August 26, 2020
Payless ShoeSource, which emerged from Chapter 11 in January after completely winding down its North America business, announced it is now planning to reenter the U.S. market through a new e-commerce website. It is also planning to open a new prototype retail store in Miami, FL in November. While the COVID-19 pandemic has created a difficult environment for all footwear retailers, CEO Jared Margolis noted that he actually sees this as an opportunity, as “value couldn’t be more critical”; shoes will retail for $10 to $50, with the average pair costing $20. The new store in Miami will be created with social distancing in mind and will have an “updated” look, with smart mirrors and touchscreen wall panels. The Company plans to open 30 - 45 stores by the end of next year, in Texas and other border states.
Kings Super Markets, Inc. (dba Kings Food Markets, and Balducci’s Food Lover’s Market) 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 #20-22962. The Debtors entered into a $75.0 million stalking horse asset purchase agreement with TLI Bedrock LLC, which provides for the sale of 30 stores, a storage facility, and office facilities at the Company’s headquarters in Parsippany, NJ. TLI Bedrock is a private equity fund, whose management includes Lawrence Benenson of Benenson Capital. As of the petition date, the Debtors operated 35 supermarkets in New York, New Jersey, Connecticut, Virginia, and Maryland, and employed over 2,900 individuals, of which 66% are represented by unions at the Kings stores. In addition, the Debtors are party to five collective bargaining agreements with the various unions, which require the Debtors to contribute to certain multi-employer defined benefit pension funds and defined contribution retirement funds.
On Monday, the Debtors filed motions seeking authorizations to pay up to $11.0 million (critical vendor cap) in prepetition claims of critical vendors and 503(b)(9) claimants, pay PACA/PASA claims (the Debtors estimate there are $5.0 million as of the petition date), approve bidding procedures for the sale of substantially all of the Company’s assets, use cash collateral, and access up to $20.0 million of a new money revolving DIP Facility provided by Whitehorse Capital Management. The agreement also provides for the roll up of $80.0 million in outstanding prepetition term loans. Click here for updates on this case.
TRU Kids has partnered with Amazon to fulfill online orders. Customers browsing products on toysrus.com are now sent via a “view price now” or “check availability” button to Amazon’s website to make purchases. Previously, TRU Kids had partnered with Target to fulfill online orders. Sources indicated in July that the two companies ended their partnership, which began last October. TRU Kids operates two stores, one in Paramus, NJ and the other in Houston, TX, both opened in late 2019. At the time, the Company indicated plans to continue its brick-and-mortar growth in 2020, with the long-term aim to eventually reach 200+ locations. However, likely given the impact COVID-19 has had on retail, the chain has yet to announce store openings.
J.C. Penney Company provided transaction details for the sale of two stores for a total of $7.6 million. One of the units appeared on a list of 24 stores offered for sale by Cushman & Wakefield and B. Riley Real Estate. The other store was previously under contract.
Separately, the ad hoc equity committee filed a motion seeking an order establishing an Official Committee of Equity Interest Holders. The committee stated, “The reports of the Debtors’ imminent demise were greatly exaggerated. Rather than facing an immediate cash or liquidity crisis, the Debtors have significantly outperformed their grossly pessimistic projections – exceeding net cash flow projections by more than 229% and accumulating more than $1.20 billion in cash.
This extraordinarily better-than projected performance simply highlights something the Debtors’ investors have long known – the value of J.C. Penney is far greater than this Court has been led to believe.” A hearing on the motion has not yet been scheduled.
Finally, the Debtors notified the Court that they plan to close three additional stores (click here to request a list of closings).
Yum! Brands’ Taco Bell chain will launch a mobile restaurant concept in 1Q21 called Taco Bell Go Mobile, which will be about 1,325 square feet versus the average 2,500 square feet of a typical Taco Bell unit. They will feature two drive-thru lanes to more quickly serve customers who use the Taco Bell app. The mobile restaurants will also offer curbside pickup and “bellhops” to help customers use tablets to order. Some of the features of the new mobile restaurant are being incorporated into existing Taco Bell locations, with average drive-thru wait times cut by 15 seconds since the first quarter of the year and the launch of a beta version of the loyalty program on the app in July that encourages ordering ahead. Last week, Taco Bell launched a more simplified menu.
