June 10, 2020
Private equity firm Sycamore Partners is reportedly in preliminary talks to acquire J.C. Penney Company out of bankruptcy if the Company’s negotiations with its creditors fail. Sycamore is evaluating acquiring J.C. Penney outright or making an investment in it. The reports also state that J.C. Penney is in discussions with some of its landlords about possible transactions. The key date appears to be July 15, when lenders evaluate the Company’s business plan. If they do not approve the plan, the Company is required to abandon its reorganization efforts and pursue a sale.
On June 4, J.C. Penney filed a motion to approve procedures for store-closing sales. The Debtors identified an initial group of 154 underperforming units (click here to request the list) where they believe that easing of local stay-at-home restrictions will permit the prompt wind-down and commencement of store-closing sales after entry of the order.
Each store identified for closing “has significantly underperformed, has seen downward sales and margin trends, is located in high-risk properties, or no longer fits the Debtors’ market strategy.” Each store-closing sale will take approximately 10 – 16 weeks to complete. The Debtors will reject leases associated with the closing stores as, and when, appropriate. A hearing to consider the motion is scheduled for June 11. The Debtors also stated that where they are unable to obtain sufficient relief in the lease negotiations concerning stores that are on the cusp of failing to meet certain performance standards, those units will close as part of a second or third phase of store-closing sales. All lease negotiations are expected to be completed by mid-July.
Separately, the Court granted final authorization for the Debtors to access up to $225.0 million of $450.0 million in new money under a $900.0 million DIP Facility. The additional $225.0 million of the new money portion of the DIP Facility will become available after July 15, subject to certain conditions. The remaining $450.0 million is a roll-up of prepetition term loans. An ad hoc group of lenders has agreed to participate in $53.0 million of the rollup.
Southeastern Grocers (SEG) announced that the sale of 62 stores, including 46 BI-LO and 16 Harveys Supermarkets to Ahold Delhaize, is part of a series of intended transactions to shift away from operating stores under the BI-LO banner and allow for greater investment in growing the Fresco y Más, Harveys Supermarket and Winn-Dixie banners. To further that goal, the Company is actively exploring strategic options for the remaining BI-LO stores (approximately 50), including other potential transactions. SEG said that in order to ensure continued service to its communities during this challenging time, these stores will not begin their staggered transition from the BI-LO and Harveys Supermarket banners to Food Lion until early 2021. The transaction with Food Lion is anticipated to close by April 2021. The proceeds will be used to strengthen SEG’s balance sheet and grow its core banners.
SEG has also reached an agreement to transition its Mauldin, SC distribution center to Ahold Delhaize, slated for completion in the first half of 2021. Separately, SEG is also divesting the assets of 57 of the in-store pharmacies it operates under the BI-LO and Harveys banners to CVS and Walgreens. These locations, which include all of the Company’s BI-LO pharmacies and nine Harveys Supermarket pharmacies in Georgia, will begin transitioning within the next two weeks.
The map below shows Southeastern Grocers’ 62 divested stores. Click here to request the list of locations.
On May, 27, 2020, Tuesday Morning Corporation filed a voluntary Chapter 11 petition. On June 10, 2020, the Court issued an order authorizing the commencement of GOB sales at 136 of the Company’s 687 stores. The closings, which have commenced, are expected to take 10 weeks to complete. The debtors intend to identify an additional 100 units for closure in the near future. Separately, management indicated the Company has reopened more than 80% of its locations and will continue to reopen as state and local regulations allow. Click here for a list of future closures.
Yesterday, Best Buy Co., Inc. announced that on June 15 more than 800 locations will allow a limited number of shoppers into its stores at one time, while continuing to offer curbside pickup and in-store consultations. Best Buy will limit the number of customers to 25% of the store’s capacity, with marked signs to ensure social distancing and other precautions. This effort allows Best Buy to bring back more than 9,000 of its previously furloughed employees. Employees must continue to wear protective gear, have mandatory health checks, and frequently sanitize the stores.
