Sears files for Chapter 11; Lampert resigns as CEO
Sears Holding Corp. filed for Chapter 11 bankruptcy protection early Monday morning, hours before a $134 million debt payment came due. Sears listed $11.34 billion in liabilities and $6.94 billion in assets.
The 125-year-old company, which was once the nation’s largest retailer, said it will close 142 stores near the end of the year, with liquidation sales set to begin soon. (For a list of the stores, click here) near the end of the year, with liquidation sales to begin soon. This is in addition to the previously announced closure of 46 unprofitable stores by November 2018.
Sears has shuttered more than 1,000 stores in recent years. It currently operates a total of about 700 Sears and Kmart stores.
“Today is a day that will live in retail infamy,” commented Neil Saunders, managing director, GlobalData Retail. “That a storied retailer, once at the pinnacle of the industry, should collapse in such a shabby state of disarray is both terrible and scandalous in equal measure. However, it is not surprising because this is a destination that Sears has been headed towards for many years, with virtually no serious attempt having ever been made to change the trajectory.”
As part of the restructuring, Eddie Lampert, Sears’ chairman, CEO and its biggest shareholder, is stepping down as CEO, effective immediately. He remains chairman. The company has appointed restructuring expert Mohsin Meghji, managing partner of M-III Partners, as its chief restructuring officer.
Lampert, who purchased Sears, Roebuck & Co. and brought it together with Kmart in an $11 billion deal in 2005, is also one of Sears’ biggest creditors through his hedge fund ESL Investments. He has been helping to keep the company afloat for years, primarily with billions of dollars of short-term loans. And he still is. Sears said ESL is negotiating a $300 million debtor-in-possession loan to support it through bankruptcy. (Sears has also secured commitments for $300 million in senior priming debtor-in-possession financing from its senior secured asset-based revolving lenders.). In addition, ESL is exploring a stalking-horse bid to buy “a large portion” of the company’s stores in the bankruptcy process.
“Over the last several years, we have worked hard to transform our business and unlock the value of our assets,” said Lampert. “While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company’s immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer. The Chapter 11 process will give [Sears] Holdings the flexibility to strengthen its balance sheet, enabling the company to accelerate its strategic transformation, continue right sizing its operating model, and return to profitability.”
Sears has created an “office of the CEO,” which will be responsible for managing the company’s day-to-day operations during the bankruptcy restructuring process. It will be composed of Robert A. Riecker, CFO; Leena Munjal, chief digital officer, customer experience and integrated retail; and Gregory Ladley, president of apparel and footwear.
While long expected, Sears’ bankruptcy filing will still have a big impact on the retail real estate industry.
“Most retail-center owners have anticipated significant Sears and Kmart closures for many years,” said Melina Cordero, global head of retail research, CBRE. “But the recovery for properties facing an imminent store closure will take a long time, given that this is perhaps the most complex retail bankruptcy ever. It typically takes 18-36 months to backfill a vacated department store, and developing or subdividing a department store is an expensive process.” (For more, click here.)
Sears has been on a downward trajectory for years. It last posted a profitable quarter in 2010. The company’s problems are legion, dating back pre-Lambert to its expansion into non-core retail areas and its failure to adequately respond to the rise of Walmart, update its brand, and invest in the technology that would soon rule the industry. Its decline only intensified in the face of changing consumer behavior with the rise of online shopping and Amazon.
Unable to stop the sales hemorrhage, Lampert turned to other methods to raise cash, selling off some of Sears’ most valuable brands, such as Craftsman, and real estate. Many of Sears best stores were spun off into a real estate investment trust (Seritage Growth Properties). With little cash to invest in existing operations, Sears has not been able to keep up with far more nimble competitors such as Walmart, Home Depot, Kohl’s and Lowe’s. Its stores, suffering from a lack capital expenditure investment, have grown outdated and forlorn looking.
Sears said it intends to continue payment of employee wages and benefits, honor member programs, and pay vendors and suppliers in the ordinary course for all goods and services provided on or after the filing date. Sears and Kmart stores, and its online and mobile platforms, are open and continue to offer a full range of products and services to customers.
“As we look toward the holiday season, Sears and Kmart stores remain open for business and our dedicated associates look forward to serving our members and customers,” Lampert stated. “We thank our vendors for their continuing support through the upcoming season and beyond.”
Not everyone shares Lampert’s confidence in Sears’ ability to emerge from Chapter 11 as a viable entity.
“Over the longer term it is still unclear what Sears hopes to accomplish,” GlobalData Retail’s Saunders said. “We believe there is no clear path to success. The group has tried to shrink its way to profitability for years to no avail, so it is hard to see why pursuing the same strategy under the auspice of Chapter 11 would result in a different outcome. Further asset sales may reduce debt, but they would not put the company on a sound financial footing nor would they solve the operating losses the group is racking up.” (For more of Saunders commentary, click here.)