In the Neiman Marcus bankruptcy case, the U.S. Trustee reconstituted the Creditors’ Committee to remove Marble Ridge Master Fund LP. This follows the Trustee’s allegation of a breach of fiduciary duty by Dan Kamensky, Marble Ridge’s managing partner, who was one of the Committee’s three co-chairs.
In a related development, Marble Ridge (a hedge fund) is ceasing operations; the firm told investors it will start returning funds to them. Prior to this announcement, the U.S. Trustee issued a statement regarding the conduct of Marble Ridge and Mr. Kamensky, stating, “on July 31, Marble Ridge, through Mr. Kamensky, breached its fiduciary duty of loyalty to the creditors it represented by coercing an outside investor to refrain from bidding against Marble Ridge on a key transaction that was considered integral to a successful Plan of Reorganization. Furthermore, Marble Ridge’s initial explanation of its own actions to the Court and to the U.S. Trustee was, at best, incomplete and misleading. Based on these facts, further proceedings before the Court may be appropriate to consider what remedial measures, if any, are appropriate.” Click here for a list of closures.
In the Lord & Taylor bankruptcy case, the Company plans to close five additional stores, including those in Schaumburg, IL; Salem, NH; Rockaway and Livingston, NJ; and Huntington Station, NY. Management previously indicated that 19 stores will close (click here for an updated list of all 24 of the store closings).
In the ascena retail group bankruptcy case, the Debtors filed a motion to reject approximately 200 additional leases (click here to see the list). A hearing to consider approval of the motion is scheduled for September 3.
The Debtors entered into a commitment letter for a $400.0 million ABL revolving DIP Facility with JPMorgan Chase, as administrative agent. The commitment is subject to a roll-up of $230.0 million in borrowings and $103.0 million of letters of credit, which were outstanding under the prepetition ABL Facility. Upon an anticipated emergence from Chapter 11 the DIP Facility is intended to convert to an exit facility. It should be noted that the Debtors did not have a commitment for a DIP Facility as of the petition date. At that time, they stated that they had $433.7 million in cash on hand, and planned to use cash collateral and proceeds from operations during the interim period, until August 20, when a final hearing on approval of first day motions was originally scheduled. In light of the recent entry into the commitment letter, the hearing was rescheduled to today.
ALDI will open its eighth store on Long Island this week, located in North Babylon, NY in a former Pathmark. The 21,000 square-foot store will be the Company’s second opening on Long Island this year after its entrance in February with a store in Valley Stream. This summer, ALDI surpassed more than 2,000 stores across the U.S. and revealed plans for its next wave of coast-to-coast expansion, including opening about 70 new stores by the end of the year. Click here to request a list of future openings.
Sprouts Farmers Market will open a new store in Santa Barbara, CA on September 2.
Krispy Kreme is set to open its Times Square Flagship Shop in New York City on September 15. The opening comes several months after originally planned due to the COVID-19 pandemic. The 4,500 square-foot donut shop will include a glaze waterfall, a 24-hour street pick-up window, and a system that can make more than 4,560 donuts an hour.
Gap announced plans to close stores in San Francisco’s Embarcadero Center, Stonestown Galleria, and its flagship store on Market Street. The Company continues to address “stores that are underperforming” and review lease agreements “that don’t fit our vision for the future of Gap.” The Gap store on Chestnut Street will remain open, as well as stores operating under the Company’s other banners, including Banana Republic, Old Navy, Athleta, and Intermix.
CVS Health said a majority of its COVID-19 test results will be available within 2-5 days, as it expands its network of third-party lab partners to help improve turnaround time. The Company also said it expanded its COVID-19 testing program by adding 77 test sites at CVS Pharmacy drive-thru locations across Florida, increasing the more than 1,900 locations where its testing sites have opened since May.
In other news, on August 21, CVS Health issued $1.50 billion of 1.3% Senior Notes due 2027, $1.25 billion of 1.75% Senior Notes due 2030, and $1.25 billion of 2.7% Senior Notes due 2040.
Since the beginning of FY20, Albertsons has experienced significant increases in product demand, overall basket size in stores, and e-commerce due to COVID-19. The Company reported a 93% increase in 1Q20 EBITDA, driven by comps of 26.5%, including 276% growth in digital sales, and a stronger gross margin. Click here to request a list of future openings and closings.