On June 5, Kroger and Ocado announced the continued expansion of their partnership with plans to construct three new Customer Fulfillment Centers (CFCs) in the West, Pacific Northwest and Great Lakes regions of the U.S. The sizes of the facilities will range based on their markets; the facility in the West is expected to be 300,000 square feet, the one in the Pacific Northwest 200,000 square feet, and in the Great Lakes region 150,000 square feet. The exact locations are expected to be announced in the near future. The new locations will complement the Company’s previously announced CFCs in Monroe, OH; Groveland, FL; Fredericksburg, MD; Atlanta, GA; Dallas, TX; and Pleasant Prairie, WI. Kroger plans to open the country’s first CFC in Monroe in early 2021.
Grocery Outlet Bargain Market opened a new store in Dayton, NV on June 4. The 20,000 square-foot store marks the second Grocery Outlet and sixth major grocery store in Lyon County. New stores are slated to open in Beaumont, CA; Nampa, ID; and Seaside, OR this Thursday; in Canoga Park, CA on June 18; and in Veneta, OR on June 25, all under independent owners. Click here to request a list of future openings.
On June 3, RTW Retailwinds announced in its NT 10-K filing for the fiscal year ended February 1 that a bankruptcy filing is “probable” due to COVID-19 challenges. Despite not carrying any debt, the Company’s credit rating has been in decline since last year from softening comps and contracting margins. RTW did not pay rent to landlords for April and May, and did not make recent payments to many vendors. Consequently, the Company has received default notices from multiple landlords and vendors for non-payment; RTW may be in default of all of its store lease agreements but has not yet received default notification from all landlords. The Company began reopening stores during the first week of June, with the majority expected to be reopened by the end of June.
Meanwhile, also on June 3, RTW amended its credit facility with Wells Fargo as the agent bank. The amendment revised the Company’s letters of credit sublimit, interest rates applicable to revolving loans, debt repayments, reporting requirements, and added a forbearance period from June 3 until June 30. The $25.0 million committed accordion feature was removed, resulting in a maximum revolving credit facility commitment of $75.0 million, down from $100.0 million, and includes $10.0 million for issuance of letters of credit compared to $45.0 million. Borrowings now bear interest at LIBOR plus 2.5% compared to plus 1.5% previously. Due to COVID-19 disruptions, the Company borrowed $45.0 million on its $75.0 million line of credit, and this amendment required the Company to repay $20.0 million as of June 3. Starting June 13, cash in excess of $40.0 million will be used to repay debt, and by August 15, all outstanding debt must be repaid under its revolving credit facility.
In the Neiman Marcus Group case, the Debtors filed a motion to set July 20 as the last date to file proofs of claim based on prepetition claims, including requests for payment under section 503(b)(9) of the Bankruptcy Code. A hearing to consider the motion is scheduled for June 26.
On May 30, it was reported that Deutsche Bank AG, the administrative agent under the prepetition ABL Facility, claimed that the Debtors violated a covenant by overvaluing inventory, which serves as collateral for the loan. On June 2, the Debtors denied breaching the covenant, stating that sales have been higher than projected, which lowered the level of inventory backing the Deutsche Bank loan. As a result of the unanticipated sales, cash on hand exceeds the budgeted amount by more than $100.0 million. The Debtors said they are using the additional cash to replenish inventory to levels required under the covenant. Separately, the Debtors said they have reopened 12 Neiman Marcus and seven Last Call stores for curbside delivery and for shopping by appointment. Prior to the temporary closures caused by COVID-19, there were 43 Neiman Marcus stores and 27 Last Call units. The Debtors initially anticipated opening all stores by July 18, but they now say that some stores will open more quickly than others, while some will open after that date.
On June 8, the Debtors filed a preliminary Plan of Reorganization and Disclosure Statement. The Plan provides for the reorganization of the Debtors as a going concern, and a financial restructuring through a debt-for-equity conversion, in accordance with terms of the Restructuring Support Agreement. Additionally, certain creditors have committed to exit financing that will fully refinance the DIP Facility. The preliminary Disclosure Statement indicates that holders of $329.0 million (projected) in allowed general unsecured claims will receive a pro rata share of a cash pool, details of which are to be determined. A projected recovery percentage has not yet been provided. A hearing to consider approval of the Disclosure Statement is scheduled for July 8.
