Busted Tech. This is becoming a regular topic. After LivingSocial (remember LivingSocial?) and its $6b valuation sold for bupkis, serious doubts now surround its acquirer, the publicly-traded Groupon.
Lit. Google released the results of a survey showing what is currently considered "lit" (read: "cool") among the teen and millennial demographics. A few observations: 1) Ivanka Trump's brand was conspicuously missing and so clearly there is a high probability of this being "fake news" (yes, we're joking); 2) Netflix and YouTube are the two highest rated brands in both demographics which certainly raises questions about conventional media companies; 3) Tesla is considered the coolest auto company despite not necessarily having the highest brand awareness (nevertheless a positive leading indicator for electric vehicles assuming a) these idiots will drive, b) they'll have money to buy a Tesla, and c) Tesla can manufacture enough cars to meet the supposed demand); 4) Still, car brands across the board are cooler to millennials than teens which raises questions - in the face of autonomous cars - about what car ownership may look like in the next decade; and 5) there is little to no consumer products representation in the "cool" zone outside of footwear and electronics (gaming, Apple, GoPro) which speaks volumes about why we're seeing as much pain in the retail space as we have been. Notably, Uniqlo, Zara and H&M - favorite excuses for why conventional retail is, gulp, out of fashion, are all middling in the 6.5 area. Footnote: Quicksilver looks to have subpar awareness and "lit" ratings which begs the question: how long before Oaktree Capital Management flips it...?
Post-Reorg Equity. Apparently filing for bankruptcy hasn't turned out too badly for certain oil and gas executives who find that they're realizing a lot of upside value through the reorganized equity of their companies (WSJ firewall). Elsewhere, upon release back into the market, Peabody Energy's equity initially traded up 3.5% only to flip-flop and go negative by over 12% by market close on Tuesday. #MAGA baby! Coal is, uh...back??
Professional Fees. The American Lawyer seems to have it out for bankruptcy professionals these days as it seems freakishly obsessed with professional fees: in this instance, Weil's fees representing Westinghouse.
Restaurants. "There's been an oversupply for 10 years in our industry," says the Darden Restaurants CEO Gene Lene upon announcing the acquisition of Cheddar's Scratch Kitchen. Still, the fast casual space is showing signs of strength: most notably, Panera Bread's stock popped upon acquisition news earlier this week.
Retail. We really tried to stay away from retail this week because, like you, we're just tired of the story. But, here (video), Jason Mudrick of Mudrick Capital Management provides some interesting thoughts on how to trade the space. This isn't new ground, necessarily, but for the less-initiated, his comments on the difficulty of shorting retail debt may be educational. Note, however, that his views are disputed by analysts at Citi who claim the CMBX trade is over-crowded and that CDS is, in fact, the way to go. Either way, his overall thesis seems a bit inconsistent to us. On one hand, he indicates that the "Amazon effect" (lazy) is leading to a secular decline in retail, generally, but on the other hand he leaves us with the impression that only the lower tier malls will be affected. If the "Amazon effect" is what it is and our parents will die and our kids only shop online (paraphrasing here), why isn't he mentioning the A tier malls as well? This seems to be a blind spot within the restructuring space generally. As we've noted, General Growth Properties and Simon Properties are appearing in the vast majority of these retail cases - even the little ones that nobody appears to have heard of prior to the last few months. Now, granted, there's something to be said for the "replacement value" argument: but are these mall operators really filling vacancies fast enough to maintain revenue and, if so, who is filling the void? Warby Parker currently has 47 "retail locations" (a term we use loosely because this includes small kiosks like the one in the Los Angeles Standard Hotel - basically a cart). Bonobos has 31 locations. Cuyana has three locations (one a pop-up). Birchbox has one location. And most of these are in major cities so not even necessarily in malls. And, directing you back to "Lit" above: we don't see much mall-based retail on that survey - "A" mall-based retail included. So then what? Chiropractors, dentists and clinics? Seems thin. All of this said, the WSJ reported that "the national retail-property market is holding steady," using flat vacancy rates as its measure across shopping centers, regional malls and neighborhood and open-air shopping centers. And mall operators, naturally, are talking a big game. Curious. (*Note: if anyone is interested, we do have a 50+ page hedge fund presentation outlining the CMBX thesis. Let us know).