Nike will no longer sell its branded shoes and clothing to Zappos, Belk, Dillards, Boscov’s, Bob’s Stores, Fred Meyer, EBLens, VIM, and City Blue, in an effort to reduce the number of “strategic partners” it works with. Together, these retailers operate around 1,000 stores. Dick’s Sporting Goods, Hibbett Sports, Shoe Carnival, Famous Footwear, and DSW are expected to continue to sell Nike branded shoes. According to the Company, “As part of our recently announced Consumer Direct Acceleration strategy, we are doubling down on our approach with Nike Digital and our owned stores, as well as a smaller number of strategic partners who share our vision to create a consistent, connected, and modern shopping experience.” Click here to request a list of future openings.
Ulta Beauty announced the decision to close all stores on Thanksgiving Day, November 26. CEO Mary Dillon stated, “Keeping our associates at the heart of our decisions always, we are adapting this season’s plans to reflect our immense gratitude for their commitment to serving our stores, our guests, and our communities throughout this unprecedented year.” Click here to request a list of future openings.
After missing the August 24 deadline to complete their $16.20 billion merger, sources say LVMH and Tiffany & Co. agreed to a three-month extension to November 24. According to a filing with the U.S. SEC earlier this year, the original deadline could be pushed back by either party until that date. The deal has yet to receive the regulatory approvals it requires, in particular from the European Union. Previous reports suggested that LVMH may consider renegotiating the deal on the grounds of the impact of COVID-19 on Tiffany’s business, but sources are now saying that LVMH is not seeking a renegotiation.
Ahold Delhaize’s Giant announced a new family-focused brand platform called “For Today’s Table,” which emphasizes families spending time together and connecting over food (a theme during COVID-19). It is expected to lead future marketing efforts as well as operational updates, which include a refreshed product assortment, online enhancements and additionalstore services. Click here for a list of future openings.
Wawa has rolled out a widespread test run of an extensive dinner menu after months of development, the latest move from the Company to grow market share and go toe to toe with national fast food giants. The piloted items, which include pot roast, pasta dishes, and burgers and fries, become available after 4 p.m.; the items are being tested at select stores. Shoppers can customize the offerings via Wawa’s touch screen ordering system.
In the GNC Holdings bankruptcy case, the Court approved the Debtors’ entry into a stalking horse agreement with Harbin Pharmaceutical Group Holding Co. for a going concern sale of substantially all of the Company’s assets. The agreement reflects consideration of 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. The deadline for qualified bids is September 11, an auction is scheduled for September 15, and a sale hearing will occur on September 17.
The Court issued an order approving the Disclosure Statement, a procedural step, which clears the way for creditors to vote on the Chapter 11 Plan. The Disclosure Statement provides that the Debtors will pursue both a restructuring and a sale transaction. If the sale transaction is terminated or is not consummated, the Debtors will complete a restructuring, as provided in the Plan. If the sale transaction is consummated, the proceeds will be distributed in accordance with the terms of the Plan. The Plan provides that holders of allowed administrative and 503(b)(9) claims will be paid in full. Holders of allowed general unsecured claims will receive a recovery of between 0.2% and 1% if there is a restructuring, and 3% if the sale transaction is consummated. As part of an agreement, the stalking horse purchaser (Harbin Pharmaceutical Group) will acquire any avoidance/preference actions, which will be released and discharged at closing. If a restructuring occurs, the Plan provides for a release of avoidance/preference claims against administrative and unsecured creditors that do not object to the Plan. A hearing to consider confirmation of the Chapter 11 Plan is scheduled for October 14.
Last Tuesday, Fairway Group Holdings Corp. officially closed its store in Stamford, CT. Since filing for bankruptcy in January, Fairway had informed the state Department of Labor several times about the imminent shutdown of the store but kept it open until last week.
Amazon is escalating its push into the highly competitive U.K. online grocery market by strengthening its relationship with Morrisons. Morrisons offerings will now be available through Amazon’s main site, with Amazon Prime members receiving free same-day delivery on orders over £40 (US$53). Orders will be picked by Morrisons staff and delivered by Amazon. Amazon and Morrisons have had a relationship since 2016, when Morrisons began supplying groceries wholesale to Amazon.
Back stateside, Amazon announced 11 new sites across the Phoenix, AZ metro area, expected to be open by the end of 2020 to support customer fulfillment and delivery operations. The new sites include seven delivery stations and two additional facilities that support fulfillment operations in Avondale, Chandler, Goodyear, Mesa, Phoenix, and Tempe. Delivery stations power the last mile of Amazon’s order fulfillment process. The news follows Amazon’s recent announcement of the Company’s Phoenix Tech Hub expansion.