On June 5, L Brands’ U.K. unit of its Victoria’s Secret banner filed for protection from creditors, as it struggles to drive sales and profits amid the coronavirus pandemic. The Company is using a tool in U.K. law called “light-touch administration,” which creates a moratorium for claims on unpaid debt and allows management to continue to run the business with the consent of administrators. This action could result in potential asset sales or restructuring of lease terms across its store fleet and does not impact L Brands’ operations outside the U.K.
On June 4, L Brands announced that it had priced $750.0 million of 6.875% Senior Secured Notes due 2025 and $500.0 million of 9.375% Unsecured Senior Notes due 2025 at 100% of their respective principal amounts, via a private placement offering. The offering is expected to close June 18. As we previously reported, proceeds from the offering will be used to (i) repurchase or redeem all of the outstanding 2021 Notes, (ii) fund approximately $200.0 million of retirement plan obligations, and (iii) for general corporate purposes, including to refinance other indebtedness with a near-term maturity date.
On June 2, Sail Outdoors, Inc. filed for bankruptcy protection to restructure under the Canadian Bankruptcy and Insolvency Act (BIA). CEO Norman Decarie said, “Store closures and other consequences of the COVID-19 pandemic put more pressure on the Company’s cash flow and financial health; the situation forced Sail to make major decisions to ensure the Company’s sustainability. The filing will allow the Company to get support while it implements a plan aimed at restoring its financial health and better responding to the retail environment.” Management said the Company’s 14 Sail stores and four Sportium stores are open in accordance with provincial public health guidelines. The Company reported liabilities of $100.0 million as of the filing date. Wells Fargo Bank, the Company’s lender, is owed about $43.0 million.
According to published reports, Tailored Brands is considering a potential bankruptcy filing due to COVID-19 disruption, which would address its more than $1.10 billion in total debt as of 4Q20 ended February 1. Subsequent to quarter end, the Company borrowed $385.0 million on its $550.0 million revolver, adding to its overall indebtedness. While there are no near-term maturities, the Company must pay down the outstanding amounts under its Senior Notes by July 1, 2022, or else it would trip springing maturity covenants under the $900.0 million Term Loan (due April 2025). The Company reportedly hired law firm Kirkland & Ellis and investment bank PJT Partners as advisors, and lenders are working with law firm Gibson Dunn and investment bank Houlihan Lokey.
On June 2, The Cheesecake Factory announced that 25% of restaurants across all banners, including 34 Cheesecake Factory locations, have reopened dining rooms with limited capacities in accordance with local guidance. The reopened restaurants are generating approximately 75% of prior-year sales levels. Restaurants operating on an off-premise only model are expected to generate only $4.0 million per year on a run-rate basis, which is well short of the $10.7 million average sales per restaurant recorded in fiscal 2019. Management expects to have 65% of dining rooms, including 124 Cheesecake Factory restaurants, reopened by mid-June operating in accordance with state and local guidelines. Second quarter sales through May 31 are down 63% year-over-year, partially due to 87 temporary restaurant closures related to protests across the U.S.
Brooks Brothers is reportedly in talks with bankers about raising financing for a potential bankruptcy that could come as soon as July. Founded in 1818, the Company has more than 250 stores in the U.S. and Canada, with a global footprint of 700 stores in more than 70 countries. The Company received a $20.0 million secured term loan facility from Gordon Brothers, an investment firm. Click here to request a list of future closings.
Earning Reports
On June 4, GameStop announced preliminary results for its 1Q20 period ended May 2: Total global sales are expected to decrease in the range of 33% to 35% from $1.50 billion in the prior-year fiscal quarter. Comparable store sales are expected to decrease in the range of approximately 30% to 31%. Excluding stores that were closed during 1Q20 as a result of the COVID-19 pandemic, comparable store sales are expected to decline in the range of approximately 16% to 17%.
