July 8, 2020
In the Neiman Marcus Group LTD LLC Chapter 11 case, the Debtors filed a motion seeking to close 17 of the 27 Last Call stores (click here to request the list). Last Call is a discount offshoot of the Company’s department stores. The Debtors initially announced their intention to close the stores in March and have been preparing for the closures since the announcement. Store-closing sales will commence when the Company determines that store traffic, consumer spending, and other factors are at optimal levels to maximize the value of the estates. The motion indicates that the Debtors may seek authorization to close an unspecified number of additional stores in the future.
Today, Brooks Brothers Group, Inc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware. The proceedings have been designated as case number 20-11785.
The Company operates over 200 stores in North America and 500 worldwide. Management has already decided to close roughly 51 stores, a decision it attributes to the Coronavirus pandemic. Most of those closures have already begun, and the Company has moved inventory from the targeted stores to distribution centers. Management is proceeding with plans to reopen the majority of stores it closed due to the pandemic.
The Company is seeking a buyer, although details are not clear. Management said, "We are in the process of identifying the right owner, or owners, to lead our iconic Brooks Brothers brand into the future. It is critical that any potential buyer aligns with our core values, culture, and ambitions. Further details on the sale process will be made available in the coming days."
The Company has secured $75 million in DIP financing from brand management firm WHP Global, which is backed by Oaktree Capital and BlackRock. Click here for a list of closures.
Ahold Delhaize’s Stop & Shop division continues to expand its e-commerce operations with the addition of three new warerooms (e-commerce fulfillment spaces typically attached to brick and mortar stores featuring manual order picking and packing) that will bring pickup service to at least 50 more locations in 2020. Stop & Shop currently operates 21 warerooms. Grocery pickup, which Stop & Shop launched last summer, is currently available at 212 stores, and orders are available for customers to collect in as little as four hours. Stop & Shop also recently expanded its partnership with Instacart, which now offers same-day delivery service from 321 Stop & Shop stores. It first partnered with Instacart in 2017. Click here for a list of future openings and closings.
Wegmans Food Markets has shuttered all of its Pub by Wegmans, including 12 locations in New York State, Pennsylvania, and Virginia. The Pubs were initially closed in response to the pandemic, but Wegmans recently announced the closures are permanent. In the wake of COVID-19, Wegmans has been forced to rethink the way it operates its business. Long known as an “experiential” chain with immensely loyal followers, Wegmans has trimmed its huge assortment of roughly 52,000 items by more than 40% to sell roughly 30,000 products. As a result, the Company is learning that shoppers will accept fewer options, and is reconsidering the level of assortment it will provide in the future. In addition, like its peers, Wegmans must cope with the rising cost of doing business in the COVID-19 era, as labor, safety, and sanitizing expenses increase. Click here for a list of future openings.
About 2,000 of McDonald’s 14,000 U.S. locations had reopened sit-down dining services by mid-June, but recent climbing case numbers of the coronavirus have made executives at McDonald's rethink their reopening strategy. On July 1, the Company said it would wait three weeks before any new U.S. restaurants add dine-in service to drive-throughs, takeout, and delivery operations.
On June 27, Raley’s opened its first O-N-E Market in Truckee, located in Northern California. The 35,000 square-foot location’s product selection is based on health and wellness, and will focus on organic products. The store will also feature Shelf Guide icons or online filters to help customers make choices based on their diet, such as keto friendly, organic, plant based, gluten free, and other options. The new store is part of Raley’s “long-range brand differentiation strategy.”In 2018, it also opened a new store concept, Market 5-ONE-5, in downtown Sacramento that focused on organics, nutrition, and education.
Like others in the grocery sector, indications are that Fareway Stores is benefiting from the overall shift to food-at-home during COVID-19. This recent pickup is a welcomed change as estimated sales had not materially changed in the last five years. Though the Company has opened six stores in the last 18 months and has three more in development, its net count rose by just one, and two of the stores in development are replacements. Ultimately, the Company operates in a market dominated by Walmart and Hy-Vee, and appears content remaining a niche player.
