FINANCE

Supermarket chain files for bankruptcy protection

BY Marianne Wilson

A heavy debt loan and increased competition from the likes of Walmart, Amazon and others have taken a toll on Tops Friendly Market.

The regional grocery store operator on Wednesday filed for Chapter 11 bankruptcy protection. Tops, which operates some 169 supermarkets in Upstate New York, northern Pennsylvania and Western Vermont, said all stores remain open.

Tops has received a commitment for a $125 million debtor-in-possession term loan financing facility from certain noteholders and a $140 million DIP asset based revolving loan from Bank of America, N.A., which are expected to support the company’s continued operations during the court-supervised restructuring process.

“We believe the financing that we received from our noteholders is a vote of confidence in our business,” said Tops CEO Frank Curci. “Our operations are strong and we have an outstanding network of stores and a talented team to support them. We are now undertaking a financial restructuring, through which we expect to substantially reduce our debt and achieve long-term financial flexibility. This will enable us to invest further in our stores, create an even more exceptional shopping experience for our customers and compete more effectively in today’s highly competitive and evolving market.”

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Home Depot Q4 earnings, sales tops estimates

BY HBSDealer Staff

 

The world’s largest home improvement retailer continued to ring up big numbers for the fourth quarter amid digital initiatives and the strong U.S. housing market.

The Home Depot on Tuesday posted net earnings of $1.8 billion for the quarter, up from $1.7 billion in the same quarter last year. Earnings were impacted by a combination of the Tax Cuts and Jobs Act of 2017 and a one-time bonus payment to hourly associates, the company said.

The retailer also on Tuesday raised its quarterly dividend, for the ninth-consecutive year, by 15.7 percent to $1.03 a share.

Home Depot’s net sales rose 7.5% to $23.9 billion. Same-store sales rose 7.2%, as the company pointed to a commitment to the interconnected retail experience. Customer transactions rose 2% and the average ticket increased 5.5%.

Online sales grew 21% in the quarter, and 21.5% in fiscal 2017, and now make up 6.7% of the chain’s total sales.

“Our ongoing commitment to enhance the interconnected retail experience for our customers, provide localized and innovative product and deliver best-in-class productivity resulted in record sales and net earnings for 2017,” said Craig Menear, chairman, CEO and president.

Among the digital initiatives were the implementation of a new e-commerce platform, enhanced search and mobile functionality, increased checkout speed and expanded chat functionality to improve the customer experience with online contact centers, the company said.

Senior VP of merchandising Ted Decker reported strength across the store in the fourth quarter, with the pro customer leading the charge. Lumber, electrical, and tools had double-digit comps in the quarter.

At the end of the fourth quarter, the company operated a total of 2,284 retail stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.

For the full year, the Home Depot reported big numbers: total sales of $100.9 billion marked an increase of 6.7% from the prior year. Comps for U.S. stores rose 6.9%.

Looking ahead, the company expects to open three new stores in 2018, maintaining its approach to grow the business through its existing footprint. Fiscal 2018 guidance also includes comparable-store sales growth of about 5.0%.

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Analysis: Walmart takes less profit today for stronger, better business tomorrow

This morning’s update from Walmart is proof that the world’s largest retailer is still moving full steam ahead in advancing its sales. 4.1% growth in overall revenue is impressive, especially in cash terms as it means Walmart added $5.3 billion to its top line.

The downside to the numbers comes from the bottom line, where net income slumped by just over 42%. However, we are not overly concerned by this, both because Walmart remains comfortably profitable and because much of the deterioration is down to the various investments Walmart is making in future-proofing its business. We applaud this long-term view, especially as it is now being coupled with some rationalization and streamlining initiatives.

On a divisional basis, the U.S. continues to lead the way. Here, Walmart delivered a 3.4% uplift in total sales, underpinned by a solid 2.6% rise in comparables. Admittedly, this is a slightly softer outcome than last quarter, but Walmart is now lapping some tougher prior year comparatives which have taken the edge of growth.

Pleasingly, the U.S. increases are a function of both higher customer traffic and higher average spend. Part of this is down to a more optimistic and carefree consumer, who was in a mood to spend over the holidays. Arguably those shoppers did not have to visit Walmart – but many did, and from our data, Walmart increased its share of shoppers over the final quarter. We believe this is down to Walmart’s focus on low prices plus better customer service, improved ranges, and better-selling environments. The bottom line is that even in an era of stiff competition, Walmart is becoming more and not less relevant to the American consumer.

Away from stores, the e-commerce division delivered another good performance, with sales up by 23%. There will be some disappointment that growth slowed from the 50% increase posted last quarter – however, much of this is down to the fact the acquisition of Jet.com annualized over the period. In spite of some operational issues, which also eroded growth, a 23% uplift demonstrates that Walmart still has momentum in e-commerce – a contention supported by the company’s forecast of 40% growth in the upcoming quarter.

All that said, we still believe Walmart has more work to do to widen its e-commerce customer base. There are many demographics, especially younger and professional segments, for whom Walmart is not the destination of choice online. This isn’t because it doesn’t sell what they want or because the price or delivery options are suboptimal; instead, it is because they do not associate Walmart with online or they default to Amazon. This is a tough nut for Walmart to crack, and one that it can only break by more heavily marketing its services and proposition.

Away from the U.S., the contribution of international continues to strengthen. The division’s sales were up 6.7% on a total basis, with some better – although still not great – results from the U.K.’s Asda. However, it is also clear that a raft of investment activity overseas, as well as a need to bolster low prices, has taken its toll on the bottom line, where operating income fell by 16.1% on a constant currency basis.

Overall, we remain optimistic about Walmart. Investors will bemoan the bottom line numbers. However, Walmart needs to invest in evolving and adapting. If it doesn’t, it will become irrelevant. In so doing, it is following the same strategy as Amazon: taking less profit today, for the prospect of a stronger, better business tomorrow.

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