The Company expects hardware sales to be a larger percentage, and software sales to be a smaller percentage, of total sales in 1Q20 compared to the prior-year fiscal quarter. Cash flow from operations is expected to be approximately ($49.0) million compared to ($665.0) million in the prior-year fiscal quarter. The decrease in cash used in operations is primarily attributable to the Company’s focus on optimizing the cash conversion cycle and carrying more efficient levels of inventory, which resulted in accounts payable at the beginning of 1Q20 being approximately $671.1 million lower than at the beginning of the prior-year fiscal quarter. Inventory at quarter-end is expected to decline by approximately 43%, or $500.0 million, to approximately $650.0 million, compared to $1.10 billion in 1Q19. Adjusted EBITDA is expected to be in the range of ($79.0) million to ($74.0) million compared to $43.0 million in the prior-year fiscal quarter.
At the end of May, the Company had approximately 85% of its U.S. locations open to limited customer access or curbside delivery, and approximately 90% of international locations open. Subsequently, given the recent unrest experienced in various cities across the U.S., the Company temporarily closed 90 stores that were previously reopened; 30 of these locations will be closed for the foreseeable future given extensive physical damage.
Despite the ongoing sales declines, management estimates it will have at least $575.0 million in liquidity at the end of 2Q20. As a result, the Company’s chances of making it to the critical fourth-quarter period, when the next console launches from Sony and Microsoft are expected, are improving. Nonetheless, store rationalization is expected to continue, especially as the industry shifts towards digital. Management noted that beginning in March it began negotiating with landlords to abate rent for stores that were closed due to COVID-19, to modify terms of its leases going forward, and to terminate certain leases. Click here to request a copy of the 1Q Sales Report.
Macy’s reported preliminary 1Q20 sales decreased 45% to $3.02 billion, primarily due to the closure of all 873 stores beginning in mid-March. Gross margin fell from 38.2% to just 17.1%. Despite lower expenses, Macy’s expects to report an operating loss of approximately $969.0 million. The Company reported an operating profit of $203.0 million in the prior-year period. Macy’s ended the quarter with cash balances of $1.52 billion, and closed on nearly $4.50 billion on new financing. The Company will release full results on July 1.
Macy’s had approximately 450 stores (58% of its store base) reopened by June 1, with the majority opened in its full format. Management commented that reopened stores are performing better than anticipated. The Company had previously indicated that it expected reopened stores to do approximately 20% of normal volume. Additionally, the Company stated that strong digital business sales trend continued throughout May. Management noted that it is seeing strong sell-through of seasonal merchandise and anticipates that it will exit 2Q in a clean inventory position.
Costco’s May sales increased 7.5% to $12.55 billion. Comps (excluding the impacts from change in gasoline prices and currency exchange) rose 9.7%, consisting of growth of 9.2% in the U.S., 4.9% in Canada, and 17.9% in Other International. E-commerce sales surged 108.1%. For the 39 weeks ended May 31, sales increased 7.7% to $120.19 billion. Total comps rose 7.3%, including growth of 7.4% in the U.S., 5.1% in Canada, and 8.7% in Other International. E-commerce sales jumped 38.1%.
Village Super Market’s 3Q sales jumped 15.9% to $458.3 million, driven by the opening of the Company’s Stroudsburg replacement store on November 1, 2019; the acquisition of Gourmet Garage on June 24, 2019; and comp growth of 13.6%. Comps increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures (most significantly in March), continued sales growth in the Company’s Bronx store opened in June 2018, and digital sales growth of 41.8%.
Year to date, net income was $15.7 million, down from $18.8 million last year, and included an $854,000 gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March; a $953,000 charge related to the termination of a Company-sponsored pension plan and other pension settlement charges; $891,000 of pre-opening costs related to the Stroudsburg, PA replacement store; and $557,000 of store-closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store.
Due to COVID-19, Village incurred incremental operating expenses of more than $5.5 million during 3Q related to programs and new initiatives implemented to support and protect associates, customers, and communities.