Four individuals are facing federal charges of engaging in a scheme to systematically defraud Amazon. The defendants allegedly manipulated Amazon’s vendor system to fraudulently induce Amazon to pay for goods that the Company had not ordered. They are accused of fraudulently attempting to obtain at least $32.0 million and successfully obtaining at least $19.0 million. Amazon has recently engaged in a number of efforts to prevent and punish sellers of counterfeit goods on its site.
Earning Reports
Target’s 2Q revenue rose 24.8% on the strength of a 24.3% comp improvement, the highest in Company history. Both digital and brick-and-mortar sales contributed to the comp growth. Stores continue to fulfill a significant portion of digital sales, about 75% during the quarter, with online sales exploding almost 200%. Target added ten million new digital customers during the first half of the year. The Company reported strong private-label sales for the quarter and will roll out the final phase of its new Good & Gather label, which the Company noted has crossed the $1.00 billion sales mark. Click here to request a list of future openings.
TJX’s 2Q21 sales dropped 31.8%, as stores were closed for nearly one-third of the quarter. What the Company categorized as “only open comps” declined 3%, with Marmaxx (Marshalls and TJ Maxx) down 6%, and HomeGoods up 12%. EBITDA returned to positive territory at $185.0 million. TJX generated positive fee cash flow and ended the quarter with $6.60 billion of cash and $1.50 billion of revolver availability. Management commented that sales trends have slowed starting in mid-July and continuing into August. As a result, the Company is projecting Q3 comps to decline 10% – 20%. It should be noted that historically management provides very conservative guidance. Click here to request a list of future openings and closings.
BJ’s Wholesale Club reported a record 2Q (ended August 1), with revenue up 18.2% and comps up 24.2%; EBITDA surged 41.6%. The Company continues to add new members and has been attracting a younger demographic, something it has always sought. While consumers continue to stock up on essentials, BJ’s also saw strength in both apparel and electronics. The Company continues to reduce its debt; it ended the quarter with total debt of $1.20 billion, down over $500.0 million, or 31% from 2Q19. Net debt was down 40%. Debt-to-TTM EBITDA has been reduced to 1.8x, down from 3.2x. The Company is forging ahead with expansion plans, recently announcing two new clubs in New York.
Meanwhile, the Company announced that it is rolling out contactless, curbside pickup service at all store locations. BJ’s is also expanding its buy online, pick up in-club service (BOPIS) to include fresh and frozen grocery items. The expanded BOPIS service is currently available in select clubs and will be available at all locations by the end of October.
Ross Stores temporarily closed all of its stores on March 20, and they began to reopen on May 14. By the end of June, the vast majority of the Company’s 1,832 stores were open and operating. 1Q20 sales declined 32.5% to $2.68 billion, as stores were open for just 75% of the quarter and operated under reduced hours. Comps were down 12% for reopened stores from the date of their reopening to the end of the fiscal quarter due to lower store traffic and depleted inventory levels. Management stated it is continuing to ramp up its buying and distribution capabilities. Management also commented that sales trends softened late in 2Q and early in Q3 and noted approximately 50% of its stores are located in Florida, California, Texas and Arizona, states were COVID cases have spiked. The lower sales and gross margin contraction offset lower expenses and pushed quarterly EBITDA down 72.3% to $174.1 million. Nevertheless, the results represent a significant improvement over the $372.0 million of negative EBITDA reported in 1Q. Debt increased from $312.7 million in 2Q19 to $3.09 billion in 2Q20, as the Company drew down its $800.0 million revolver and issued $2.00 billion of debt in the first quarter. Ross ended the quarter with cash of $2.43 billion and $500.0 million available under its new 364-day credit facility. Ross did not open any stores in the quarter after opening 27 new locations in 1Q. The Company continues to expect to open 39 stores in the second half of the year. The Company originally projected to open 100 new stores in FY20. Click here for a list of future openings.
Best Buy’s 2Q sales increased 3.9% to $9.91 billion, with domestic sales (92.1% of total sales) up 3.5% to $9.13 billion and international sales (7.9% of total sales) up 9.4% to $782.0 million. Enterprise comps rose 5.8%, including a domestic comp increase of 5% and an international comp increase of 15.1%. Domestically, comp growth drivers were computing, appliances, and tablets, partially offset by declines in mobile phones, digital imaging, and services. Online sales increased 242.2% to $4.85 billion, representing 53.1% of domestic revenue. Domestic sales growth was partially offset by the loss of revenue from 25 permanent store closures in the last year. Gross margin eroded 100 bps to 22.9%, but SG&A margin improved 300 bps to 17.2%. As a result, operating income rose 81.5% to $568.0 million. Click here for a list of future openings and closings.