Amazon is reportedly delaying its annual Prime Day from September to October. The Company is targeting October 5 as the starting date for the 2020 edition of Prime Day. Since initially launching the Prime Day promotion in 2015, Amazon has always held the event in mid-July.
In other news, Amazon has disclosed a number of new potential sites for grocery stores. It reportedly plans to open Go Grocery stores in Redmond, WA, and Washington, D.C. It will also open two locations under a new supermarket format in North Hollywood, CA, and Oak Lawn, IL. Amazon is reportedly targeting the Los Angeles, CA area with multiple supermarkets, including a North Hollywood store. Supermarkets located in Woodland Hills and Irvine, have been converted to online fulfillment operations. Other potential supermarket sites could include Seattle, WA and Washington, D.C.
The Zallie family, owners of ShopRite Supermarkets in South New Jersey, announced last week that David Zallie has purchased the shares in the eight Zallie ShopRite stores that have been jointly owned by George J., Bruce, and David Zallie since the passing of their father in 2011. Zallie-Somerset Inc.is the new entity that all 11 Zallie-owned ShopRite stores will operate under.
Walgreens has opened 30 small format pharmacies as part of a pilot program. The stores are more focused on pharmacy and offer a slimmed down selection of HBC and general merchandise sections. Pharmacists play a central role in the new small format stores, and Walgreens hopes that personalized care will ultimately lead to better health outcomes. It may open additional small format stores depending on how the stores perform. The small format store is less than a quarter the size of the typical 14,000 square foot Walgreens. Click here for a complimentary list of openings and closings.
Grocery Outlet opened a new store in Truckee last week. It does not have the typical facade of a Grocery Outlet, and was instead designed to fit in with local surroundings and architecture. Click here to request a list of future openings.
Cineplex has commenced an action in the Ontario Superior Court of Justice against Cineworld Group plc and 1232743 B.C. Ltd., seeking damages, after Cineworld wrongfully repudiated the deal under which it would acquire Cineplex for $34 per share. On June 12, Cineplex claims Cineworld purported to terminate the deal and unilaterally withdrew the request for Investment Canada Act approval. Cineplex’s action was served on Cineworld on July 3. The claim seeks damages, including the approximately $2.18 billion that Cineworld would have paid upon the closing of the deal for Cineplex’s securities, reduced by the value of the securities retained by its security holders, as well as compensation for other losses, including the failure of Cineworld to repay or refinance Cineplex’s roughly $664.0 million in debt and transaction expenses. While Cineworld cited the adverse impacts of COVID-19 on Cineplex’s business to terminate the deal, the contractual agreements expressly exclude outbreaks of illness as a circumstance for termination.
In other news, Cineworld joined AMC and Cinemark in pushing back its reopening plans, after major studios postponed the release dates of anticipated summer blockbusters. The Company is pushing back the reopening of its Regal theaters from July 10 to July 31. The release dates of upcoming major blockbusters are now August 12 for Warner Bros.’ Tenet and August 21 for Disney’s Mulan.
Last week, Save Mart opened a 50,000 square-foot store in Redding, CA. The Company now operates 83 stores across California and Northern Nevada.
The Children’s Place announced that its phased reopening of retail stores has resulted in 860, or approximately 95%, of the Company’s stores open as of July 1, and furloughed corporate, field management and store associates have returned to work. Effective June 28, the Children’s Place reinstated the base salaries of the Company’s president and CEO, its senior leadership team, and its corporate staff, all to 100% of pre-reduction levels; additionally, the board approved the restoration of quarterly cash payments to independent members at pre-suspension levels.
On Monday, Regis Corporation announced additional G&A reductions and provided a business update on salon re-openings, as well as the continued progress towards a fully franchised model. The Company eliminated additional administrative costs and personnel, expected to result in approximately $6.0 million of annualized cost savings; this is on top of the $25.0 million in G&A reductions during FY20. As part of the restructuring, EVP and COO for Company-owned salons Jim Lain resigned and will leave on July 17, after seven years in the role. Mr. Lain will provide consulting through December 31. In June, the Company restarted the refranchising process, and 88 Company-owned salons were transferred to franchisees during the month. As of July 1, 88% of franchised salon locations had reopened, and 68% of Company-owned salons had reopened.
