April 29, 2020
COVID Impact Report
Best Buy Co., Inc. aims to open 200 locations across the country in May for consumers who have appointments for in-store consultations to purchase appliances or electronics. Employees will be mandated to wear masks and gloves and have temperature check priors to each shift.
COVID Impact Report
As of April 21, approximately one-third of GameStop’s 3,730 U.S. stores remain closed, with the other two-thirds closed to customers but available for curbside pick-up. The Company has begun reopening certain stores in Italy, Germany, Austria, and in South Carolina and Georgia; it is also monitoring its ability to reopen stores in other operating countries and states in the coming weeks. All stores in Australia have remained open with strong results, reflecting an increase of 24% in comps for the nine weeks ended April 4. Company comps declined 23%, which is more or less in line with performance before COVID-19. For the three weeks ended March 21, when U.S. stores were closed, comps grew 3% as it experienced a surge in demand. For the five weeks ended April 4, Australian comps were up 64%.
Meanwhile, GameStop is in the midst of a proxy fight with an investor group made up of Hestia Capital Partners LP, Permit Capital Enterprise Fund, and their affiliates, who beneficially own about 7.2% of GameStop’s outstanding common stock. The investor group is urging stockholders to vote in favor of its two new nominees for GameStop’s board, Paul J. Evans and Kurtis J. Wolf (on top of two nominees, Jerome L. Davis and Thomas Kelly, who the Company already agreed to). The annual meeting is expected to take place virtually in mid-June. The group has been advocating for stockholder representation on the board for the past year. The board is currently composed of 14 directors, 10 of whom are up for election. GameStop issued a letter to shareholders urging them to reject the new nominees from the investor group.
Published reports indicate that Macy’s is looking to sell its 171-store Blue Mercury beauty chain. Sources say Goldman Sachs has been involved since before the stores were closed in mid-March due to the coronavirus. Macy’s acquired Blue Mercury in February 2015 for $210.0 million in cash. At the time, there were 60 stores, but the chain has since nearly tripled in size. As we reported earlier this month, reports said Macy’s has hired investment bank Lazard Ltd. to explore its financial options; it also reportedly hired restructuring lawyers at Kirkland & Ellis. The Company’s 873 stores have been closed since March 18, leaving its e-commerce site as its only source of revenue; e-commerce sales accounted for about 25% of annual sales. On March 26, Macy’s drew down the entire available amount under its $1.50 billion revolver, which matures May 9, 2024.
According to published reports, Neiman Marcus is close to completing a $600.0 million DIP financing package as part of a potential bankruptcy filing. The current plan calls for lenders to forgive most of the approximately $5.00 billion of Neiman Marcus’ debt in exchange for taking ownership of the Company. However, a group of investors is preparing to challenge the proposed financing package in court, in part by arguing that its fees would be less expensive. The investor group submitted a $700.0 million DIP proposal with the proviso that Neiman Marcus must seek an outright sale while under bankruptcy protection, before attempting to reorganize its finances and operations. Neiman’s 43 U.S. stores have been closed since March 17.
On April 26, Cinemex USA Real Estate Holdings, Inc., DIP and Cinemex Holdings USA, Inc. DIP (both doing business as CMX Cinemas) filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court in the Southern District of Florida. The proceedings have been designated as case numbers 20-14695 and 20-14696, respectively. The Company acquired Cobb Theatres in 2017, which operates six movie theaters in Miami-Dade County. CMX operates theaters in 12 states, including across Florida. Additionally, CMX was recently involved in litigation after allegedly backing out of its planned acquisition of the Star Cinema Grill chain, which consists of 11 Houston-area movie theaters. The transaction would have made CMX the seventh-largest U.S. theater chain. The Company’s 12 theaters overlap 24 competitive theaters within a five-mile radius.Click here to request more information.
Hot Market Report - Boston, MA Metro Area
The Greater Boston Area, which consists of five counties in Massachusetts and two in New Hampshire, is home to more than 4.8 million residents as of 2018, making it the 10th largest U.S. metropolitan area. Our Hot Market Report takes a closer look at Boston's real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, and demographics.
