View Full Version : Retail Deathwatch- the Top 10

12-30-2008, 03:00 AM
The Black Friday Ten: Retailers Who May Not See 2009 (BONT)(DDS)(TLB)(PIR)(CPWM)(WSM)(CHS)(SKS)(EBHI)(R AD)

A year ago, not many people would have thought Circuit City would be in bankruptcy now. Linens 'n Things, Mervyn's, Whitehall Jewelers and Steve & Barry's have either shut down or are closing huge numbers of locations since they moved into Chapter 11.

The most astonishing fact about the retail industry now is that the environment has gotten much worse than it was when each of these businesses began to fail. Sales at stores across the country will be down this holiday season. Some analysts believe that the numbers will be as bad as for any fourth quarter in thirty-five years.

Adding to the problem of slow consumer spending brought on by the recession is an unprecedented liquidity crisis. Retailers who need access to capital for inventory, rent, and personnel costs are finding that it is nearly impossible to get access to funds without a pristine balance sheet and a history of substantial positive cash flow.

Here is a list of ten companies which may well not make it if their sales drop by double digits this holiday season compared to last:

1. Bon-Ton Stores (BONT) trades at $1.13, down from a 52-week high of $15.06. That probably says all that needs to be said, but there is more. Over its last three fiscal quarters BONT has lost $82 million. In the latest quarter, same-store sales were off over 8% and total revenue was down 7% to $725 million. The company has interest expense of $25 million. BONT says that its revolving credit facility will get it through any cash crunch. Maybe. With long-term debt of $2.5 billion and $374 million in accounts payable, there is not much margin for error. The company needs an outstanding holiday season.

2. Dillard's (DDS) is a retail operator that really is in trouble. It has 318 stores, which makes it a relatively small operation in a world dominated by outfits like Sears (SHLD) which has more than 3000 locations. Dillard's stock is at $3.75, down from a 52-week high of $23.11. S&P dropped the company's credit rating recently and said, "The rating change reflects our belief that the company will be more challenged than previously expected by the current weak economic environment in the U.S., and that credit metrics will deteriorate more than we had originally projected." In October, the firm's sales dropped more than 9% to $406 million. Dillard's points to its revolving credit facility with JP Morgan as its lifeline. In the last quarter, the company lost $38 million. It made $45 million in debt services payments and has long-term debt of $807 million. In other words, no dry powder. It recently cut staff.

33. Talbots (TLB) is another struggling operator. It recently announced that it would try to sell its J. Jill brand. This operation has 383 of Talbots 878 stories. It would be an understatement to say a company would part with that much of its operation if it did not need the money. And, TLB does. Its shares are at $2.68, down from a 52-week high of $17.97. Research house Friedman, Billings, Ramsey recently predicted that the chain would cut its dividend to save money. In the last quarter, TLB lost $15 million. Revenue fell from $414 million in the period a year ago to $357 million in the most recent quarter. Talbots has $212 million in long-term debt. It can't afford to have sales fall another $50 million this holiday quarter. Recently, it improved working capital agreements.

4. Pier 1's (PIR) shares are on sale for $.50. A little less than a year ago they would have cost $8.25, making this a remarkable write-down. PIR said its Q3 same-store sales would be down as much as 18%. The firm says it has a $325 million credit facility, but the stock market clearly thinks that is inadequate. The company's guidance for the quarter sent shareholders running for the exits. In the last quarter, revenue fell 7% and the company lost $30 million. Pier 1 pulled its guidance because it believes it cannot predict how much the retail market will deteriorate. With $183 million in debt, it won't take much to tip Pier 1 into insolvency. UBS recently cut its price target on the shares.

5. Cost Plus (CPWM) recently released earnings, and they looked grim. Among other things, the chain said same-store sales could drop 6% in the current quarter. The 296-store retailer predicted poor revenue of as little as $356 million for the period. In the quarter just past, revenue was flat at $213 million and Cost Plus lost $26 million. The firm has $146 million in long-term debt and obligations. Cost Plus pointed out that its credit line borrowings peaked at $125 million in November, well under the limit of the $200 million credit facility. But, that does not leave much room for the company to miss its numbers. The stock trades at $1, down from a 52-week high of $6.22.