Shake Shack and licensee Maxim's Caterers Limited have expanded their partnership, with plans to open a minimum of 15, and as many as 55 Shake Shack locations in South China by 2030. Currently, Maxim's Caterers operates Shake Shack locations in Shanghai and Hong Kong, with Beijing and Macau in development. Click here to request a list of future openings.
BJ's Wholesale Club will open a new, 90,000 square-foot store in Seabrook, NH in 2021. It will be the Company’s seventh location in the state. Click here to request a list of future openings.
Bankruptcy Updates
At a hearing on July 1, representatives of J.C. Penney Company, Inc. addressed issues in connection with the July 15 deadline for its lenders to approve its business plan. Management acknowledged that there have been concerns about the viability of the plan in light of the resurgence of COVID-19 in parts of the country. However, management asserted that the Company’s performance so far and its “significant cash on hand” will help it weather the changing landscape. Management also said it has approximately $980.0 million in cash, which is almost $100.0 million ahead of budget. The Company entered Chapter 11 with a plan to facilitate a reorganization that would separate its real estate from its operating assets, loosely known as a “propco/opco” approach. Management said that its marketing process during the bankruptcy has centered around the “opco” structure, with 20 parties signing non-disclosure agreements, including four who have spent “a significant amount of time” considering owning the operating company. Thus far during the pandemic, J.C. Penney has reopened 831 of its 846 stores. Concurrently, the Company is downsizing its store base under a plan to close 154 units in phases. It is already in the process of closing 134 stores, with plans to close more locations this month. Operationally, year-over-year e-commerce comps increased 19.5% in June. As for physical store sales, off-mall locations are performing better than mall locations, reflecting consumer preferences during the pandemic. Additionally, the Company has opened some of its higher-performing stores in the past three weeks. Click here to request a list of future closings.
Fairway Group Holdings Corp. filed a Disclosure Statement and Chapter 11 Plan. Under the Plan, administrative expense claims, including 503(b)(9) claims, will be paid in full. The Debtors will distribute cash proceeds from the sale of its assets to creditors. Approximately $1.5 million will be contributed to a trust for the benefit of allowed general unsecured claimholders, for a recovery of between 1% and 1.5% of allowed claims. Holders of allowed general unsecured claims will be released from any preference or avoidance claims if they vote to accept the Plan or abstain, but do not opt out of certain third party releases. The Creditors’ Committee supports confirmation of the Plan and recommends that all creditors entitled to vote submit a ballot to accept the Plan. The Debtors filed a motion seeking approval of the Disclosure Statement at a hearing scheduled for August 13, 2020. A confirmation hearing is scheduled for September 29, 2020.
On June 30, Lucky’s Market Parent Company, LLC filed a complaint against Winn-Dixie Stores Inc. and Southeastern Grocer (SEG) claiming that SEG does not have a right to terminate a purchase agreement for a store in Naples, FL that was part of the four stores it agreed to acquire.
In the Stage Stores, Inc. Chapter 11 case, the Court approved the Disclosure Statement. The related Chapter 11 Plan indicates that the Debtors will simultaneously: (i) solicit bids for a going concern sale of the business or any of its assets, and (ii) initiate an orderly wind-down of operations. The wind-down will terminate at certain locations if the Company receives a viable going-concern bid. The Disclosure Statement provides that general unsecured creditors are projected to receive a recovery of “less than 6% of their allowed claims.” The Plan provides that the Debtors may commence and pursue causes of action, including preferences/avoidance actions. The Court also scheduled the confirmation hearing for August 14.