COVID Impact Report
On April 23, Hudson Ltd. announced the temporary closure of 700 of its 1,013 total stores in airports, commuter hubs, landmarks, and tourist locations. The Company is also furloughing or permanently laying off employees, reducing labor and store hours in the remaining open stores, cutting salaries for corporate team members and executives, reducing capex to minimal levels, cutting other operating costs, and managing inventory tightly to better align with the decline in sales and reducing working capital needs. Additionally, Hudson indicated that it has reached agreements with landlords for rent concessions and continues to work with the remaining landlords to abate or defer rents. The Company is also seeking government grants or other programs for additional support. It is unclear whether Hudson qualifies for any U.S. government relief given that the Company’s controlling shareholder, Dufry AG, is a Swiss corporation.
In other news, 1Q20 sales are expected to decrease 23.4% to $332.8 million, and comps dropped 22.5%. Although it did not disclose specifics, the Company noted that as of March 31, it had sufficient liquidity to meet its near-term requirements. At December 31, 2019, liquidity was supported by $318.0 million in cash and $11.5 million in revolver availability. Additionally, the Company has access to Dufry’s $2.74 billion credit facilities maturing in 2022. Hudson maintains a moderately leveraged balance sheet with no immediate debt maturities. Any outstanding debt is due to its controlling shareholder Dufry (a global travel retailer operating approximately 2,300 stores in 64 countries), including $503.0 million due in 2022.
Hudson withdrew its fiscal 2020 guidance and it expects a 30 to 60-day delay in reporting its first quarter results due to additional time it needs to prepare its financial statements in light of COVID-19.
COVID Impact Report
On May 7, Meijer will open a new 3,500 square-foot Express store in Brimfield, OH. The store will offer fuel, food, and very basic grocery items. The much-larger Meijer and Menards stores also planned for Brimfield do not have established opening dates, at least partially due to COVID-19. Construction on the 250,600 square-foot Menards and 159,300 square-foot Meijer stores has been completed. Click here to request a list of future openings.
COVID Impact Report
On April 14, it was reported that Topgolf International decided to postpone its plan for an IPO, given that its 64 locations have been closed since March 18. The Company expects to resume the IPO when conditions normalize. Reports say the planned IPO valued the business at $4.00 billion. Topgolf’s $350.0 million First Lien Term Loan due February 2026 is currently trading at around $0.82, or about an 18% discount. Click here for more information.
COVID Impact Report
Big 5 Sporting Goods is delaying the filing of its 1Q20 quarterly report to about May 28 (or no later than June 27, which is 45 days from the original filing deadline of May 13). More than half of its 434 stores were closed on March 20; yesterday, approximately 25% of its stores remain closed, as the chain was able to reopen certain locations. The Company indicated that store closures, limited hours of operation, and stay-at-home orders have resulted in significantly reduced comps, which dropped 10.8% for the first quarter ended March 29.
As of April 23, there was $143.3 million outstanding under its $165.0 million revolver, and available cash totaled $72.8 million. The Company is negotiating with landlords to reduce or defer lease-related payments, cutting merchandise inventory orders and extending payment terms with merchandise vendors, reducing a significant amount of workforce throughout the Company, suspending normal annual salary increases, and reducing advertising and the amount of planned capital spending in fiscal 2020.
Big 5 warned COVID-19 has impacted its supply chain for products, particularly those that are sourced from China.
Abercrombie & Fitch is teaming up with ThredUp to allow it to send used or unwanted clothing and accessories to the consignment marketplace in exchange for gift certificates that can be used at Abercrombie, Abercrombie kids, Hollister, and Gilly Hicks. Customers can request a “clean out kit” or download a prepaid shipping label at thredup.com to send any brand of like-new women’s or children’s clothing to ThredUp. Customers will earn gift cards once the garments are received, processed, and their value determined by the resale retailer. ThredUp partners with several apparel retailers, including Gap, J. Crew, Ann Taylor, Lululemon Athletica, and Talbots.
COVID Impact Report
QuikTrip, operator of more than 820 convenience stores in 11 states, generated estimated revenue of about $11.40 billion during its fiscal year ended in April 2019, up from $10.20 billion in the prior year. The sales increase was primarily attributed to about 25 stores opened during the year and strong inside sales growth. However, as a result of the COVID-19 pandemic, the Company is seeing a significant slowdown in in-store traffic, as consumers are driving less in light of stay-at-home orders in most states.
COVID Impact Report
A $7.5 million lawsuit has been filed by Palm Springs Mile shopping center in Hialeah, FL against AMC Entertainment for nonpayment of $52,153 in April rent. The suit states that AMC’s lease does not include a force majeure clause that excuses the payment of rent due to an act of God. AMC’s 225 theaters (including 30 in Florida) have been closed since March 17.
