July 22, 2020
Yesterday, ALDI announced the next phase of its growth plan. According to Jason Hart, CEO of ALDI U.S., the Company officially reached 2,000 stores in June with the opening of two new locations in California. Overall, ALDI expects to open more than 70 new stores by the end of the year (100 overall in 2020).Later this year, the Company is slated to enter Arizona, its 37th state, with the opening of four new stores in the greater Phoenix market followed by plans to enter Louisiana soon after that.
ALDI is also setting the foundation for a Gulf Coast expansion, with plans calling for the Company to break ground in 2021 on a new regional headquarters and distribution center in Loxley, AL. The facility will serve new stores in southern Alabama, across the Florida panhandle, and in Louisiana. The chain now operates 180 stores in Alabama and Florida as well as four regional headquarters and DCs in the region.
The new stores and market areas are part of a $5.30 billion, five-year expansion strategy that ALDI unveiled in 2017. The Company is investing $3.40 billion to expand from 1,700 to 2,500 stores nationwide and includes a $1.60 billion store refresh project launched in February 2017, which calls for the remodeling and/or expansion of more than 1,300 stores by the end of 2020. So far, ALDI has 2,000 stores across 36 states (not including the newly announced stores) and has remodeled more than 850 stores. The Company has accelerated the rollout of curbside pickup and plans to offer the service at nearly 600 stores by end of July. Through a partnership with Instacart, ALDI also offers grocery delivery in more than 10,000 zip codes. The Company has increased fresh food selection by 40%, with more produce, prepared foods, meats and organic items.
In lieu of the pandemic, Mr. Hart commented, “We’re pleased to report the pandemic has not slowed our expansion plans, and ALDI remains on track to becoming the third-largest U.S. grocery retailer by store count by the end of 2022.” Click here to request a list of future openings.
Amazon is reportedly planning to open three grocery stores under its new, still undisclosed banner, in metro Philadelphia, PA, possibly by the end of the year. Earlier this year, Amazon opened two physical locations in California, in Woodland Hills and Irvine, which were expected to be the first of its chain of grocery stores. However, both locations were temporarily converted to focus exclusively on fulfilling grocery delivery orders, which have surged during the pandemic. Amazon is also planning to open conventional grocery stores in North Hollywood, CA, and the Chicago suburbs of Oak Lawn, Schaumburg and Naperville. Locations in Seattle and Washington, D.C., are also reportedly in the works.
Amazon is also introducing Amazon Dash Cart, which enables users to bypass checkout lines using a combination of computer vision algorithms and sensor fusion to identify items a shopper puts in the cart and process payments using a credit card on file. The Carts will be available for use at its grocery store in Woodland Hills, CA, slated to open later this year.
In other news, Amazon is partnering with Crossover health to open third-party primary care clinics near several of its fulfillment centers and operations facilities nationwide. The first center will be located in Las Colinas, TX and will open exclusively for Amazon employees and families. The Company said Crossover Health’s platform allows patients to start their care online and transition to in-person care as needed. Through the initial pilot, Amazon expects to set up 20 health centers in five cities including Dallas/Fort Worth, TX; Phoenix, AZ; Louisville, KY; Detroit, MI; and San Bernardino/Moreno Valley, CA. If the pilot is successful, the plan is to open additional facilities in other cities. Click here to request a list of Amazon future openings.
Yesterday, Tailored Brands announced a new restructuring plan that would close stores, reduce headcount, and implement leadership changes. The Company identified 500 of 1,445 stores that could potentially close permanently (click here to request a list of closings). By the end of 2Q20, the Company expects to reduce the corporate workforce by 20%, resulting in an approximate $6.0 million pre-tax charge for severance payments and other termination costs. As of today, 96% of locations reopened.
On July 31, CFO Jack Calandra will leave Tailored Brands. CEO Dinesh Lathi and Managing Director of AlixPartners Holly Etlin will split responsibilities. As of the same date, Ms. Etlin will be promoted to chief restructuring officer, after being hired as an advisor in late March; she brings over 30 years of restructuring experience and has deep knowledge of retail.
