Mostly Non-Black-Friday Retail Report (Macy's, J.Crew, Signet Jewelers)

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A Week of Nonstop Retail

Don't worry: Macy's ($M) has a plan (must read) and it includes finally trying to address what competitors - not just Amazon ($AMZN) - have been doing for, literally, decades. Of course, maybe, just maybe, the first part of their plan should be to make sure they're able to collect payment from their customers. But, we're not #BlackFriday experts. Anyway, thanks, millennials, you're killing the mall-based low-cost jewelry sellers. This week, Signet Jewelers ($SIG) reported dogsh*t numbers with same-store sales down 5% and downward-adjusted guidance for 2018. J.Crew Group Inc. = 💩💩💩. The company reported revenue down 5%, and aggregate comp sales down 9% (JCrew down 12%, but Madewell up 13%); it reported an all-in $17.6mm net loss (driven, in part, by its restructuring efforts...FEES!). The company also announced plans to close more stores for a total '17 tally of 50 closures. Elsewhere, people are concerned about derivative effects of big box retail: here, what happens to Salvation Army? Finally, happy 10 year anniversary Circuit City.

Amazon vs. Walmart (Regular Entry)

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Screw it. We've been desperately trying to avoid mention of Amazon but it's simply impossible. This week Amazon ($AMZN) launched its Kohl's ($KSS) takeover...uh, partnership...pursuant to which consumers can buy Amazon products at Kohl's locations and return Amazon shipments for processing. In other words, Kohl's has become a return center for Amazon. Nothing to see here. Meanwhile, Amazon took over a few floors above the Macy's ($M) location in Seattle. Nothing symbolic about that whatsoever. Amazon has also partnered with large apartment landlords to install lockers inside large buildings. That's one way to dominate the "last mile." And people were in an uproar about that (dumbass) startup Bodega? Imagine this: "Hey Alexa, order me some toilet paper please." Within ten minutes your apartment building doorman calls you and says you have a package. How can that be? Well, just so happens the Amazon Locker in your apartment building has a stockpile of toilet paper laying in wait. Mark it: we're headed in that direction. And nobody seems to realize it. Bezos is laughing at the Bodega founders right now as he surreptitiously dominates local small business. If he has time to laugh while simultaneously wrecking fashion, that is. 

Mall Shenanigans (Short short-termism) & New York City Retail

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The degree of short-termism reflected in this piece is mind-boggling. In a nutshell, anchor tenants like Macy's ($M), JC Penney ($JCP) and Sears ($SHLD) are squeezing landlords over waivers of reciprocal easement agreements (REAs), often holding out for payments. Sure, we understand the basics of contract rights but it strikes us as pennywise-and-pound-foolish to delay any updates to malls on account of...signage? Maybe these guys didn't get the memo that many malls - particularly those with Macy's, JC Penney and Sears as anchor tenants - are under existential siege and everyday that passes without significant and meaningful change is another day closer to the grave. Meanwhile, the New York City retail sitch is looking bloodier and bloodier, with retail tenants seeking massive rent reductions from their landlords. Choice quote from an obstinate landlord, “None of those tenants would agree to pay more rent to me if I asked them to because the market had gone up.”Hahaha, WOW. We guess, uh, he's gotta point??

Lots of Busted #Retail Narratives Part II ($SMRT)

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A quick look at SMRT's board and it's no wonder they, too, have been swept up in the retail carnage: members include former executives from Macy's and Neiman Marcus. We're surprised there hasn't been a corporate governance backlash against these various retailers as Amazon - which just celebrated its 20th anniversary - didn't exactly come out of nowhere. We don't think it's a coincidence that Walmart surprised to the upside. With Kevin Systrom (Instagram Founder) and Greg Penner (early Baidu investor) on the Board, there are some new innovative voices around the table. We may need to do a deeper dive on this but aren't entrenched management teams and old-school directors part of this story? Classic innovator's dilemma.