Earth Fare, Inc., which filed for bankruptcy and shuttered operations in February, announced it is receiving an investment from Hulsing Enterprises and its president and CEO, Dennis Hulsing. Mr. Hulsing, the original Earth Fare founder, Randy Talley, and former Earth Fare president Mike Cianciarulo, have joined together in the revitalization of the brand, with Talley now serving as the Company’s chief sustainability officer. Mr. Hulsing has also brought on David Isinghood, who spent 25 years with Whole Foods, as COO for Earth Fare. The first Earth Fare to reopen, in Asheville, NC on June 22, is the first of eight Earth Fare stores set to open over the next few months. A location in Roanoke, VA, is scheduled to reopen this week followed by stores in Boone, NC, Athens, GA, and Summerville, Charleston, Columbia, and Rock Hill, SC. Mr. Hulsing intends to continue to grow the stores throughout the Southeast region and keep its headquarters rooted in Asheville.
In the Pier 1 Imports, Inc. case, the Debtors entered into a stalking horse purchase agreement with Pier 1 Imports Online and Retail Ecommerce Ventures, under which the purchasers will acquire the Company’s intellectual property, data, and other assets related to the e-commerce business for $20.0 million. The agreement is subject to higher or better offers at an auction scheduled for July 8, with a sale hearing on July 30. Last year, Retail Ecommerce Ventures purchased the brand assets of dressbarn and its e-commerce business from ascena retail group inc., the parent company of Ann Taylor and Lane Bryant.
On July 3, Lucky Brand Dungarees, LLC filed a voluntary Chapter 11 petition. Management said it plans to close at least 13 of its 200 stores, and more closings may be possible. The Company entered into a stalking horse agreement with SPARC Group LLC for the sale of substantially all of the Company’s assets. SPARC is an apparel company operating under the Aeropostale and Nautica brands, owned by Authentic Brands Group, Brookfield Property Partners, and Simon Property Group, one of Lucky Brand’s landlords. The agreement reflects consideration of $140.1 million in cash from SPARC, and a credit bid of $51.5 million from certain lenders. Lucky Brand, which is owned by private equity firm Leonard Green & Partners, plans to operate in the ordinary course during bankruptcy process, with the vast majority of its stores, e-commerce platform, and wholesale business remaining open. Lantern Capital Partners, one of the Company’s existing lenders, is providing $15.6 million in DIP financing. Click here to request a list of closings.
CEC Entertainment filed Chapter 11, citing financial strain resulting from prolonged COVID-19 related store closures. The stated goal is to achieve a balance sheet restructuring that supports re-opening. The Debtors filed a motion seeking authorization to reject leases on 46 stores. As of the petition date, the Company operated 555 stores and had 186 operating under franchise arrangements, for a total of 741 units in 47 states and 16 foreign counties and territories.
On July 1, the Court entered an interim order authorizing the Debtors to defer payment of July and August rent, totaling approximately $20.0 million, to August 24, 2020. The Debtors are party to more than 500 nonresidential real property leases located in 47 states, with approximately 400 landlords. The Court will consider whether to grant final relief, or terminate or amend the order, after considering objections, which must be filed by July 14, 2020. Click here to request a list of closings.
In the Charlotte Russe case, the Court issued an order extending the periods during which the Debtors have the exclusive right to file a Chapter 11 Plan and solicit acceptances, through and including August 3 and October 2, respectively. The exclusive period within which to file a Plan expired June 1, but it was automatically extended through the date of the order.
In the GNC Holdings, Inc. case, the Debtors filed a motion seeking approval of the $760.0 million stalking horse purchase agreement with Harbin Pharmaceutical Group Holding Co., Ltd. for a going concern sale of the business. Harbin is a Chinese company and GNC’s largest shareholder. The agreement provides for a $22.8 million break-up fee. The Company said that if the transaction is consummated in a timely manner, it will be implemented instead of a Plan of Reorganization. In the motion, the Debtors request the establishment of the following deadlines: Receipt of qualified bids 8/28, auction 9/1, sale hearing 9/4. A hearing on the motion is scheduled for July 22. Separately, the Debtors filed a motion to establish the bar date as the date that is 30 days after the later of: (i) the date the Debtors file their Schedules with the Court, and (ii) the date of entry of the bar date order (likely July 22, when a hearing on the motion is scheduled). The bar date will apply to the filing of proofs of claim, including those arising under section 503(b)(9). Click here to request a list of future closings.