In the Neiman Marcus Group bankruptcy case, the Debtors and the Creditors’ Committee agreed to reschedule the hearing on: (i) the Committee’s motion to terminate exclusivity and file its own Plan and Disclosure Statement, and (ii) approval of the Debtor’s Disclosure Statement. The Committee’s proposed Plan would preserve the right to sue the Company’s private equity owners (Ares Management Corp. and the Canada Pension Plan Investment Board) over the 2018 spinoff of German luxury website Mytheresa, which is potentially valued at over $1.00 billion. The hearing was rescheduled from July 16 to yesterday (July 21).
Meanwhile, the Company is working with A&G Real Estate Partners to market four locations, following reports it is considering closing the store in Manhattan’s Hudson Yards. The four stores being marketed are an 87,600 square-foot unit in Walnut Creek, CA; a 126,300 square-foot unit in Washington DC; a 48,700 square-foot unit in Palm Beach, FL; and a 124,600 square-foot unit in Bellevue, WA. Management has not yet commented on any potential closings. Management said, “This ongoing assessment may include marketing of leases for certain locations. This is not necessarily an indication that we are closing a particular store, but rather evaluating a way to monetize the value of the leases at these properties and allocate the proceeds toward investments that drive profitable and sustainable growth. Ongoing discussions with landlords are private and confidential.” There has been speculation that other potential candidates for closure include stores in Dallas, TX; St. Louis, MO; Ft. Lauderdale, FL; Natick, MA; and Westchester, NY. The Company currently operates 43 Neiman Marcus stores and two Bergdorf Goodman stores. Click here to request a list of closures.
In the J.C. Penney Company bankruptcy case, the Debtors notified the Court that the deadline to provide evidence of the DIP lenders’ approval of its business plan was extended to July 31 from July 15. As background, one of the milestones in the DIP Agreement requires that no less than 66.7% of the DIP lenders must approve the business plan or the Company can be forced to liquidate (known as a Toggle Event). Counsel for the Debtors previously noted that the deadline might be extended following “incredibly productive” discussions with lenders. He noted that an extension should be viewed as a “complete positive” because “nobody wants a liquidation.” The Debtors’ access to the remaining $225.0 million under the DIP Facility (which is contingent on the lenders approval of the business plan) was also extended to July 31. Click here to request a list of future closures.
The Debtors also noted the following:
- The business plan was delivered to the lenders on July 8;
- The milestone extension did not trigger a Toggle Event; and
- They are negotiating other modifications to the DIP Agreement in connection with the milestone extension, and additional details will be provided as soon as they are available.
REI reportedly laid off 400 retail employees last week, about 5% of its retail staff. The Company furloughed 90% of its retail employees on April 15, and that furlough period expired on July 15. The layoffs come on top of about 300 headquarters employees who were laid off in April as a result of COVID-19. The Company has about 13,000 employees. As of July 6, nearly all REI stores are open in some capacity, and most employees have been returned from furlough.
North of the border, Mountain Equipment Co-op (MEC) is making 200 of its 1,300 temporary store staff layoffs permanent, attributed to slowing retail business. Seven of MEC’s 22 stores are still closed. These layoffs are in contrast to other sporting goods retailers such as Bass Pro and Sportsman’s Warehouse, which have been benefitting from surging firearms sales. Earlier this month, Bass Pro announced it was hiring 5,000 new employees.
Wegmans announced July 29 as the opening date for its new store in West Cary, NC. The announcement comes just a month after the Company said it would no longer reveal specific opening dates for each of its new stores, in an effort to lessen the size of grand-opening crowds amid the pandemic. Click here to request a list of future openings.
Lidl will open two new supermarkets on Long Island, NY next week, in East Meadow (July 29) and Patchogue (August 5). Both stores were converted from Best Market, which it acquired in late 2018. Lidl remodels are also set to soon begin for Best Market stores in Astoria (Queens), Franklin Square and Massapequa, which are set to open early next year. Lidl opened its first Long Island stores in December and currently operates four locations in the region, including Plainview, West Babylon, Huntington Station, and Center Moriches. Click here to request a list of future openings.