Interesting Restructuring News

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  • 3-D Printing. A few weeks ago we noted the disruptive potential of 3-D printing. You can revisit that piece here. The spare parts market already appears to be under seige.
  • Automation. We hate to pick on support staff as there's been a lot of pain there the past decade but...short administrative assistants? On the flip side, note this.
  • European Distressed Debt. The vultures are looking at Spain and Italy. Meanwhile, last week Agent Provocateur, this week Jones Bootmaker = the latest PE-backed European retailer staring down the brink of administration(with KPMG hired to find a buyer).
  • Grocery. Food deflation appears to be leveling off - good news for grocers who had a rough 2016 (which we covered previously here).
  • Guns. Looks like the rise in anti-Semitism and hate crimes hasn't translated into robust gun sales: Remington Arms Co. is downsizing. The $2.6mm trade claim the company has in the Gander Mountain Company bankruptcy won't help matters either.
  • Malls. The Providence Arcade is deploying new and creative ways to put mall space to use. This brings a whole new meaning to "consumer culture." Meanwhile, more on malls becoming the new big short.
  • Restaurants. Ruby Tuesday is now for sale after closing 100 locations. UBS is apparently the financial advisor.
  • Retail. Shocker! A newly released report delineating the most valuable retail brands failed to include Charming Charlie's, Payless Shoes, rue21, J.Crew...ah, you get the point. Also notably absent from this list is Neiman Marcus which, given its lack of scale (42 stores, ex-Last Call & Bergdorf Goodman), isn't all too surprising on a relative basis but that hasn't stopped it from attracting attention from Hudson's Bay Co (note: the Canadians have been taking a lot of interest in US retail lately, see, also Eastern Outfitters). Looks like some teens DO shop at Neiman Marcus but find malls, generally, "vanilla"...choice quote here: "I like finding stuff on eBay - clothes and accessories that no one else is wearing...[e]verything you can't find in a mall." See, also, Poshmark. Meanwhile, private equity backed retail is especially sordid.
  • Retail II. Bon Ton Stores (BONT) reported higher earnings, cost savings that bested projections and a free cash flow positive '16 (compared to a wildly cash flow negative '15). But same store sales were down big. A few takeaways: 1) bad retail performance is always partially the weather's fault; 2) it's planning to make its landlords sweat with lease negotiations; 3) it's closing 46 stores in '17; 4) it's picking from the carcass of closed Macy's locations, poaching vendors and sales associates; and 5) it's still over-levered AF. While there is no near-term maturity post-retirement of the '17 second lien senior secured notes and the company claims liquidity through '17, the company is still levered at 8.5x and raising rates, generally, won't help retail. And the stock trades in dogsh*t (reverse split?) territory at $1.00. Hmmmmm.
  • Fast Forward: iHeartMedia launched an optimistic restructuring process seeking to swap more than 90% of its $20b of debt; Gymboree got a going-concern warning in the face of declining revenue and same-store sales and a 12/17 maturity; Gulfmark Offshore skipped its interest payment triggering a 30-day grace period due 4/15; the same date marks the forbearance expiration agreed to by lenders of 21st Century Oncology; and Concordia International Corp. reported HORRIBLE numbers and declined to provide go-forward guidance given the headwinds confronting drug pricers. 
  • Rewind I: We swear we're not picking on Sun Capital Partners but this week S&P Global Ratings downgraded Vince Intermediate Holdings to CCC+ making SCP's portfolio a virtual retail minefield. 
  • Rewind II: Yawn, more Westinghouse. 
  • Rewind III: Last week we covered Aquion Energy in our summaries of cases (click company name for summary). Turns out, this dog is more controversial than we thought as its another example of government subsidy gone wrong. Which is not to say we're not for experimentation/funding with/for alternative energy businesses, particularly in storage. But the comments to this seem on point.
  • Chart of the Week: 

Chart of the Week II: 

News for the Week of 2/26/17

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  • 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. 
  • Clean Energy. Challenges. But progress with storage.
  • Disruption. The fall of Blackberry.
  • 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.
  • Power. Maybe. Maybe not. This week the denials poured down from Toshiba re: Westinghouse. Meanwhile, FirstEnergy drops some bombs in its investor presentation.
  • 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's reported numbers this past week. And so did Walmart - 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 Rig acknowledged 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, downgraded Dick'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.
  • Chart of the Week: 
  • Tweet of the Week:

News for the Week of 2/19/17

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  • Capital Markets. The return of the Holdco PIK Toggle bond - a precursor to the inevitable market collapse. Or so they say.
  • 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 purchase Moosejaw, 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 hhgregg isn'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.
  • Uber. With $500 million of delinquent taxi medallion loans, NY state regulators seized the Melrose Credit Union. #disruption 
  • Wind. No holding it back. 