Lowe’s Companies reported strong 2Q results driven by the increase in DIY spending brought about by COVID-19. Management reported that sales were boosted by a consumer focus on the home, core repair and maintenance activities, and a shift away from other discretionary spending. All 15 merchandise departments reported comparable sales growth exceeding 20%. Total revenues were up 30.1%, despite 35 fewer stores, with all 15 geographic regions reporting comps of at least 30%. E-commerce was also a strong contributor to the quarter’s success, with e-commerce sales up 135%, which suggests consumers’ greater preference for online purchases and hesitancy to shop in-store. Comp transactions and average ticket were up 22.5% and 11.6% respectively.
For 2Q20, EBITDA grew 58.2% and 290 bps on a margin basis. The balance sheet remains healthy despite a 24.3% increase in total debt related to prior-quarter borrowings to bolster liquidity. As of July 31, Lowes has $12.73 billion in cash, and debt to TTM EBITDA of 2.2x, down from 2.3x in the prior-year period
Consumers continued to invest in their homes during 2Q20, as both do-it-yourself and Pro customers helped propel Home Depot’s strong performance. Revenue and comps jumped 23.4%, with average ticket and transactions up double digits. A Company survey indicates that customers plan to continue with projects in the near term. Big ticket items (over $1,000) also drove sales, up 16%. Management indicated that comparable sales during the first two weeks of August have remained on par with 2Q numbers. Home Depot continues to invest in its digital platform and saw its e-commerce sales rise about 100%. Most customers are choosing the BOPIS option. The service is gaining traction; over one-third of new online customers have made subsequent purchases.
Earlier in the year, Home Depot issued $5.00 billion in new debt to shore up liquidity during the COVID-19 pandemic, raising debt-to-TTM EBITDA modestly to 1.8x from 1.6x. The new debt and improved free cash flow have left the Company with strong liquidity, with over $14.00 billion in cash on hand. This should allow Home Depot to successfully navigate through the remainder of the pandemic at the higher level of customer activity. Another positive sign in the economy was the July housing numbers. Starts were up 22.6% from June 2020 and 23.4% from July 2019. Permits were also strong, up 18.8% over June 2020 and 9.4% from July 2019. While these are strong indicators, Home Depot is maintaining a cautious stance with regard to the sustainability of the growth and continues to withhold guidance for FY20
Ace Hardware’s 2Q sales increased 35.1% to $2.28 billion, with wholesale sales up 32.8% to $2.03 billion (89% of total sales) and retail sales up 57% to $249.2 million (11% of total sales). Total retail comps jumped 35.3%; Westlake Ace Hardware comps were up 34.7%, and Great Lakes Ace Hardware comps grew 45.5%. Wholesale gross margin improved 140 bps to 13%, but retail gross margin decreased 80 bps to 42.9%. Operating income rose 155.8% to $138.4 million. Ace added 25 new domestic stores and cancelled 27 units, ending with 4,564 locations.
Even with 36 new stores opened during the quarter, Cato Corporation’s sales and comps gradually weakened during the second quarter, likely due to rising COVID-19 cases. The Company’s stores are predominately located in the Southeast, including Texas (15% of the fleet). Top-line weakness continued into August, suggesting a weak back-to-school season for the fashion apparel company. Despite the comparative improvement, 2Q20 gross margin fell almost 1,800 bps to 21.1%, with EBITDA turning negative for the quarter. Over the past three quarters, the Company has reported net losses, expected to continue amid the pandemic. During the quarter, Cato used cash on hand to repay all of its revolver borrowings, leaving full availability under the $35.0 million line of credit. The Company returned to a debt-free balance sheet from this repayment. At quarter end, there was $175.9 million in liquidity, including the aforementioned unused availability, and $140.9 million in cash.
L Brands’ total sales decreased 20.1% to $2.32 billion, driven by a 70% revenue decline in Victoria Secret’s (VS) store-only sales (15.7% of 2Q20 sales) and 210 permanent closures of VS Company-owned locations from February to August. With stores closed for the majority of 2Q20, Bath and Body Works’ (B&BW) store-only sales decreased 23% to $678.1 million (29.2% of 2Q20 sales) but increased 60% from last quarter, suggesting that customers were ready to return to B&BW stores as they reopened. This was also evidenced by B&BW’s 2Q20 store-only comps, which accelerated 87%. For Victoria’s Secret stores that reopened, comps were compressed and declined 10%.