With 30 ShopRite, five Fairway supermarkets, and three Gourmet Garage stores in New Jersey, northeastern Pennsylvania, Maryland, and New York City, Village Super Market is the second largest member of Wakefern Food Corp., the nation’s largest retailer-owned food cooperative and owner of the ShopRite name.
3Q sales jumped 15.9% to $458.3 million, driven by the opening of the Company’s Stroudsburg replacement store on November 1, 2019; the acquisition of Gourmet Garage on June 24, 2019; and comp growth of 13.6%. Comps increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures (most significantly in March), continued sales growth in the Company’s Bronx store opened in June 2018, and digital sales growth of 41.8%.
Year to date, net income was $15.7 million, down from $18.8 million last year, and included an $854,000 gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March; a $953,000 charge related to the termination of a Company-sponsored pension plan and other pension settlement charges; $891,000 of pre-opening costs related to the Stroudsburg, PA replacement store; and $557,000 of store-closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store.
Due to COVID-19, Village incurred incremental operating expenses of more than $5.5 million during 3Q related to programs and new initiatives implemented to support and protect associates, customers, and communities.
With 30 ShopRite, five Fairway supermarkets, and three Gourmet Garage stores in New Jersey, northeastern Pennsylvania, Maryland, and New York City, Village Super Market is the second largest member of Wakefern Food Corp., the nation’s largest retailer-owned food cooperative and owner of the ShopRite name. Click here to request a copy of the 3Q Sales Report.
Gap reported 1Q online sales growth of 13%, which was offset by a 61% decline in in-store sales, with the biggest drop at the Gap banner. Currently there are 1,600 stores open in North America (55% of the fleet); reopened stores are already generating sales at nearly 70% of last year’s performance, especially at the Old Navy banner. The Company has dramatically reduced inventory receipts for 2Q to better meet demand; it expects to end 2Q with inventory down in the low to mid-single digits, excluding pack-and-hold inventory. The Company ended 1Q with total debt of $1.25 billion and cash of $1.08 billion. Click here to request a copy of the 1Q Sales Report.
In other news, Gap is shutting down its direct-to-consumer men’s performance activewear brand, Hill City, which was launched in the fall of 2018. The Company will gradually wind down operations over the course of the year. Hill City was established as a men’s complement to Gap’s women’s athleisure brand, Athleta. Gap said it plans to leverage Hill City styles, fits, and innovation into future men’s lines at its other brands, starting with Banana Republic.
Conn’s reported 1Q21 (for the period of April 30) revenue fell 10.3% to $317.2 million due to a 17.6% decrease in comps, which came on top of an 8.2% decrease in the same period last year, partially offset by the opening of 12 new stores. The comp decrease reflects more stringent underwriting standards, reductions in store hours, and lower sales of discretionary categories as a result of the COVID-19 pandemic. Bad debt expense as a percent of revenue increased to 16% from 11% last year (1Q21 excludes a $65.5 million adjustment due to new accounting requirements). Management said that cash provided by operating activities totaled $152.5 million, an increase of over 200% from the prior fiscal-year period.
The majority of Conn’s stores remained open during 1Q21, and all stores are currently open. The Company opened two new stores during the quarter, bringing the total store count to 139 in 14 states. During FY21, the Company plans to open a total of six to eight new stores in existing states. Click here to request a copy of the 1Q Sales Report.
Casey’s 4Q revenue fell 16.8% to $1.81 billion, reflecting the impact of the COVID-19 pandemic. Fuel same-store gallons sold fell 14.7%, as shelter-in-place restrictions during the back half of the quarter significantly affected gallon volume. However, macroeconomic factors that led to declining wholesale fuel costs contributed to a very strong fuel margin of 40.8 cents per gallon, compared to 18.6 cents last year. Grocery and other merchandise same-store sales were down 2%, and prepared food and fountain same-store sales fell 13.5%. Click here to request a copy of the 4Q Sales Report.
As of April 30, the Company had two stores under agreement to purchase and a new store pipeline of 93 sites, including 24 under construction. The Company temporarily deferred some spending related to new store construction due to the pandemic.