Retail II. DAMN IT, retail, we just can't quit you. More from this past week: 1) Citi cut both L Brands and Urban Outfitters from buy to neutral, 2) Ralph Laurenannounced the closure of its Fifth Avenue flagship store (with additional closures to come), 3) Bebe Stores announced the closure of its 34th Street store (great quotes within) and 4) the discount space saw some consolidation as Dollar General scooped up Charlotte-based Dollar Express, a Sycamore Partners company. We can therefore add this to our #MAGA! sub-category given the 2700 jobs slated to be cut. SO. MANY. JOBS. LIKE. REMARKABLE.
Second Order Effects....of advancing car tech. We previously covered Benedict Evans' presentation on the rise of mobile and made some abstract statements relating to second order effects of mobile phones and electric/autonomous cars then. Here, Evans goes a bit further in what makes for a long but interesting read about industries that ought to brace for change (thanks to our friends at Hilco for forwarding to us). TL;DR: car suppliers, machine tooling, car repair, gas stations, convenience store retailers (and, by extension, snack & tobacco providers), building power generation providers, safety equipment manufacturers (i.e., airbags - this is thin, we think, and airbags will probably still be in cars for the foreseeable future), parking operators, truck stops, etc. Of course, this all presumes mass adoption in the time frame the herd generally suggests: 5-10 years. There are notable naysayers.
Sungevity, a Piece of the Solar Story & Real World Ramifications. Yikes. This is a STINGING synopsis of the downfall of Sungevity, a solar company that recently filed for bankruptcy (our summary and case roster is here). To be fair, the writer seems to have some sort of ax to grind with the company but the comments taken from Glassdoor are, in many respects, heart-breaking and serve as a real-world reminder that while they may line your pockets and juice your bonuses, these cases hurt people. Remember that.
Venezuela. With a state oil company debt payment of $2b looming on the horizon, investors are speculating about the likelihood of default.
Fast Forward: Someone just please put Seadrill Ltd.out of its misery. Per Bloomberg, rue21 is due any day now. Sequa Corp....finally. And metals/mining looks like its back on the map with the announcement thatA&M Castle & Co. will be filing a prepackaged bankruptcy shortly.
Rewind I: We've been spending a good amount of time highlighting busted tech lately and so we'll add another (per Fortune): Yik Yak. For the uninitiated, Yik Yak was a high-flying anonymous social media app that garnered $73.5mm of VC from Sequoia Capital at a valuation over $400mm. Now it is effectively selling for parts (to Square?) in a manner that likely won't even cover the VC. Ouch. I suppose we can call this the "Snapchat Effect."
Rewind II: Ashley Stewart, a plus-size retailer that was in bankruptcy in 2014 opened its first new store last weekend, a counter-narrative to the doom-and-gloom otherwise hanging over retail.
Rewind III: We've covered Spotify at length and this week's news of a potential direct listing rather than an IPO is interesting. And goes to show what we've been saying: that convertible venture debt it took on is getting expensive.
Busted Startups. Here, Beepi. Despite $150mm of VC and a last raise at a $564 valuation, the used-car marketplace is selling for parts, with Sherwood Partners acting as assignee. With auto-lending for new cars at subprime levels, this capitulation isn't all-too surprising.
Busted Startups II. Some argue that part of the failing brick-and-mortar narrative relates to delivery services like Birchbox. Maybe not. Trunk Club sold to Nordstrom and has languished and now JackThreads looks like it's worth JackSh*t.
Distressed Investing. In malls. These guys have cajones.
Greece. Remember the bailout controversies that sent the markets into a tizzy a few years back? Yeah, they're back. Europe looks staged for a lot of volatility in coming months with elections looming in France and Germany. This could create some real interesting investment opportunities. Of course, that's what people said of Brexit, too.
Restaurants. Five chains that look like dogsh*t in 2017.
Retail. Apparently President Trump's promises to make America great again did not take into account all of the vitriol that would be unleashed towards his brands and resulting domino effect: case and point, Perfumania, which was teetering BEFORE folks wanted to wash themselves of the Trump stank. Speaking of mall-based stench, L Brands' Victoria's Secret ain't looking so hot these days as forward guidance looked bleak. And Amazon announced the release of its discount bras. Cue Jaws theme song.
Retail II. People have been talking about Toys R' Us for years and in '16 they took steps to deal with the over-levered balance sheet. The company continues to cut costs on the ops side too. Meanwhile, other companies like J.Crew are engaging in Intellectual Property machinations to stave off the inevitable and raise financing - the legality of which remains an open question.