The Company’s direct (e-commerce) channel remained resilient, with sales growing over 100% from 2Q19 and representing 48.8% of 2Q20 sales, compared to 19% of 2Q19 sales. Due to cost-reduction actions taken during 1H20 to manage the COVID crisis, gross margin fell 320 bps compared to last quarter’s gross margin decline of 1,800 bps, and adjusted operating income turned positive. Despite reducing VS’ spring inventory and fall receipts by 45% and 50%, respectively, overall inventory increased 11%. At quarter end, there was $2.60 billion in cash, and no amounts drawn under the ABL facility. The Company generated $560.0 million in free cash flow during the quarter, reversing 1Q20 cash burn, and resulting in $160.0 million in free cash flow year-to-date. Click here for a sample list of closings.
The Children’s Place’s 2Q sales declined 12.3% to $368.9 million, primarily as a result of the impact of temporary store closures, along with a decrease in back-to-school sales beginning in mid-July. Stores were closed on March 18 and began reopening on May 19 in 10 states; a majority of stores were reopened during the last two weeks of June, and as of August 1, 771 of its 824 stores were open (most stores that remain closed are in California). Gross margin deleveraged 760 bps to 25.4% due to higher fulfillment costs related to meaningfully higher levels of ship-from-store activity related to strong online demand. SG&A margin eroded 60 bps to 28.1% due to higher fixed expenses, partially offset by a reduction in operating expenses associated with actions taken in response to the COVID-19 pandemic. Operating loss was $64.5 million, compared to operating profit of $3.8 million last year.
Foot Locker’s 2Q sales jumped 13.1% to $2.01 billion, and comps were up 18.6%. Gross margin decreased 420 bps to 25.9%, while SG&A margin improved 360 bps to 18.6%. Operating income declined 14.8% to $69.0 million. The Company recorded pre-tax charges of $19.0 million related to the wind-down of Runners Point, and the East Bay restructuring, and $18.0 million related to costs incurred with social unrest. CEO Richard Johnson stated, “Despite the challenging backdrop of the pandemic, and social unrest, we achieved strong 2Q results, led by our digital business, with a return to growth in both the top and bottom line. As our global fleet of stores reopened, our customers responded with enthusiasm and energy to our assortments and visited our stores with a high intent to purchase.” During 2Q, Foot Locker opened 18 new stores, remodeled or relocated 26 stores, and closed 31 underperforming locations. As of August 1, the Company operated 3,100 stores in 27 countries.
The Buckle’s 2Q sales increased 6% to $216.0 million, with online sales up 99% to $46.0 million and comprising 21.3% of total sales (compared to 11.3% last year). The Company temporarily closed all stores on March 18 and began the process of reopening certain stores during the week of April 26. As of August 1, 431 of 446 stores were open. Of the 15 stores that remain closed, two have not yet reopened due to damage sustained during the closure period. The remaining 13 are located in California and had previously reopened but were subsequently closed again in July. Gross margin rose 460 bps to 43.2%, and SG&A margin improved 680 bps to 22.2%. As a result, operating income increased 132.3% to $45.5 million.
La-Z-Boy’s 1Q21 sales (for the period ended July 25) decreased 31% to $285.5 million, as the Company began its 1Q in May with most of its customers closed due to COVID-19. As retailers reopened, orders rapidly accelerated in June and July, with consumers spending a higher percentage of discretionary dollars on home furnishings. Production plants are now operating at about 90% of prior-year levels. CEO Kurt L. Darrow commented, “Strong demand, coupled with ramping up manufacturing, has resulted in a significant increase in product backlog, extended lead times between order and delivery, and slower-than-normal delivered sales for the 1Q.” For the Furniture Galleries network, same-store sales increased 14.8%, including an initial decline in May of 13%, followed by increases of 30% in June and 32% in July. Retail segment sales (32% of total sales) decreased 36.3% to $91.1 million, and wholesale segment sales (63% of total sales) decreased 30% to $223.6 million. Gross margin improved 22 bps to 40.8%, but SG&A margin eroded 437 bps to 39.3%. As a result, operating income fell 81.5% to $4.3 million.