COVID Impact Report
On April 23, Gap announced that it is withholding $115.0 million per month of rent in North America beginning in April, as it works to conserve cash and liquidity. The Company is negotiating with its landlords to defer or abate rent during this period but stated there is no assurance that this would be successful and could result in terminated leases. Gap said it might raise new debt, further defer capex, further reduce headcount and operating expenses, and extend payments to its vendors. As we previously reported, on March 17, the Company drew down the entire available amount under its $500.0 million credit facility, withdrew fiscal 2020 guidance, suspended dividends and buybacks, cut capex by $300.0 million for FY20, reduced headcount and salaries, and furloughed most of its store teams in the U.S. and Canada. Gap’s 3,919 stores have been closed since March 19.
Gap priced an offering of $500.0 million of its 8.375% Senior Secured Notes due 2023, $750.0 million of its 8.625% Senior Secured Notes due 2025, and $1.00 billion of its 8.875% Senior Secured Notes due 2027. The Company intends to use the proceeds to refinance its 5.95% Notes due April 2021, all outstanding amounts under its existing $500.0 million unsecured revolver due May 2023, and for general corporate purposes. Closing is expected to occur around May 7.
COVID Impact Report
David’s Bridal is beginning to reopen its nearly 300 stores this week. The entire store base is expected to reopen for in-person appointments starting June 1. In the interim, the Company is providing online style assistance through its newly launched virtual stylist and virtual appointment services, a program with over 300 stylists immediately available to assist customers.
On April 20, the Court approved the Asset Purchase Agreement, entered on March 25, between Village Super Market and Fairway Group Holdings Corp., DIP. Under the APA, Village will acquire certain assets, including five supermarkets, a production distribution center and the intellectual property of Fairway. Four of the supermarkets are in Manhattan, and a fifth store is in Pelham, NY. Village has agreed to pay $76.0 million for the Fairway assets, and to assume certain liabilities, consisting primarily of those arising from acquired leases. Village’s cash purchase price will be reduced by a $2.1 million credit arising from the breakup of Village’s initial “stalking horse” bid. The closing of the transaction is expected next month.
The Court also approved the asset sale transactions between the Debtors and Seven Seas Georgetowne, LLC, and Amazon Retail LLC. Click here for more information.
COVID Impact Report
Target indicated it will extend its $2.00 per hour wage increase through May 30 and continue paid leave benefits for employees affected by COVID-19 and those with underlying conditions. Target is also metering traffic in stores to maintain social distancing and has provided employees with PPE.
Target updated its quarter-to-date performance, reporting 7% comp growth, which reflected a slight decline of in-store comps but a greater than 100% increase across digital channels. Breaking out the quarter, February comps increased 3.8%. This was followed by a double-digit comp increase in March, with in-store comps up mid-single digits and digital sales again up over 100%. Click here to request a list of future openings.
COVID Impact Report
Currently, 205 of BJ’s Restaurants’ 209 restaurants are continuing to operate, following the temporary closure of four restaurants on April 17. System-wide comp declines reached a peak of 82% in the week ended March 24 and were still down about 70% in the week ended April 21. The relative improvement was due to low double-digit growth in off-premise sales from take-out and delivery.
BJ’s cost-cutting efforts have reduced its weekly cash burn to $2.5 million, which includes $1.2 million in weekly cash rent payments, though the Company is negotiating with landlords for potential rent deferral or abatement. As of April 24, BJ’s had $70.0 million in cash on hand, compared to $95.0 million after it drew down its revolver on March 23. Management indicated that it might issue common shares to supplement its liquidity if necessary.
COVID Impact Report
On Monday, Chico’s FAS announced that it would reopen its 1,341 North American stores on May 4; they have been closed since March 17. First, the Company will reopen them by fulfilling national orders with in-store inventories, then introducing buy online pick-up in-store (BOPIS), including contactless curbside pickup, and then implementing shop-by-appointment consultations for all brands. With stores closed across North America, the Company realized strong customer demand through its digital channels, including increased traffic on websites and engagement on social media. FY20 digital sales were up 16% over the past six weeks through April 25, compared to the six weeks ended March 18; growth was driven by intimates, sleep, cozy, active, and lounge categories (the Company does not disclose e-commerce penetration). To match expenses to current sales trends, the Company reduced operating expenses by 30%, deferred the majority of payables, and is in the process of negotiating all contracts, including real estate. As of April 27, the Company had $103.0 million in cash and cash equivalents, and estimates that it could generate $100.0 million in additional liquidity through borrowings on its revolver and owned real estate.
