Express sales slide $86 million, as consumers continue to abandon malls

More bad news for retail as Express warns their sales just dipped $86 million in the fourth quarter. This alarming trend continues to echo throughout the retail landscape as consumers continue to ditch malls.

Express, Inc. (NYSE:EXPR), a specialty retail apparel company, announced its financial results for the fourth quarter and full year 2016. These results, which cover the thirteen and fifty-two weeks ended January 28, 2017, are compared to the thirteen and fifty-two weeks ended January 30, 2016.

David Kornberg, the Company’s president and chief executive officer, noted that, “Despite ongoing pressures in the retail sector, our fourth quarter earnings were in line with previously issued guidance. As expected, our store performance continued to be impacted by challenging mall traffic and a promotional retail environment. As our industry adapts to changing consumer preferences, we continue to invest in our omni-channel and marketing capabilities to ensure that we capitalize on this evolution. As a result, e-commerce sales made up 25% of fourth quarter net sales, with sales increasing 9% over the prior year period. We also remain intensely focused on managing our overall cost structure and optimizing our store footprint. Our balance sheet remains strong with more than $200 million in cash and we continue to have solid cash flow.”

Mr. Kornberg went on to note that, “We enter 2017 with confidence that the actions we have taken and the initiatives underway will translate into stronger performance as we move through the year. These initiatives include improving the fashion clarity in our stores through reduced choice counts, launching a new brand campaign, introducing compelling new products, and improving upon key existing categories. We also expect to benefit from the relaunch of our customer loyalty program and our new IT systems, which will foster more efficient decision making and precise planning.”

Fourth Quarter 2016 Operating Results:

  • Net sales decreased 11% to $678.8 million from $765.6 million in the fourth quarter of 2015.
  • Comparable sales (including e-commerce sales) decreased 13%, compared to a 4% increase in the fourth quarter of 2015.
  • E-commerce sales increased 9% to $170.1 million.
  • Merchandise margin declined by 330 basis points driven by increased promotional activity. Buying and occupancy as a percentage of net sales rose by 230 basis points. In combination, this resulted in a 560 basis point decline in gross margin, representing 28.4% of net sales compared to 34.0% in last year’s fourth quarter.
  • Selling, general, and administrative (SG&A) expenses were $154.0 million versus $167.4 million in last year’s fourth quarter. As a percentage of net sales, SG&A expenses increased by 80 basis points to 22.7%.
  • Operating income was $38.8 million, or 5.7% of net sales, compared to $92.9 million, or 12.1% of net sales in the fourth quarter of 2015.
  • Income tax expense was $15.5 million, at an effective tax rate of 40.5%, compared to $35.1 million, at an effective tax rate of 38.5% in last year’s fourth quarter.
  • Net income was $22.8 million, or $0.29 per diluted share. This compares to net income of $56.1 million, or $0.67 per diluted share, in the fourth quarter of 2015.
  • Real estate activity for the fourth quarter of 2016 is presented in Schedule 5.

China’s 3 biggest bitcoin exchanges continue to block customer withdrawals

Bitcoin is under attack in China. According to this Business Insider report, the three largest exchanges are blocking all withdrawals.

Bitcoin trades down 2.4% at $1198 a coin as selling takes hold for a second day. Wednesday’s weakness comes after China’s three largest bitcoin exchanges (OkCoin, Huobi, and BTCC) all issued statements saying they will continue to block withdrawals until granted approval to let them resume by regulators, according to Cryptocoins News.

The cryptocurrency plunged more than $100 in a matter of minutes on Tuesday about two hours after a Bloomberg headline cited a People’s Bank of China official as suggesting the recent bitcoin regulation wasn’t temporary.

Two iconic retailers forced to file for bankruptcy, hundreds of stores to close

It has been another terrible week for retail as two more iconic companies reveal plans to file for bankruptcy, resulting in at least 300 stores potentially closing.

RadioShack announced the contemplation of filing for Chapter 11 bankruptcy, which would be the second time they have done so in two years. 200 out of 1,500 stores were already set to close this year, but additional stores could follow suit if Sprint agrees to end leases for its “stores within stores” concept at some locations. The company has already laid off dozens of employees at its Dallas Fort-Worth headquarters.