Topgolf International is reportedly in talks to go public through a merger with Churchill Capital Corp. II, a special purpose acquisition company, or SPAC, led by former Citigroup banker Michael Klein. A SPAC is an entity with no commercial operations that is formed strictly to raise capital through an IPO for the purpose of acquiring an existing company. Since COVID-19, merging with an SPAC has become an increasingly popular way to go public in a period of market uncertainty and volatility. Sources claim Churchill is seeking to raise additional equity as part of the deal and has begun conversations with potential investors. Earlier this year, reports said Topgolf had selected banks for an IPO that could come later this year, with the Company potentially being valued at about $4.00 billion. Topgolf reportedly has $525.0 million in outstanding debt.
Wawa plans to open a new store in Westhampton, NJ by the end of 2020, the first to offer a drive-thru service. Drive-thru hours would offer a limited menu of food and beverage items. Wawa predicts that 30% to 50% of the store's customers will utilize the drive-thru.
On July 16, Apple opened a replacement store in Sanlitun, Beijing, China, located immediately adjacent to its original store, which has closed. The new store is twice the size of the original and features many of Apple’s latest retail design updates, including a forum (a place to host artists and musicians who will showcase and teach their process), viewing gallery, and boardroom (local businesses and entrepreneurs can get personal advice and guidance from the Apple team).
BJ’s Wholesale Club will open a new store in Chesterfield, MI on July 31. It will feature an onsite gas station and a snack shop.Click here to request a list of future openings.
Lowe’s Companies is piloting drive-in theaters in the parking lots of select stores in North Carolina and Georgia. The theaters will benefit local small business relief efforts for those impacted by COVID-19. The Company is also increasing its minority small-business grants from $25.0 million to $30.0 million, and it is donating an additional $25.0 million to its small business grant program with the Local Initiatives Support Corporation, doubling the amount already committed. In a related story, Brookfield Properties has signed a deal with Kilburn Live to turn the parking lots at a number of its malls into drive-in theaters, hosting movies and virtual concerts. So far, five Brookfield locations in Denver, Dallas, Houston, Minneapolis, and Woodbridge, NJ have opened drive-in theaters. Besides drive-in theaters, mall operators nationwide have been using parking lots for food trucks, COVID-19 testing sites, and curbside pickup destinations.
Rue21 plans to open three new stores this month, in South Carolina, Tennessee, and Texas, bringing its store count to 673 in 45 states. The Company said it has experienced a business uptick since emerging from the COVID-19 shutdown and is outperforming every metric, including sales, comps, and EBITDA. Similar to most retailers, Rue21 shuttered its stores in March and furloughed most staff, pausing scheduled incentive bonuses. When some states began to reopen in May, the Company opened 180 stores. Interim CEO John Fleming stated, “We fully expected all areas of commerce to take a hit, but to our surprise, our customers were anxious to purchase affordable, fashion-forward pieces that fit into their new way of life. As a result, we beat out last year’s comps with a record June in terms of gross margin.”
Walmart has reportedly revived talks on a potential sale of its U.K. grocery unit Asda, after a possible deal was put on hold amid the coronavirus pandemic. Walmart and Asda said they are in discussions with a “small number” of suitors interested in acquiring a stake in the business after renewed interest. They commented, “We believe now is the right time to explore options for a third party to invest in our business to accelerate the long-term delivery of our value strategy, both in stores and online.” Private equity firms Apollo Global Management, Lone Star Funds, and TDR Capital each submitted first-round offers for Asda earlier this year. A deal was expected to value the business at more than £7.00 billion (US$8.60 billion). Walmart previously put the planned sale of a majority stake on hold to focus on running the business amid unprecedented spikes in demand from consumers stockpiling for the COVID-19 lockdown. Click here to request a list of openings and closings.