News for the Week of 01/08/17

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WHAT YOU NEED TO KNOW FROM THE PAST THREE WEEKS (PLAYING CATCH-UP EDITION)

  • Distressed Investing Hindsight. Avaya. Phone systems? Who would've guessed this could go wrong? Psssst: don't tell anyone but apparently Avaya and Goodman Networks are apparently in 30-day grace periods.
  • Fintech. Cracks in P2P lending by way of bankruptcy (Argon Credit).
  • Fraud. Theranos announced that it's letting go 41% of its work force - which we believe is a precursor to bankruptcy. Why file? To sell IP. If they actually even have any. And address litigation. Meanwhile, Snapchat, on the heals of a possible IPO, is being sued for misleading investors. Toss in ethical issues around Hampton Creek and others and we may start seeing some fraud-related bankruptcies a la 2001.
  • Grocery. Is Kroger's buyout announcement another leading indicator of future distress?
  • Media. Ev Williams, founder of Twitter and Medium, acknowledges that the ad-supported media model is broken while significantly cutting headcount. It seems that $150mm VC funding can't help produce a new business model. 
  • Retail. It looks like the Trump Job Preservation Tour forgot to schedule stops at KMart, Sears and Macy's (meanwhile Sears unloaded Craftsman and JC Penney shed its HQ). Next up: Kohl's? Ugly 20% drop after a nasty comp store sales drop and forecast cut. Apparently, omnichannel customers are the key to the riddle. Meanwhile, Amazon is sniffing around American Apparel (as is Forever 21, reportedly) and Boohoo is focused on Nasty Gal. Gap - mostly due to a 12% comp sales increase at Old Navy - showed positive signs while Neiman Marcus cancelled its IPO, a clear negative.
  • Taxi Companies. Uber is the death of traditional taxi companies and new tech companies that support the taxi companies (Karhoo). Which means those companies must really suck since Uber burned $3b in '16.
  • Wearables. Pebble. "Acquired." Vinaya. Bankrupt. Does someone want to raise us a Jawbone?
  • Fast Forward: With Amazon and Apple in the mix, music streaming services are struggling to make money and Soundcloud may be the closest victim. Restructuring professionals will remember that Rdio already went through bankruptcy and sold to Pandora.
  • Fast Forward II: Remember Exco?
  • Rewind I: Platinum Partners. It's amazing how funds get away with this nonsense: 17% returns for 13 years.
  • Rewind II: Athleisure. Financials-related Uh oh (Finish Line). And bankruptcy-related uh oh (Yogasmoga). But like most things, Amazon gives zero $&%s.
  • Rewind III: Coal. Maybe Trump will help the "clean coal" industry after all. And yet solar continues to progress, as does wind (in the UK and elsewhere). Ps, $361 billion is an awfully large number. And now things are progressing on the storage side thanks to Elon Musk.
  • Chart of the Week: 

News for the Week of 11/13/16

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  • Fast Forward: Bonanza Creek, Forbes Energy and Nuverra Environmental all face expirations of grace/forbearance periods this week. 
  • Fast Forward II: Dynergy and Illinois Power Generating Co. (Genco) launched an exchange offer for Genco with a prepackaged bankruptcy backstop; FirstEnergy bonds plummeted after acknowledging bankruptcy as an option for subsidiary, FirstEnergy Solutions.
  • Rewind I: Saudi Arabia. Feeling the pain.
  • Rewind II: Oklahoma. Two weeks ago we highlighted the effects of the oil and gas downturn on the educational system in Oklahoma. We acknowledged the environmental issues there too. Well, that story keeps evolving as a 5.0 earthquake roiled through Oklahoma this past week.  And this chart is interesting:
  • Chart of the Week: US field production of crude oil increased in 2015 for the 7th consecutive year to 9.42mm barrels/day, the highest crude oil production level since 1972. (Source: U.S. Energy Information Administration).