6. Williams-Sonoma (WSM) operates 600 stores. The company is doing badly enough that Barclays Capital recently said that it may violate financial covenants on its $300 million credit facility. The retailer made a sharp downward revision in its forecasts. It said it would lose as much as $.12 a share in the third quarter against its previous projection of as much as a $.04 profit. It took its revenue forecast down as low as $732 million. The earlier projection had sales as high as $820 million. WSM also made extremely sharp cuts in its projections for the fourth quarter. Lenders take loan covenants more seriously in a recession than during other periods. WSM has to beat its numbers or face a chance of its lenders pushing for remedies. The CEO recently forced to sell over 60% of shares due to financial obligations.

Chico's FAS (CHS) trades fairly close to its cash value, a sign that the market thinks that operations are going to burn into that nest egg. The company's stock trades at $2.58, down from a 52-week high of $11.68, showing that the market does not have many believers in the company. In October, the chain's same-store sales were off over 13%. For the month, revenue dropped 5% to $394 million. In the last quarter, revenue dropped 5% to $394 million. Net income was $2 million, down from $24 million in the same quarter a year ago. The company had $278 million in cash and securities. But, it cannot sustain double-digit drops in same-store sales indefinitely. The company recently entered into a new credit agreement to help its capital position.

8. Fitch recently cut its ratings on Saks (SKS) to "B" from "B+", hardly investment grade. The retailer has debt of $649 million. In the last quarter, Saks same-store sales were off almost 12% and got progressively worse as each month in the period went by. Like other weak retailers, Saks is in a race to improve sales and earnings before its debt catches up to it. The firm's stock has dropped to $3.56 from a 52-week high of $22.19. In the last quarter, Saks lost $43 million. In its statement about its financial situation, the company said it believes it has ample flexibility under its existing debt facilities. If Saks' drop-off in revenue continues from last quarter's rate of 12% or gets considerably worse over the holidays, the chain could have a very difficult time keeping all of its stores open.

9. Eddie Bauer's (EBHI) shares trade for $.97, down from a 52-week high of $8.72. The company recently reported an operating loss of $17 million. Revenue dropped slightly to $207 million. The firm has almost 400 stores and outlets. The worst bit of news is that, as of the end of the last quarter, EBHI had only $3 million in cash. It has a $192 million senior term note and $27 million in short term borrowing. It would be nearly impossible to convince investors that EBHI will make it well into next year if sales are poor this holiday season

10. Rite Aid (RAD) is an example of a company that proved the old maxim, "what can go wrong, will go wrong". Its shares are at $.41, down from a 52-week high of $4.72. Rite Aid is bloated with over 5,000 stores, some of which are certainly losing money. The pharmacy company has competition from huge operators including Wal-Mart (WMT). The firm has a massive debt load of $6.1 billion. Rite Aid says that refinancing the load may help its prospects. A Raymond James analyst recently said, "Rite Aid has the worst balance sheet of any company I follow." In the quarter ending August 30, the company's loss rose to $222 million and its integration of its Brooks and Eckerd drugstore chains appears to be going very badly. Rite Aid also cut forecasts due to "economic weakness". This kind of weakness usually leads to death.

Ben Franklin
12-30-2008, 03:28 AM
The only one that really surprises me is Rite Aid, I really thought they had their niche as a reasonably-priced drugstore.

12-30-2008, 05:21 AM
they are talking about 10 to 15 major stores/companies possibly going out of buisness over here in the uk,but they are not saying who they are.so far we have lost woolworths,zavvi and adams childrens wear.i wonder whos next.

12-30-2008, 08:13 AM
Grim new year in store for retailers

Dismal holiday sales may spur thousands of shop closures.
By Andrea Chang and Mark Medina
December 30, 2008
After a dismal holiday shopping season marked by discounts that failed to lure buyers, struggling retailers face what could be a very unhappy new year -- one filled with thousands of store closings and a shakeout of the weakest players.

That will mean fewer choices for those consumers who still have money to spend.

"Overall, it was a very weak holiday season, and it's going to flow over to the first half of next year," said Jeff Mintz, an analyst with Wedbush Morgan Securities. "Those that survive will be in a better position because the competition will be reduced, but for right now it's a very difficult time to be a retailer."

In the coming months, troubled retailers will take desperate actions to stay afloat, including closing redundant or underperforming locations and filing for bankruptcy protection to restructure business operations. Some big names will join chains such as Mervyn's and Linens 'n Things Inc. by exiting the shrinking market altogether, analysts predict.

Roughly 73,000 stores may close in the first half of next year, according to the International Council of Shopping Centers. As store vacancies rise, a number of small shopping centers could also be at risk, said Michael Niemira, the council's chief economist.

Retailers who don't have plans to close stores are taking other measures to weather the tough times ahead, including delaying store openings, hiring fewer workers and stocking less merchandise.