Walmart Canada plans to spend C$3.50 billion (US$2.58 billion) over the next five years to strengthen its e-commerce business, as the COVID-19 pandemic prompts a large-scale shift to online shopping. The Company also said it would renovate over 150 stores, more than a third of its network, to add more equipment such as shelf scanners, robots, and more convenient self-checkout options. Walmart has seen a surge in e-commerce demand, with its e-commerce business up 74% in the first quarter ended April 30. As part of the investment, Walmart also said it would spend C$1.10 billion on building two new distribution centers. Walmart Canada added that it would expand in-store pick-up to about 270 stores (70% of locations) by the end of 2020.
On July 16, Tilly’s provided a business update, since 41% of its stores are located in California and are subject to renewed temporary shutdowns from rising COVID-19 cases. Of the 98 stores in California, which generated 50% of its FY19 store revenues, 28 of them were closed as indoor mall locations. From their respective reopening dates through July 13, customer traffic decreased 27%, and reopened store comps were down 4.4%. Total comps fell 9%, with physical store comps declining 37.3% compared to the prior year. E-commerce sales spiked 169.8% in the same period. As of July 14, the Company had $152.1 million in cash, and total inventories were 24% lower than last year.
CVS Pharmacy has completed its rebrand of 98 Schnuck Markets pharmacies, a deal that was first announced in March. This includes 26 pharmacies throughout St. Louis, MO, and 72 in Illinois and Indiana. CVS initially said it would acquire 99 of 100 Schnucks pharmacies, but as part of the transition one of the pharmacies closed its doors for good.
Tractor Supply signed a lease for a 51,000 square-foot store in Columbus, OH, including 31,000 square feet of indoor space and nearly 20,000 square feet of outdoor display area. Tractor Supply operates 1,873 stores, including 93 in Ohio.
In the 24 Hour Fitness bankruptcy case, the Debtors notified the Court that they intend to reject a second group of store leases. This group includes 44 leases. The rejection date is July 31; however, if this is earlier than the date of the surrender of the leased premises, the date of surrender will be the rejection date. The initial group included 164 lease rejections. Click here to request a list of closings.
On July 15, the hearing on final authorization of the DIP Facility was adjourned to a date to be determined at a meeting scheduled for today (July 22) (the meeting was subsequently rescheduled to July 24). Reports state that the postponement was due to the Court’s concern that the Company may not be able to sustain a sufficient revenue stream after California’s recent order closing businesses in certain areas of the state in response to a resurgence of COVID-19. The order will result in closing 151 locations that were previously among the 245 locations the Company was operating as of July 1. Additionally, the Court questioned the reliability of the budget, now that projected revenue metrics have changed. Finally, the Court expressed concerns over a similar impact if renewed closings were to occur in Florida and Texas.
The Court issued final orders authorizing the Debtors to pay up to: (i) $14.5 million in critical vendor claims in the ordinary course of business, and (ii) $500,000 in 503(b)(9) claims. Documents filed in the case do not provide the amount of critical vendor and 503(b)(9) claims outstanding as of the petition date.
Southeastern Grocers recently revealed three remodeled Winn-Dixie stores in the St. Augustine, FL area. The stores have a new look and expanded offerings. Winn-Dixie is not conducting its usual events around store remodels because of the coronavirus pandemic.Click here to request a list of future openings and closings.
Hy-Vee will open a small-format store under its Dollar Fresh banner on July 24 in Dyersville, IA. The 27,620 square-foot store is one of six former Shopko locations in Iowa the Company acquired in January with the intention of converting to Dollar Fresh stores. It will carry about 9,500 items, including a full selection of grocery items, a bakery section and a dollar section, a ‘wall of value,’ ready-to-eat meal offerings and Aisles Online grocery services (online ordering with pickup / delivery). Hy-Vee also will have a DSW shoe department and Joe Fresh apparel. The first Dollar Fresh opened in Osceola in 2018, followed by a second store in Vinton in May 2020. Another Dollar Fresh store will open this fall in Oelwein, and a new Hy-Vee is also planned for Decorah this fall.