Destination XL’s 1Q sales decreased 49.3% to $57.2 million, primarily due to the closing of all store locations on March 17 in response to the pandemic. The growth of the wholesale business continues to be a key initiative in FY20 led by the Company’s agreement with Amazon Essentials, which contributed $2.0 million of sales in the first quarter. Gross margin fell from 43.7% to 23.1% due to a 13.3% decline from the deleveraging in occupancy costs and a decrease of 7.3% in merchandise margins. The steep gross margin erosion and sales decline outpaced lower expenses and pushed EBITDA into negative territory at $18.9 million. Debt increased 19.4% year-over-year to $94.4 million due to increased revolver borrowings. Destination XL ended the quarter with liquidity of $42.9 million consisting of cash balances of $26.1 million and $16.8 million available under the revolving credit facility. The Company burned $18.4 million of cash in the quarter, an improvement from the $20.2 million of cash burned in 1Q19. As of June 2, approximately 201 stores were open across the country; the Company expects all 321 stores will reopen by the end of June.
Express’ unbalanced inventory composition heading into 1Q20, in which merchandise was heavily skewed towards older product, and an emphasis on formalwear, resulted in a 53.4% sales deterioration amid COVID-19 store closings. With all stores closed since March 17, the Company converted to a digital-only business and saw sales accelerate in loungewear and casual attire but did not comment on e-commerce performance or its mix to total sales. However, given the legacy merchandise and promotional environment, the Company issued discounts to drive sales, and merchandise margin contracted 1,500 bps due to the increased markdowns. As a result, the Company recorded a gross loss of $46.2 million, or -22% gross margin, and excluding impairment charges, adjusted gross loss and gross margin were $31.5 million and -15%, respectively. Click here to request a copy of the 1Q Sales Report.
The Company has begun reopening stores, with 303 of 595 total stores opened as of June 3 and another 58 locations slated to open by the end of this week. Of reopened stores, performance has improved weekly. Due to COVID-19 uncertainty, the Company withdrew FY20 guidance but expects capital expenditures to be in the range of $20.0 million and $25.0 million; it plans to open two stores and close 35.
Michaels’ 1Q20 sales fell 26.9% to $799.9 million, directly attributable to the 27.6% decrease in comps. The Company introduced new omnichannel capabilities including curbside pick-up and same-day delivery, expanded ship from store and BOPIS, and enabled in-app purchases; these actions helped drive 296% e-commerce growth in the 1Q. EBITDA plummeted 99.1% to $1.2 million. The Company recorded $14.8 million in costs attributable to the COVID-19 pandemic, including hazard pay for team members, costs associated with furloughed employees, certain inventory charges, and sanitation supplies. As a result of restrictions related to COVID-19, fewer than 500 stores were open as of May 2. However, many closed stores continued to generate sales through curbside pickup and ship-from-store programs. As of June 4, the number of open and fully operational stores has increased to approximately 1,000 of the Company’s 1,273 stores; the Company anticipates substantially all stores will be open by the end of June. Click here to request a copy of the 1Q Sales Report.
Zumiez’s 1Q sales (for the period ended May 4) dropped 35.3% to $137.8 million. Operating loss was $27.8 million, compared to a profit of $1.0 million in the prior-year period. At May 2, cash and current marketable securities increased 29.3% to $217.2 million from last year. The increase was driven by cash generated through operations throughout 2019, partially offset by capex and share repurchases prior to store closures. The Company ended the quarter with no debt. Late in the 1Q, the Company began reopening some stores, with most at reduced hours in accordance with governmental regulations. The Company ended 1Q with 65, or 9%, of its 719 stores open. As of May 30, 493 stores were open (69% of total stores), consisting of 432 Zumiez stores in North America, 49 Blue Tomato stores in Europe, and 12 Fast Times locations in Australia. May sales decreased 8.6%, compared to an increase of 2.6% last year, due to certain stores remaining closed, partially offset by better-than-expected results in stores that had reopened and from e-commerce growth. Comps at reopened stores (including e-commerce) increased 79.6% (38.5% store growth and 181.6% e-commerce growth).
