and it will open select theatres across British Columbia, Saskatchewan, Quebec, New Brunswick, Nova Scotia and Newfoundland on July 3.
On June 29, Cineplex entered into an amendment with its lenders that provides it with immediate financial covenant suspension, which can be extended to 2Q and 3Q of 2020. Conditions include a minimum C$250.0 million of new financing, a portion of the proceeds of which would be used to make certain mandatory permanent repayments of existing debt. As of June 29, C$664.0 million was outstanding under Cineplex’s credit facilities.