In the RTW Retailwinds bankruptcy case, the Debtors filed a motion seeking approval of bidding procedures for the sale of their e-commerce assets, noting that there are five potential buyers who have expressed interest in serving as the stalking horse bidder. The deadline for qualified bids is August 26, an auction is set for August 28, and a sale hearing is scheduled for September 23. In the motion, the Debtors stated that if there is an interested going concern purchaser for the brick-and-mortar stores they reserve the right to pivot toward that contingency; however, they believe this is an unlikely outcome. The hearing on the motion is scheduled for August 7.
Meanwhile, the Court issued interim orders authorizing the Debtors to:
- Commence GOB sales at all 387 stores. Click hereto request a list with details of 378 of the stores. Documents in the case do not explain the status of the other nine stores. The GOB sales will conclude on August 31;
- Reject leases on an initial group of 20 stores. Click hereto request the list; and
- Use cash collateral. The Debtors are not seeking access to a DIP Facility. They stated that “consensual use of cash collateral will provide sufficient liquidity to run going-out-of-business sales and market and sell the e-commerce business, with cash-on-hand and revenue from the store closing sales projected to be sufficient to support continued operations and the administrative expenses of the Chapter 11 Cases, as well as reduce and ultimately eliminate the balance owed to the prepetition lender through structured pay-downs of prepetition indebtedness.”
A hearing on final approval is scheduled for August 7.
Aritzia signed a lease for a 30,000 square-foot store in New York City, in a space formerly occupied by Dean and Deluca in the Soho district. Aritzia initially plans to use the space for a “Super Puff” pop-up store, with a similar concept reportedly in the works for Los Angeles. The store will become the New York flagship for Aritzia, which has more than 95 locations across North America. All of its stores have reopened, and the Company is also reportedly planning to open six new boutiques, in addition to the pop-ups. In a conference call last week, management said the new leases were tied to “compelling post-COVID financial terms.”
PVH Corp. plans to shutter its 162 Heritage Brands outlet stores by mid-2021. Brands with Company-owned stores include Izod, Van Heusen, and Warner’s; the Company’s Tommy Hilfiger and Calvin Klein stores aren’t affected. PVH will also cut 450 positions, or 12% of its workforce. It expects to save $80.0 million annually, but it will also pay $80.0 million in pre-tax charges over the next 12 months. Click here to request a list of future closures.
On Monday, Ulta Beauty announced the completion of its phased reopening process, with all 1,264 stores now open. The Company is offering curbside pickup and BOPIS via its website, mobile app, and stores. All guests are required to wear facial coverings when in stores. The Company also welcomed back 50% of its previously furloughed employees.
The Company continues to refine its near-term new store opening plans and expects to open about 30 new units in FY20. New store activity was temporarily paused in 1Q20, but openings are expected to resume in August. As new store opening plans are finalized for FY21, the Company anticipates opening additional stores in the U.S. as well as its first stores in Canada. CEO Mary Dillon stated, “We anticipate COVID-19 will influence longer-term market shifts and create new real estate opportunities, supporting our ambition to ultimately operate between 1,500 to 1,700 Ulta Beauty stores in the U.S.” Meanwhile, the Company plans to permanently close 19 stores in the 2Q and 3Q of 2020. Ulta plans to announce 2Q results on August 27. Click here to request a list of future openings.
On July 20, Modell’s Sporting Goods filed a motion seeking approval for the sale of 20 leases associated with stores where GOB sales will be completed by July 31. The bid deadline is July 23, an auction is scheduled for July 27, and the sale hearing will be on July 28. The bid deadline is August 20 for the sale of leases on the remaining 115 stores, where GOB sales will conclude by August 31; an auction date has not been announced. A hearing on these sales will take place on August 25.Click here for a list of closures.
In the Tuesday Morning, DIP case, the Debtors identified 66 additional stores they intend to close as part of a second wave of closures (click here to see the list) . Objections must be filed by July 23. On June 10, we reported that the Court issued an order authorizing the commencement of GOB sales at 136 (the first wave) of the Company’s 687 stores .
