Walmart Gives Retail a Brief Reprieve

A number of retailers have cited wage increases as one of the reasons for filing for bankruptcy. John Morberg, the CEO of Garden Fresh Restaurant Intermediate Holdingsmade sure to highlight this issue upon that company's bankruptcy filing. On the flip side, Toys R Us includes wage increases in its go-forward business plan. Target recently announced wage increases too. But Walmart, which had previously announced wage increases didn't match Target in its earnings announcement on Tuesday, providing relief to a lot of retailers already squeezed by various macro trends. Speaking of Target and Walmart, they are innovating to compete with Amazon for the "last mile." This could get ugly.

Add Casper to the Clicks-to-Bricks Trend (Cameo: 50 Cent, Carmelo, Kevin Spacey)

Elsewhere in clicks-to-bricks, Casper, the B2C mattress maker you can't get away from if you listen to podcasts, closed its $170mm Series C funding round with Target Corp. ($TGT) as a lead investor. Notably, 50 Cent is an angel investor. Dude can't avoid bankruptcy but he's got money to invest alongside Carmelo Anthony and Kevin Spacey. Hate the game, we guess. 

Fast Forward: Short Sephora & Lululemon & Whoever Makes Sheets These Days

We're seeing more and more written about Glossier (women's beauty lifestyle brand) and Outdoor Voices (women's athletic gear) and word is that they may both be coming to a mall near you. Meanwhile, Caspar will now follow Harry's razors increased distribution strategy via partnership with Target (though not for mattresses...yet). We highlight this merely to get away from the male-centric (and false) emphasis on Warby Parker and Bonobos being the saviors for everything brick-and-mortar. 

Lots of Busted #Retail Narratives

Get em' a body bag. This is getting ugly. A few counter-narratives got napalmed this week in the retail space. It was a solid flameout, but, by the end of the week, there were some relative positives...

First, the narrative that discounted apparel retailers are doing just fine. Well BAM! Then The TJX Companies Inc. ($TJX) reported totally lackluster numbers for its T.J. Maxx and Marshall's brands. The floor fell out from under the stock in response. (To be fair, though, Ross Stores Inc. ($ROST) reported revenue and earnings growth though, still, at a slower pace).

Second, that "there will be winners from the bankruptcies." Well, that narrative got absolutely dumped on when Dick's Sporting Goods ($DKS) reported numbers. We're old enough to remember the bump that Dick's was supposed to get from The Sports Authority liquidation. Well, the stock got no such bump on its way to a 14% decline (though, there could be some credence to the argument that this is short term pain once the COB sales of recently liquidated competitors, e.g., Gander Mountain, end).

Can Super Hipster save the day? No, no, of course not. His jeans are too frikken evidenced by the bloodshed that was Urban Outfitters ($URBN) earnings report.

Okay, enough doom and gloom already: footwear is clearly safe. Wait. No. No its not. Foot Locker ($FL) reported and the stock immediately got pummeled. Apparently the white Adidas thing is over. Next?

Now, on the flip side, Target ($T) busted expectations favorably despite declining numbers across the board (other than a fairly meaningful increase in e-commerce); Ralph Lauren ($RL) exceeded pretty low expectations, though same stores sales comps declined 11%; Gap Inc. ($GPS) generally surprised all around and saw its stock rewarded. And then there was Walmart ($WMT). The behemoth reported growth in revenue and same store sales numbers and a KICKA$$ 63% sales growth figure for e-commerce (though this perhaps shows they were starting from virtually nothing).

Some narratives that DID hold: consumers don't want to spend discretionary income to be a walking billboard for brand. Apropos, American Eagle Outfitters' numbers were bloody. And women's specialty retail continues to be beaten down: Ascena Retail Group ($ASNA) - better known for brands like Dress Barn and Ann Taylor - offered horrible guidance and subsequently traded down 29%. Bon-Ton Stores showed same store sales down 8.8% and a net loss of nearly $60mm. Fresh off of getting a target painted on its back by the ratings agencies, big and tall men's apparel retailer Destination XL Group Inc. ($DXLG) announced some pretty bearish guidance. Finally, Florida-based department store Stein Mart Inc. ($SMRT) got OBLITERATED by the perfect storm of massive discounts and light foot traffic on its way to suspending its dividend and a massive stock plummet (though e-commerce showed improvement). 

Did you get all of that?

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...