In the Tuesday Morning case, the hearing to consider authorizing the Debtors to access a $25.0 million DIP real estate term loan was adjourned to July 8 from June 26. We previously reported that the Debtors have a commitment for the loan, which is secured by unencumbered real estate. Initial funding is expected to be $10.0 million. Click here to request a list of closings.
In the 24 Hour Fitness Worldwide, Inc. case, the Court issued an order authorizing the Debtors to defer the payment of lease obligations arising within 60 days of the petition date until August 14. The Company filed Chapter 11 on June 15. The Debtors estimate that their lease obligation totals $32.0 million per month. In support of the request, the Debtors stated that they do not expect to generate any material operating income on a weekly basis until the week ended August 14, at the earliest. Click here to request a list of closings.
Earning Reports
In response to the COVID-19 pandemic, Macy’s temporarily closed all of its stores on March 18, and they remained closed for the balance of 1Q20. As a result, revenue dropped 45.2%. Digital sales were strong and represented approximately 43% of revenue in the quarter. Due to markdowns to clear seasonal inventory, gross margin fell to 17.1%, compared to 38.2% in 1Q19. The sales and gross margin erosion pushed quarterly EBITDA deep into negative territory at $689.0 million. Debt increased nearly 20% to $5.66 billion due to the draw-down of the revolver. Subsequent to quarter-end, the Company issued $1.30 billion in 8.375% Senior Secured Notes due 2025 and entered into a new $3.15 billion secured revolving credit facility, which includes a $300.0 million short-term credit facility. Macy’s used some of the proceeds to pay off the $1.50 billion outstanding on its previous $1.50 billion revolver and reduced maximum borrowings to $75.0 million under that facility. As a result, pro forma liquidity was approximately $4.50 billion. Management reiterated its plan to reduce staff by approximately 3,900 employees and to lower expenses by $365.0 million this year, and $630.0 million on an annualized basis going forward. This is on top of the previously announced $1.50 billion in expense savings. The Company continues to expect to close at least 125 stores over the next few years, but the timing of the closures remains uncertain. Click here to request a copy of the 1Q Sales Report.
Stein Mart temporarily closed all of its stores on March 19, and they remained shuttered through the end of the quarter (May 2). Its website remained operational. As of June 15, all stores were reopened, with reduced hours. Management noted that while store traffic has steadily increased, sales continue to be down compared to last year and will take time to fully recover. Management also noted that digital sales were up 50% in the quarter-to-date period. In response to COVID-19, the Company reduced expenses by furloughing associates, decreasing salaries of all other non-furloughed associates, and implementing workforce reductions; negotiating modified terms, cost reductions and payment deferrals with its vendors and landlords; and renegotiating credit agreements. Management continues to negotiate with landlords and has negotiated deferrals at 226 of its 281 locations.
Sales in 1Q20 decreased 57%, as the impact from the store closures outstripped a 17% increase in digital sales. Gross margin was negative, reflecting deleverage of occupancy costs and higher markdowns. As a result, 1Q20 EBITDA fell into negative territory, at ($56.4 million) compared to $13.9 million in EBITDA generated in 1Q19. Debt increased 29.3% year-over-year to $197.8 million due to higher revolver borrowings. Stein Mart burned $62.5 million of cash in the quarter, and liquidity was just $25.8 million ($22.4 million revolver availability, $1.2 million available to borrow under life insurance policies, and $2.2 million of cash). Management admitted that liquidity was its major concern and, subsequent to quarter-end, secured a $10.0 million Paycheck Protection Program (PPP) loan. The loan may be used for payroll, rent, and utilities. Consistent with its recently filed 10K, Stein Mart issued a going concern warning, noting it is actively exploring additional sources of financing to provide additional liquidity and other strategic alternatives, including a sale of the Company. The going concern warning triggered a default on its revolver, which was subsequently waived. However, the default triggered a “cash dominion event” and as a result, all of the Company’s cash receipts are swept daily to repay borrowings under the credit agreement. Click here to request a copy of the 1Q Sales Report.