Innovel will hopefully be one of the valuable assets as part of restructure, as the company plan and that portion of the business has a solid future
CVS gets preliminary OK from DOJ for acquisition of Aetna—with some conditions
A blockbuster deal that has the potential to transform the nation’s health care industry has been given the green light by the U.S. Department of Justice.
CVS Health announced that it has entered into an agreement with the DOJ that allows it to proceed with its proposed $69 billion acquisition of Aetna. DOJ clearance is a key milestone toward finalizing the transaction, which is also subject to state regulatory approvals, many of which have already been granted, according to CVS. The deal was also approved on the condition that Aetna sells its Medicare Part D prescription drug plan business — a move that Aetna has already announced. (WellCare Health Plans is taking over the plan.)
The acquisition is expected to close in the early part of the fourth quarter of 2018.
“DOJ clearance is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer health care experience,” said CVS Health president and CEO Larry J. Merlo. “We are pleased to have reached an agreement with the DOJ that maintains the strategic benefits and value creation potential of our combination with Aetna. We are now working to complete the remaining state reviews.”
The acquisition, which was announced in December 2017, would create a health care giant composed of the nation’s third-largest health insurer and a nationwide network of 9,700 CVS retail pharmacies, 1,100-plus walk-in medical clinics and a pharmacy benefits manager with nearly 90 million plan members.
“CVS Health and Aetna have the opportunity to combine capabilities in technology, data and analytics to develop new ways to engage patients in their total health and wellness,” Merlo said. “Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur. Together, we will help address the challenges our health care system is facing, and we’ll be able to offer better care and convenience at a lower cost for patients and payors.”
Following the close of the transaction, Aetna will operate as a standalone business within the CVS Health enterprise and will be led by members of its current management team.
This is a fabulous merger. It has the potential to fix the Obamacare debacle and finally offer value in healthcare to American consumers without relying on government subsidies and making private healthcare companies rich on our tax paying dollars. President Trump still needs to gut the rest of Obamacare. The Aetna deal will assist the administration in congress to kill Obamacare Now! Michael Sapir, CEO, Sapir Real Estate Development
Target firing on all cylinders amid record store traffic, surging online sales
There was no stopping Target Corp. in its second quarter — online or off — as it reported skyrocketing digital sales and “unprecedented” store traffic growth.
The discounter’s stellar quarter came as the chain has focused on revamping its business to better compete in an omnichannel environment. Target’s hefty investments (totaling some $7 billion) in expanding its digital operations, remodeling its existing stores, rolling out new smaller-format locations, and enhancing its merchandising mix with an array of new house brands appear to be paying off.
Target’s net income totaled $799 million, or $1.49 per share, compared with $671 million, or $1.21 a share, a year ago. Excluding one-time items, Target earned $1.47 a share, which was 7 cents ahead of analysts’ expectations.
Total revenue rose 6.9% to $17.8 billion, ahead of analysts’ expectations of $17.28 billion. Apparel and electronics ranked among the strongest categories.
Same-store sales increased 6.5%, which was Target’s highest comp growth in 13 years. The increase was fueled by store traffic growth of 6.4% — the strongest since Target began reporting the metric in 2008.
“We are seeing a great consumer response … unprecedented traffic,” Target CEO Brian Cornell told CNBC’s Becky Quick on Wednesday. “As we go back and look, we’ve never seen traffic like this.”
Analyst Neil Saunders, managing director of GlobalData Retail, commented that Target’s investment in its exclusive brands and stores is one of the underpinnings of its success.
“The elevated experience at both newer and refurbished shops is driving both customer traffic and conversions, which is one of the reasons why shops contributed 4.9 percentage points to comparable sales growth,” he said. “For non-food in particular, the shopping experience is more pleasant and engaging with many more points of inspiration and interest.” (For more analysis, click here.)
Target was also on fire online. Comparable digital sales jumped 41% and contributed 1.5 percentage points of comparable sales growth. Digital sales represented 5.6% of total sales.
The retailer has said it plans capital expenditure of $3 billion this year on its supply chain, online delivery, its in-house brands and the ongoing merging online and in-store shopping.
“We laid out a clear strategy at the beginning of 2017, and throughout this year we’ve been accelerating the pace of execution,” said Cornell in a statement. “We’re on track to deliver a strong back half and we’ve updated our full year guidance to reflect the strength of our business and the consumer economy.”
“As we look ahead to 2019, we expect to achieve scale across the full slate of our initiatives — creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target to continue gaining market share,” Cornell said.
For full-year 2018, Target said it now expects adjusted EPS of $5.30 to $5.50, compared with the prior range of $5.15 to $5.45.
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