Retail III - Department Stores. AlixPartners makes a cameo appearance in this interesting summary of the state of department stores. Choice stat: "As recently as 1999, department stores had total sales of $230 billion. Last year they came in at $155.5 billion, according to Census data." Accordingly, JC Penney is closing 140 stores (and probably still has 300 too many) and Sears is continuing to cut costs with 130 HQ firings. On point, Macy'sreported numbers this past week. And so didWalmart - and the market initially responded in a way that is a smack to Warren Buffett (see last week's newsletter). Meanwhile TJX Cos. (TJ Maxx, Home Goods, Marshalls) showed that brick-and-mortar still has some legs (as did Nordstrom).
Fast Forward: Ocean Rigacknowledged that it's effed and the stock took a dive: a possible bankruptcy is on the horizon. And Cumulus Media had a setback in its efforts to restructure.
Rewind I: Sporting goods - analysts are starting to notice the massive bloodbath and, accordingly, downgradedDick's Sporting Goods.
Rewind II: Let's hope that Sycamore Partners' purchase of The Limited fares better than Versa Capital Management's investment in Eastern Outfitters. $26.8mm price tag. Meanwhile, Wet Seal is available.
Coal. Plants are closing. Looks like some votes from coal country were misplaced.
Dead Malls. Investing. See, e.g., this piece on Macerich. We don't typically cite to Seeking Alpha's collection of vagabonds and yahoos, but we found this particular analysis of A Malls interesting.
Exploration & Production. 17 months after filing its prepackaged bankruptcy case(s)...or was it prearranged?...sh*t, it's been so long that we can't even remember, Samson Resources Corporation finally has a confirmed plan of reorganization. We'd be curious to see what the professional fees are as a percentage of debt ($5.6b): perhaps this should be a new in-court ratio for courts to consider as part of 327(a) review. At least we got a new term of art out of it: "the Kirkland Prepack". So, there's that (2x if you consider EFH this week, too).
Nuclear power. Toshiba took a beating on Westinghouse this week. And now there are whispers of bankruptcy.
Retail. We have a Billions-style therapist in-house who keeps using bad sex metaphors to inspire us to be more positive about retail. Ok, no we don't: last we checked none of you are paying for this newsletter and so how the hell would we afford THAT?! Still, there are some positive signs for retail: Barron's, for instance, thinks Macy's stock has fallen too far and has upside. Meanwhile, specialty women's retailer J.Jill has filed its S-1 under the JOBS Act for an IPO which either means there's one retailer bucking recent trends or - more likely - TowerBrook Capital Partners LP is looking to dump this thing before Amazon gobbles it up like it has everything else. Damn...that was cynical and negative wasn't it? Well, we tried.
Retail II. This week we learned that Warren Buffett dumped his entire position of Walmart stock ($900mm) which, as this piece notes, ain't exactly a vote of confidence in retail. Perhaps Buffett would have reconsidered had he known about "Moosejaw Madness." You read that right: this week Walmart spent $51mm to purchaseMoosejaw, a Michigan-based online retailer (with about a dozen B-and-M locations). Interestingly, the business is similar to Gander Mountain which, as we covered last week, is staring down the barrel of a liquidation. Oh, and hhgreggisn't exactly instilling confidence either (yes, its publicly traded). But, in an ironic twist, Amazon is upping to 8 B-and-M book stores.
Retail III. This won't help mall foot traffic: frustrated by a lack of options, start-ups like Dia&Co. are looking to tackle the plus-size market (with wholly-unoriginal Birchbox-style monthly mailings). And a fresh round of funding from well-known VC Sequoia Capital will aid the effort. Speaking of Birchbox, note that the business - despite being copied by a slew of other start-ups - isn't exactly a shining tower of success; it recently took on venture debt (and rif'd staff) and now it's exploring pricier options to juice revenues.
Shipping. A bloodbath in China for the shipbuilders and Hanjin Shipping = toast.
Fast Forward: The oil and gas restructuring wave appears to be mostly behind us but the offshore operators remain under duress: case and point, Hornbeck Offshore, which may have various issues heading into 2018.
Rewind III: Canadian Retail. We previously noted the demise of Shoes.com. Here are some additional thoughts on the state of retail north of the border.