PriceSmart’s June net merchandise sales decreased 1.5% to $249.2 million, negatively impacted by $7.8 million or 3.1% due to currency exchange. Comparable net merchandise sales fell 4.9%. Year-to-date sales (10 months ended June 30) rose 3.6% to $2.67 billion, negatively impacted by $42. 2 million or 1.6% due to currency exchange. Comps fell 1.1%. The Company opened three new warehouses over the past year, bringing its total store count to 46.
CEO Sherry Bahrambeygui commented, “We face certain challenges because of COVID-related government mandates including temporary club closures, a reduction in the number of days during the week and hours per day our clubs are permitted to be open, restrictions on segments of the population permitted to shop or circulate on particular days, and limits on the number of people permitted to be in our clubs at the same time. Comparable sales were strongest in our Caribbean and Colombian markets, but Central America was not as strong, especially where COVID cases and related restrictions have become more prevalent. We estimate a total of approximately 70 club days lost to closures in June, where in-club shopping was not permitted. However, our team continued to quickly adapt to meet our members' needs, having rolled out our Click and Go contactless online ordering and curbside pickup service to all markets.” According to the Company, Click and Go service sales accounted for 2.7% of June sales. It continues to expanding its online initiatives and “optimizing our club operations to allow members to have visibility to inventory, options for shopping, and the ability to purchase goods and services safely, quickly and efficiently.”
For the fourth quarter ended January 25, Le Chateau reported sales of C$48.0 million, down 6.5% due to a 3.3% decline in comps and ten fewer stores in operation. As of January 25, the Company operated 129 stores (including 12 fashion outlet stores). Results for 4Q20 and FY20 reflect lease accounting under IFRS 16, which introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Excluding this impact, adjusted EBITDA deteriorated to negative C$5.4 million, compared to negative C$1.7 million the prior year. COVID-19 forced the Company to close all of its retail locations across Canada on March 18. It started reopening stores on May 4 through June 26, in line with provincial and regional governmental guidelines. Material uncertainties remain about the Company’s ability to continue as a going concern since its C$70.0 million asset-based revolver and C$15.0 million subordinated term loan, which were extended to December 31, 2020 have not been renewed.Click here to request a copy of the 4Q Sales Report.
In other news, Le Chateau announced it had begun manufacturing up to 500,000 hospital gowns in partnership with Logistik Unicorp Inc. and its contract with the Canadian government. All the hospital gowns will be manufactured in Canada since the Company has historically manufactured approximately 30% of its clothing lines in its Canadian production facilities.
On Monday, Sally Beauty Holdings gave a COVID-19 business update for June, highlighting robust operating demand and a strengthened cash position. At the end of June, cash totaled more than $815.0 million, compared to over $650.0 million at the end of May. At month-end, the Company also projected approximately $200.0 million in unused availability under its $620.0 million revolver. June sales were estimated at $348.0 million, a 9% increase from the prior year and a 33% increase from the prior month, and e-commerce growth accelerated, including 353% growth in April, 317% in May, and 155% in June. For 3Q20, sales are anticipated to be $705.0 million, which would reflect a 27.7% decrease from 3Q19. The Company did not quantify store re-openings but has substantially completed the process in the U.S., Canada, European Union, and the U.K. A small portion of its stores, in Mexico and South America, are expected to reopen in the next 60 days.
Papa John's International provided an update on the ongoing business impact of COVID-19 on June 30. Of the Company's approximately 2,100 international franchised stores, the number temporarily closed has declined to approximately 225, principally in Europe and Latin America. Comparable sales for domestic Company-owned restaurants rose 18.5% for the five weeks ended June 28, and 22.6% in 2Q20. North America franchised restaurants recorded sales growth of 26.3% and system wide international sales improved 1.4% in June. For 2Q20, sales grew 29.6% for North America franchised restaurants and 28% for System-wide North America restaurants. Sales growth for system-wide international restaurants was 6% for June and 5.3% in 2Q20.