Tilly’s reported 1Q sales (for the 13 weeks ended May 2) fell 40.7% to $77.3 million, as physical store sales (60.8% of 1Q20 sales) dropped 57.5% to $47.0 million. As an online-only business, 1Q20 e-commerce sales accelerated 54.2% to $30.3 million (39.2% of 1Q20 sales). Gross margin decelerated 25.3% to 2.1% compared to the prior-year period, driven by deleverage in product margins, occupancy, distribution, and buying costs. The Company canceled a substantial majority of its originally planned inventory receipts for the months of April through June and has significantly reduced its future inventory commitments through the remainder of fiscal 2020. As of May 2, the Company had $111.1 million in cash. From May 3 through June 1, overall comps were down 32.6%, and physical store comps plummeted 77.1%. E-commerce sales jumped 236.8% in the same period. As of June 2, 160 of 239 stores had reopened to the public.
American Eagle Outfitters’ 1Q sales decreased 37.8% to $551.7 million, with stores closed from March 17 through the end of quarter on May 4. By brand, American Eagle’s sales decreased 45%, compared to a 5% increase last year; Aerie’s sales fell 2%, following a 28% increase last year. Online sales increased 33%, with Aerie’s sales up 75% and AE sales up 15%. Gross margin plummeted to 5.1%, from 36.7% last year, primarily reflecting the reduction in store revenue, markdowns, and promotions to clear spring and summer goods. Adjusted EBITDA loss was $162.9 million, compared to EBITDA of $96.4 million in the prior-year period. The Company indicated that it has opened 556 of its 1,093 store locations as of June 3. Reopened stores are achieving 95% of last year’s sales so far. Click here to request a copy of the 1Q Sales Report.
Kirkland’s 1Q total sales fell more than 40%, driven by COVID-19-related store closures and the shift in consumer spending away from discretionary categories. Still, overall trends are improving since 2019, with the month of February continuing 4Q’s strong momentum and total-quarter e-commerce growth of 32.3%, including a 97% gain in April; online sales were lifted by the launch of curbside pickup. Additionally, new product assortments and categories were well-received and continue to resonate with consumers into 2Q; May ended with flat comps.
Gross margin fell to 12% from 27.9% last year, driven by lower product margin (down 340 bps) and the shift to online, while adjusted EBITDA loss widened to $17.5 million. In the quarter, the Company closed 27 stores and will continue to right size its fleet.
Build-A-Bear Workshop, Inc. (BBW) reported 1Q20 revenues dropped 44.8% to $46.6 million, compared to $84.4 million in 1Q19, reflecting the temporary closure of Company stores midway through the quarter. BBW’s e-commerce site was fully operational throughout the quarter, with growth rates increasing to triple-digit levels following the store closures. Historically, e-commerce has represented less than 10% of total revenues. Management noted that unlike many other retailers, e-commerce is a highly profitable channel for BBW, as it benefits from low return rates and minimal discounts. However, this falls far short of offsetting the steep sales loss from closed stores. Excluding a $4.8 million inventory impairment charge and bad debt expense of $600,000 during the period, EBITDA loss stood at $9.8 million for the quarter. Click here to request a copy of the 1Q Sales Report.
The Company has started to reopen stores in select areas with about 35 reopened thus far; it currently expects to have the majority of locations open by the end of 2Q20. BBW said that in May, its reopened stores recaptured approximately 65% of their sales from prior year. Management added that recently, a limited number of select locations have been impacted by protest and social unrest in certain areas. BBW did not pay April store rent and is in discussions with landlords regarding more favorable terms. The Company indicated that it may selectively close stores if terms are not able to reflect the impact of reduced traffic and changing mall performance going forward. BBW maintains high lease optionality, with more than 70% of its leases coming up for renewal in the next three years, including approximately 120 locations with natural lease events before the end of FY20. In the U.K., the government has designated June 15 as the day for retailers to begin to reopen, and the Company is planning accordingly.