COVID Impact Report
On April 27, various landlords filed objections to Modell’s Sporting Goods, DIP’s motion to extend the suspension of its Chapter 11 case through May 31. The objections cite provisions in the Bankruptcy Code setting a maximum 60-day extension for the Company’s performance of obligations under real property leases, which would limit the extension to May 10. The objections state that the extended period “turns the landlords into involuntary unsecured lenders that must bear the risk that the Debtors will remain administratively solvent and thus able to satisfy their post-petition obligations under the corresponding leases.” It should be noted that most of the Debtor’s 140 stores are in markets where non-essential retail activity is banned, so there is no possibility of GOB sales resuming before stay-at-home orders are lifted. A hearing on the motion and objections is set for April 30. Click here for a list of future closings.
Earning Reports
COVID Impact Report
METRO reported its 2Q20 sales rose 7.8% to C$3.99 billion. The sales increase due to the COVID-19 pandemic was estimated at C$125.0 million (about 3% of sales). Food same-store sales were up 9.7% (up 5.2% excluding the COVID-19 impact). Pharmacy same-store sales rose 7.9%, with a 7.7% increase in prescription drugs (prescription count up 3.9%) and an 8.3% increase in front-store sales. Excluding the COVID-19 impact, pharmacy same-store sales increased 6.4%. Operating income was $374.1 million, compared to $256.2 million last year. During the first half of FY20, the Company opened five stores, carried out major expansions and renovations of eight stores, relocated two stores and closed five stores for a net increase of 115,000 square feet or 0.6%.Click here to request the report.
COVID Impact Report
Skechers reported 1Q sales (for the quarter ended March 31) decreased 2.7% to $1.24 billion; international sales were down 6.8%, partially offset by domestic sales, which increased 2.9%. Domestic wholesale sales increased 9%, but direct-to-consumer sales decreased 4.2%, and international wholesale sales were down 8.4% (sales in China fell 47%). Company-owned direct-to-consumer comps decreased 8.1%, including a 4.7% decrease in the U.S. and a 16.6% decrease internationally, reflecting the closure of the majority of its Company-owned stores since mid-March (comps had increased 9.8% during the first two months of the quarter). The decline in international business drove gross margin down 220 basis points to 44.1%, and SG&A margin eroded 720 basis points to 40.9%. As a result, operating income fell 73% to $44.8 million. The Company opened 14 domestic and two international stores, and permanently closed three domestic and one international store, ending with 508 domestic units and 304 international locations (all units have been temporarily closed since March 18).
COVID Impact Report
Sleep Number’s 1Q sales (for the quarter ended March 28) increased 10.8% to $472.6 million. Gross margin increased 240 basis points to 63.9%, and adjusted EBITDA rose 34.6% to $70.1 million. Most of its 611 retail stores have been closed since mid-March, with the exception of private appointments available under reduced hours. To preserve cash, the Company reduced 2020 planned capex to $35.0 million from $60.0 million, of which $10.0 million was spent in the 1Q. It also suspended share repurchases for the rest of the year, and reduced compensation, benefits, and discretionary spending. About 40% of its team members have been furloughed, with another 30% working reduced hours. These actions are collectively expected to result in more than $250.0 million of reduced cash spending versus previous plans for 2020. Click here to request the report.
COVID Impact Report
Adidas reported 1Q20 sales plunged 19% to €4.75 billion (US$5.15 billion), reflecting a 20% decline in brand Adidas sales and a 12% decrease in brand Reebok sales. Sales in China dropped 58% to €800.0 million. E-commerce sales rose 35%, including 55% growth in March, but digital growth was unable to make up for store declines. More than 70% of the Company’s stores remain closed worldwide. Gross margin decreased 43 basis points to 49.3%, and inventories increased 32% due to lower-than-expected product sell-through caused by store closures. The revenue shortfall caused operating profit to fall 93% to €65.0 million, and operating margin declined to 1.4% from 14.9%.
Adidas’ top line began to sequentially recover in China during the first three weeks of April, and global e-commerce sales accelerated “significantly.” However, the Company stated that overall sales remain severely impacted by continued store closures; it expects sales to fall more than 40% and to record an operating loss.
