A Surprising Week in Retail Ahead of #BlackFriday

Walmart, Abercrombie & Fitch, Foot Locker & The Gap Surprise to Upside

Lots and LOTS of brain damage about how to salvage retail these days. And there should be: look at THIS graphic of empty retail storefronts in New York City. So, here, there are some interesting suggestions for the future of retail by a venture capitalist. And, here, a real stretch by Williams-Sonoma Inc. ($WSI) with the acquisition of augmented reality 3D imaging startupOutward for a nice sum of cash. Meanwhile, US e-commerce sales jumped 15.5% in Q3. In a CURIOUS week which calls into question the full power of the "Amazon Effect" (just kidding, no it doesn't) many down-and-out retailers like Abercrombie & Fitch Inc. ($ANF), Gap Inc. ($GPS) and Foot Locker Inc. ($FL) surprised to the upside. TJX Co. ($TJX), on the other hand, broke its 8-year sales growth streak while missing revenue estimates all while competitor, Ross Stores Inc.($ROST), blew it out of the water. Perhaps TJX' miss is a one-time thing that truly is attributable, as its CEO said, to poor merchandising and weather or, as we asked on Twitter, maybe the discounters are subject to a trickle-down effect...? Elsewhere, we should note that Poshmark, an app-based fashion marketplace that we have credited for contributing to millennials' distaste for malls, raised $87.5mm in Series D funding. Finally, Black Friday may put a dent in household debt levels as credit spending is on the rise. We're sure that'll play out just fine.

Retail (Short Copycats)

Bon-Ton Stores is beginning to look a lot like Toys R Us. Meanwhile, we've previously discussed Appear Here here and here. Now Simon Property Group ($SPG) is dedicating pop-up space in certain of its locations. It's a brilliant move, frankly: this plan lets digitally-native-vertical-brands test physical locations; it could also be accretive to SPG as they can generate buzz that couples with the DNVBs' online communities/networks to bring e-commerce shoppers to physical locations; it also gives SPG early looks at potential retail investment opportunities. Meanwhile, the knock against Abercrombie & Fitch and other retailers was that millennials didn't want to be human billboards rocking an A&F sweatshirt with 485-font lettering on the front. That is, unless you show em the paycheckNow you can get paid for walking around big cities with Ipad-based advertisements on your back. Seems like a nice supplemental income for our friends in NYC.

Notable (Abercrombie, Halcon, Sears Canada & More)

Abercrombie & Fitch ($ANF) see-sawed its own stock after proclaiming that it would seek a buyer (stock went up) but then, a mere few weeks later, indicating that it had terminated the sell-side process. The shares plummeted 21%.

Halcon Resources Corp ($HK) plans, per Reuters, to sell its North Dakota operations for $1.4b in cash as part of a broader (and smart) plan to shift its focus to the lower cost-basis Texas' Permian Basin. The stock popped on the news. The piece makes it sound like this is the CEO's grand vision - as if he's not getting a tremendous amount of pressure from his new(ish) credit-oriented short-term-oriented overlords. 

Hedge Funds. Apparently the business isn't as bad as previously thought. That is, unless these investments in Puerto Rico bonds crater.

India (Geographical arbitrage). Hey you. Yeah, you, Associate sitting in New York with a 15 year path to partnership. You may want to consider moving to India and becoming an expert in the new Insolvency and Bankruptcy Code there. Apparently nobody there has a clue what the hell is going on. You may be able to fast-track your career. We want credit if you pull the trigger.

Professional Athletes (Short Personal Finance Wherewithal). Livan Hernandez, who made $53mm over the course of his baseball career, has filed for bankruptcy. Seriously, what the hell is wrong with these guys? 

Sears Canada. C'mon. Eddie Lampert, the King of Bad-Money-After-Good (aka all things Sears ($SHLD)), is reportedly considering a deal for Sears Canada. Officially, the company has hired a joint venture between Gordon Brothers Canada ULC and Merchant Retail Solutions ULC for the liquidation of inventory/FF&E of 45 locations and is actively pursuing a transaction: over 20 parties have signed NDAs.

Tea (Short Retailing it). Small potatoes relative to the universe we typically cover but given that Capital Teas Inc. was once a 22-store retailer of, well, tea, and is now bankrupt, we figured we'd note it. We particularly love how the company didn't even bother to update its "bio," of sorts, noting that it was honored as a member of The Inc. 5000, "the nation's fastest growing private companies." Well, not anymore, obvi. The company plans to shutter 10 locations as part of the bankruptcy. If that is considered "fastest growing," the US is even more effed than we thought.