On Monday, the Debtors filed a motion to change the bar date to August 28. It is currently set for September 30. The Debtors said the purpose is to “add flexibility to solicit acceptances of a Plan earlier than would be possible under the original bar date and to preserve administrative costs through a prompt exit from Chapter 11.” A hearing on the motion is scheduled for today.
GNC Holdings filed a preliminary Disclosure Statement and Plan of Reorganization, which provide for a dual-track process under which both a sale transaction and a reorganization are being pursued. Under the sale alternative, the Debtors entered into a $760.0 million stalking horse purchase agreement with Harbin Pharmaceutical Group Holding Co. (a Chinese company that is GNC’s largest shareholder) for a going concern sale of the business. If the sale transaction cannot be consummated the Company will implement a Plan of Reorganization. The Plan provides for a debt-for-equity exchange, under which the Debtors will restructure their prepetition funded debt with the proceeds of $525.0 million in new debt, and the pre-petition lenders will take equity in the Company. Additionally, the DIP Facility will convert to an exit facility. The Disclosure Statement does not yet provide a projection of anticipated recoveries for 503(b)(9), administrative, or general unsecured claimholders. Causes of action, including avoidance/preference actions: (i) will be pursued if there is a sale transaction, and the proceeds will be used to fund distributions to holders of allowed claims; and (ii) if there is a reorganization, they will be waived against entities whose claim is unimpaired, and entities with whom the Debtors are conducting business. A hearing to consider approval of the Disclosure Statement is scheduled for August 19. Click here for a list of closures.
Earning Reports
Like others in the grocery sector, The Fresh Market has benefitted directly from the overall shift to food at home during COVID-19. 1Q sales for the period ended April 26 were up 12% to $447.0 million due to a 25% increase in average transaction size offset by lower traffic. EBITDA improved a very strong 60% to $53.0 million. This recent pickup is in stark contrast to the challenges the Company was facing the last few years, which led to faltering performance and closures of underperforming stores. As evidence of the impact of COVID-19, early this year, the Company’s $800.0 million 9.75% Bonds due May 2023 were yielding nearly 25%; those same notes are now yielding less than 12%. This is not to say the Company is out of the woods. Though near term risk is lessened, with $935.0 million of debt and nearly $100.0 million of annual interest expense we view the capital structure as unsustainable in the long term; however, given the recent performance improvements, primarily due to COVID-19, perhaps the Company is now in a better position to address its capital structure through refinancing.
Hibbett Sports provided an update on its 2Q20 ending August 1. Quarterly comps are forecast to increase in excess of 80% versus the prior year. Brick-and-mortar comps are expected to be up 60%, while digital comps are anticipated to rise 200%. Nearly all stores have reopened to the public. Hibbett expects that new customers will account for more than 25% of brick-and-mortar sales and 40% of digital sales. Inventory is projected to be well below prior-year levels at quarter end. The $50.0 million that was borrowed in 1Q/March under the Company’s credit facilities has been repaid.
At no point did Hibbett use any of these excess funds. First-half comps were forecast to increase 20%, including a 7% increase in brick-and-mortar comps and a 140% increase in online comps.
The Company also disclosed that additional expenses are being incurred to maintain a safe store shopping environment, and the strong sales performance, in combination with a challenging business environment, are anticipated to result in increased labor costs. The improved financial outlook is expected to result in a significant increase in the second year earnout liability related to the City Gear acquisition.
Sleep Number’s 2Q sales (for the period ended June 27) decreased 20% to $284.9 million, and retail comps dropped 21% (store comps were down 40%, while online comps were up 209%). Retail sales represented 72.2% of total sales, down from 92.1% last year. Meanwhile, online sales represented 27.5% of total sales, up from 7.2% last year. Gross margin fell 380 bps to 57.2%. Operating loss was $12.1 million, compared to an operating profit of $7.2 million last year. The Company opened six new stores during the quarter and permanently closed 19 underperforming stores, ending with 598 locations. Sleep Number indicated that more than 95% of its retail stores were open as of July 15, compared with 53% open on average during the 2Q.
