Retail Roundup (Long Tourniquets, Long Headwinds).

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The retail bloodbath continues.

Earlier this week, Abercrombie & Fitch Co. ($ANF) joined Ralph Lauren Corp. ($RL), Gap Inc. ($GPS), and Calvin Klein ($PVH) by ditching “flagship” stores situated in expensive parts of town. The stock got crushed on earnings. But the “Peace Out Flagship Square Footage” club didn’t stop growing there. To the contrary, it is expanding. Rapidly.

On Wednesday, J. Crew announced that it plans to shutter 20 flagship and outlet stores. “Why might it be trying to shrink its footprint,” you ask? Good question. And the comps give you all the answers you need. While total revenue rose 7% across the enterprise, J.Crew sales fell 4% with comps down 1%. In contrast, Madewell sales rose 15% and comps rose 10%. 

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Caesars = "One of the Great Messes of Our Time"?

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The Embattled Caesars Entertainment is FINALLY out of Bankruptcy

Last week we highlighted this tweet that poked fun at recent asset stripping (aka dropdown financing) strategies. Great timing, if we do say so ourselves, as Caesars Entertainment has finally emerged from bankruptcy. Not great timing? This (note our reply).

To commemorate Caesars' accomplishment, the Financial Times published this post-mortem (warning: firewall). It’s a solid read. 

A few bits we wanted to highlight:

THIS is understanding who is boss: “One hedge fund investor wondered, then, if the advice of bankers was intrinsically tainted. ‘Private equity firms cut a wide swath,’ the investor said. ‘You do not want to cross them and risk the golden goose.’”

THIS is how you advocate for your client: 

“…[A] lawyer at Paul Weiss who represented the parent Caesars company controlled by Apollo and TPG and who is the longtime outside counsel to Apollo, responded: “I have been a restructuring and bankruptcy lawyer for 28 years and I do not believe David Sambur was more difficult in the Caesars case than anyone else nor in any other transaction I have worked on. David was completely fair and responsible.’” Hahaha. What else is he going to say about his “longtime” client? “Yeah, sure, FT, he was the biggest a$$ imaginable.” Talk about not wanting to cross and risk the golden goose. P.S. Mr. Sambur is now on the board of the reorganized entity. Sounds like a solid source of recurring revenue for a loyal...uh, we mean, commercial, lawyer. 

THIS is key advice (in the comments) to in-house legal representing bondholders: “‘Baskets’. Devil in the detail [sic]”. See, e.g., J.Crew. Haha. YOU THINK?

P.S. There appears to be some healthy skepticism about Caesars' long term outlook. 

We've Reached Peak #Retailapocalypse ($ARCC $MNI)

Who knew that another element of the retail story is international postal law and an app called Wish? This is bananas. Choice quote: "Services like this offer us a preview of a maximalist capitalist future, in which the near-entirety of current-day retail -- stores, humans and even storelike website -- have been identified as gatekeepers or sources of friction and accordingly obliterated." OBLITERATED. What the F? Meanwhile, you know you've reached peak #retailapocalypse when even the New Yorker is writing pieces about J.Crew's J-Crewiness, bad merchandizing, bad debt, and Matrix-esque mind-control efforts. This just goes to show how hard it is to avoid the retail story these days. Compounding matters, publicly-traded BDCs let us see how they view the retail landscape and, in this case, Ares Capital is writing down the value of their loan in Things Remembered Inc. For those with short memories, Things just did an out-of-court restructuring transaction. Clearly things haven't improved much. Finally, the tack-on affect of the brutal retail environment is showing up elsewhere: The McClatchy Company, for instance, reported a 7% drop in total revenue on account of a 22% decline in print advertising (not offset by a rise in digital advertising) with revenue losses from The Sports Authority and hhgregg Inc. cited. The company is 5.4x levered on $874mm of debt but has no near-term maturities and an untapped revolver. Still, the company is in full-on triage mode trying to expedite its digital transformation which, clearly, is a matter of life or death.