True Value. This is not a distressed candidate - not with $1.51b of revenue in '16 - but the fact that the private company is reportedly looking to market itself is telling in this age of Amazon. The home improvement space is largely thought to be impervious to the "Amazon Effect." At least, that is the narrative behind investing inHome Depot ($HD) and Lowe's Companies Inc. ($LOW). Perhaps people are worried about the narrative? Perhaps they're just looking to take advantage of a potential strategic acquirer tapping capital markets? Interesting.

WeWork. We admit: we're obsessed with this company. On the heals of closing its $760mm Series G round valuing the company at $20b, this startup now officially has a larger valuation than publicly-traded office REITS like Vornado Realty (which we covered here) and Boston Properties. Makes. Total. Sense. Jokes aside, it has inserted itself as a platform for companies like GMIBMSpotify and Salesforce, effectively being the office manager of choice. Interesting model. Can't imagine this remaining in a downturn when companies need to look for ways to cut costs. 

News for the Week of 3/5/17

  • Coal. Post-reorg players like Arch Coal are now trying to take advantage ofgovernment subsidy (which reeks of buyside "value-realization"): query what this means for alternative energy players who already receive such subsidies and are rumored to be under siege by the Trump administration...?
  • Environment. We wrote a few months ago about Oklahoma and the apparent correlation between wastewater disposal and an uptick in seismic activity. The seismic-hazard warning for Oklahoma in 2017 is "still significantly elevated."
  • Golf & Sexy Time. There's zero correlation: we just thought it was a funny combination. That said, tough times for TaylorMade (owned by Adidas and apparently being shopped by Guggenheim Securities). Meanwhile, Agent Provocateur sold while in UK "administration" to an affiliate of Sports Direct (which also recently surfaced as the stalking horse bidder in Eastern Outfitters). AlixPartners was the administrator.
  • Legal ProfessionShort big firm junior lawyers.
  • Power. This is an odd report on Westinghouse
  • Retail. We're getting a little sick of sounding like a broken record but Best Buy and Target reported numbers this past week and then saw massive stock drops due to weak guidance. And Barnes & Noble got DECIMATED after reporting numbers. The good news is that the coloring fad appears to be over. Meanwhile, the tech barrage shows no signs of abating: GameStop came under pressure this week after Microsoft announced its subscription gaming service. Is GameStop an immediate near term restructuring candidate? No, but part of the value we provide is highlighting for you where future pain points are hiding and without sounding TOO dramatic, this could be the beginning of the end.
  • Retail II. We're nerds and so we found this analysis of when to close retail stores interesting. And we're curious to know if any of our advisory readers agree with this...LET US KNOW. Speaking of closing retail stores, Abercrombie will close 60 storesCrocs will close 160 stores, and looming bankruptcy candidate hhgregg is closing 88 stores (which briefly sent Best Buy's stock north back up, despite earnings). Meanwhile, Neiman Marcus hired Lazard for balance sheet help and Radio Shack 2.0 (aka General Wireless Operations) is rumored to be Radio Shack chapter 22.0.  
  • TechRough week for Uber. Choice quote: "Before too long, Uber's cash will run out. And if Uber hasn't built a viable self-driving car by then, the results won't be pretty."
  • Telecom. Wow, Intelsatbailed out

  • Fast ForwardSeadrill Ltd. noted the possibility of a bankruptcy filing, sending the stock into a tizzy. Still, John Fredriksen quickly highlighted his history of no default. Related, Pacific Drilling also noted in its earnings call that Chapter 11 is possible. 
  • Rewind I: A lot of folks have been sleeping on tech bankruptcies, but NJOY was a hardware bankruptcy from last year that now has a resolution: Mudrick Capital seeks to turn the company around, operating it like a PE-owned company rather than a VC-funded company. Speaking of which, Cirque du Soleil got a workover by TPG Capital (and AlixPartners) and now there's this YouTube promotional video to show for it. Speaking of purchases out of bankruptcy, it seems a Canadian retail player made the first move on Wet Seal only to be outflanked by Gordon Brothers.
  • Rewind IISoundcloud looks increasingly like it will be in the busted tech bankruptcy bucket. IP sale?
  • Chart of the Week
  • Tweet of the Week: This is great because it doubles as a second chart of the week: we're so creative. Anyway, we hate to say we told you so but, effectively,we told you so: we'd love to know why nearly 200 companies felt the need to reference AI in their earnings reports...