Retail (Stream of Consciousness)

Some of you commented that we've been spending too much time on retail. Gee...wonder why that might be. ICYMI, here is this week's carnage:

Busted Narratives. H&M, the world's second largest clothing group, reported earnings earlier this week and the stock took a solid tumble. Why? Declining sales at its brick-and-mortar spots. Shocking. Profit fell by 33% and disappointing sales meant massive discounting and guidance was that discounting will persist through Q1 '18. The company intends to shut 170 underperforming stores but, given its aggressive expansion plans, that translates to a net addition of 220 stores, down from 388. Choice bit, "H&M finished the year with net debt on its balance sheet rather than net cash for the first time in more than 20 years." Hmmm. There goes that "fast fashion" is killing apparel retails narrative.

Dead Malls. They're everywhere. Like in Arizona. Mississippi. Wisconsin. And Pennsylvania. And if they aren't dead, they're zombified, like this downtown Indianapolis mall, which is losing its last department store. This piece has some interesting maps showing "the extent of the carnage."

E-commerce. The stats may be skewed. To the downside. In other words, e-comm may be a bigger piece of the retail pie than originally calculated. And people may adopt online grocery quicker than expected.

Fraud. Steinhoff Holdings International continues to unravel in an Enron-esque manner. The CEO is being investigated, the books are still under review, Mattress Firm's CEO resigned and people are wondering to what degree there was some nefarious scheming?

Landlords. Retail rents in pricy US cities are finally coming down. Per the Wall Street Journal, "Over the past 12 months, rents in New York, Washington and Boston declined between 0.4% and 1.4%, while rents were roughly flat in Chicago and San Francisco, according to data from CoStar Group , a commercial real estate data provider. Across the U.S., rent growth averaged 1.8% in 2017, down from 2.7% in 2016 and the slowest pace since 2012."

Music. Gibson Brands paid a $16.6mm coupon payment to holders of its $375mm 8.875% senior secured noted due 2018. They must be feeling pretty good about those holiday numbers.

Regis Corporation ($RGS). The large owner, operator and franchisor of hair salons (i.e., Supercuts) reported that it (i) decided to sell and subsequently franchise substantially all of its mall-based salon business in North America, representing 858 salons, and (ii) committed to close 597 salons. The company CEO is Hugh Sawyerof Huron Consulting Group and an experienced player in operational restructurings, having been involved in Energy Future Competitive Holdings Company LLC and Edison Mission Energy.

Usury. "Fossil, which sells watches that have been supplanted by smartphones inside department stores supplanted by Amazon, just refinanced its debt, and is paying through the nose: up to 9% over LIBOR, a big jump from 3.75%" Similarly, Destination Maternity ($DEST) entered into a new five-year $25mm senior secured term loan facility to repay its existing term loan due 2021. The interest rate is LIBOR+9%.