"We're running our inventories very lean because we're not sure what the consumer behavior is going to be in the first quarter, and we're planning weekly promotions," Disney Store President Jim Fielding said. "Our mantra is to control the controllable. We can't control consumer behavior and we can't control the macroeconomy."

Target Corp. has reduced the number of stores it plans to open in 2009 and is heavily advertising the chain's low prices, spokeswoman Hadley Barrows said.

"Sales continue to be challenging and consumers are really cautious," she said. In the new year, "we're focusing more on the 'pay less' side of our 'expect more pay less' brand promise."

Amid concerns about a huge post-Christmas fallout, retailers still have to fight for customers: In recent years, January has gone from being a clearance month to a revenue-generating month, led by gift card redemption and shoppers picking up items for themselves rather than to give as gifts, said Marshal Cohen, chief industry analyst at market research firm NPD Group.

But Cohen said many of the latest deals being rolled out by retailers weren't that great. In some cases, markdowns are simply being taken on merchandise that already had been discounted, he said.

"No matter how great the deal is, if I already have it, I don't need another one," Cohen said. "Traditionally at holiday time you have a fresh flow of new merchandise. That didn't happen this year."

While shopping in downtown Los Angeles on Monday, Laura Metzger, 31, said she was largely unimpressed despite some hefty discounts.

"They didn't have the sales I was looking for," said Metzger, a customer service coordinator from Hollywood Hills. "The bargains that they had weren't in my price range."

Retail experts said a lack of compelling merchandise in many areas, including toys and electronics, further hurt sales during the crucial holiday shopping season.

In the apparel sector, stores "went really conservative in terms of taking chances" on new styles, preferring to play it safe by stocking mostly basic items, Mintz said.

"There's just not a lot of interesting new trends," he said. "Compound that with the difficult consumer environment, and people just have no reason to buy."

After a lunchtime workout downtown, Victor Reynaga didn't stop to shop even though his gym is next to a number of stores boasting big discounts, including Macy's and Express.

"You always want to pick up some stuff afterwards because of the sales," Reynaga, 33, said of post-Christmas bargains. "But everybody, including myself, is tightening up."

During the holiday season, Reynaga, a sales manager from East Los Angeles, watched his budget and finished his shopping early.

"With the economy, I limited myself and shopped for only what I needed," he said.

Preliminary holiday sales figures released Friday showed that, as expected, most retailers suffered heavily even as they slashed prices and offered deals to entice consumers.

Retail sales fell 5.5% in November and 8% in December through Christmas Eve compared with a year earlier, according to data tracker SpendingPulse, a unit of MasterCard Advisors.

Many categories, including footwear, apparel and electronics, registered double-digit declines from Nov. 1 through Wednesday compared with a year earlier. Luxury goods did especially poorly, with sales falling 34% from the same period last year.

Major chain stores will release December sales data next week.

12-30-2008, 08:17 AM
Just based on what I see from doing business with these, I'd say that Bass Pro and Dicks sporting goods stores, Lands End clothing & home fashions and Borders book stores are in trouble too.

Bon Ton has been on the edge for years, yet for some reason they bought the Elder Beerman stores; it's too bad because everybody I know likes to shop at 'the Bon Ton' because of the super duper sales they have. I hope they get straightened out. As for Rite Aid, it's been gasping for breath for quite a while but nonetheless they've been on an expansion kick in our part of the state, putting in new stores where competition from other drug stores is already high. That has seemed odd. Chico's stores around here look overstuffed with sale racks full of unwanted merchandise that had way too high original prices; nobody I know buys their things any more until they get marked down.

12-30-2008, 11:55 AM
Rite Aid can easily survive via a prepackaged bankruptcy (their problem is excess debt not sales), Sac's may via the same technique (though they have a teetering sales issue), but the rest of the list is probably heading towards liquidation city.

12-30-2008, 01:53 PM
Rite Aid around here sucks. You could bowl in
the store and not hit much merchandise. :D

They have seriously deteriorated over the last few
years, even during the so-called "good times".

I don't believe the list will be restricted to 10 either, come
about March 09.

I'm keeping my powder dry to pick up a LOT of stuff on liquidation sales in the near future.

12-30-2008, 06:51 PM
Borders, charges wayyy too much. I have one of their 'Savings ' card, which does help, but they really need to lower their prices.

12-30-2008, 11:32 PM
We saw a Virgin Megastore that is closing....aren't they a UK music/game/camera/other stuff store?