In 2015, more than 1,740 RadioShack stores were sold for $26 million to hedge fund Standard General at a bankruptcy auction. CEO Dene Rogers attempted to rebrand the stores and explore a partnership with mobile retailer Sprint. The new route, however, failed to gain much traction, especially going up against online giant Amazon which has taken much of the market share in peripherals and batteries.

The RadioShack bankruptcy comes less than a week after appliance store hhgregg announced plans to file for bankruptcy as well, a sad trend that we’ve seen so much of so early in the new year. Hhgregg also announced plans to close at least 88 stores in 15 states.

Gordmans, a 100-year-old Midwest department store chain, also appears to be ready to file for bankruptcy, with some even expecting the announcement to be made by the end of this month. While not too much information has been formally shared, what we do know is that Gordmans stock has been trading below $1 since September of last year. In November Nasdaq sent the company a “deficiency letter” letting them know that if the stock doesn’t rise above the $1-per-share requirement by May 1, it will be delisted from the exchange.

Gordmans operates about 100 stores in the upper Midwest states. The company employed 350 people at its Aksarben Village headquarters as of November but laid off an undisclosed number of those employees in January, blaming a “current sluggish retail environment.” In recent years, Gordmans has struggled and its growth slowed in 2014, causing losses to begin to mount. That same year the company replaced Jeff Gordman as CEO with Andy Hall. At first there appeared to be some turnaround as Hall added new merchandise to stores, launched a companywide cost-cutting initiative and halted what retailing analysts had deemed the chain’s excessive use of coupons and sales. The positive results were short-lived, and sales stagnated or declined through 2016. The retailer has about $85 million in debt, with much of it due in 2020.

It appears RadioShack and Gordmans are the latest victims in this tough retail climate that continually suffers from sluggish mall traffic and a move by apparel shoppers to the internet. Analysts have said the retailing industry is under pressure from several angles: the rise of online shopping; increasingly savvy consumers who are less interested in buying things and more interested in spending money on experiences; and retailers’ reliance on sales and coupons to drive foot traffic because those coupons hit profits.

Millennials dump malls for dollar stores and discount racks

Millennials continue to throw retailer off track. This sought after demographic in now dumping overpriced malls for dollar stores and discount racks according to this NBC report.

While legacy department stores like Macy’s and J.C. Penney are shuttering locations, off-price stores like T.J. Maxx are growing their brick and mortar presence.

In March alone, T.J. Maxx (which already has upwards of 1,000 stores), is opening in a slew of new locations. The discount retailer, which declined to comment, has good reason to be optimistic: According to its last earnings report, its 2016 sales topped $33.2 billion, an increase of 7 percent.

Other off-price retailers are also raking it in. Ross Stores saw net earnings increase 14 percent to $301 million in 2016, and fourth-quarter sales grew 8 percent to $3.5 billion. In the same time period, Burlington saw net sales spike 9.4 percent. Nordstrom’s fourth quarter earnings for 2016 showed an increase in net sales of 5.2 percent.

The success of off-price retailers appears to be directly — and negatively — impacting the success of traditional department stores.

The combination of low prices and the thrill of the bargain hunt appeals to the millennial shopper, who tends to be both shrewd and adventurous.

“Millennials are cost-conscious by nature,” said Misra. “Joining the labor force during and after the recession has heightened their frugality, and off-price retailers have been able to tap into that consumer need and outperform other retail categories.”

100’s of U.S. shopping malls on the verge of closing

Like we didn’t see this one coming from a mile away. According to this Business Insider report, 100’s of C and D level malls are on the verge of closing.

Hundreds of shopping malls in the US are at risk of closing.

Since the start of the year, more than 1,500 store closures have been announced by retailers including JCPenney, Macy’s, Sears, American Apparel, The Limited, and Abercrombie & Fitch. Most of the closures will happen over the next several months.

The nation’s highest-performing malls, which are characterized in the industry as “A” and “B” malls, should be largely insulated from the fallout.

These shopping centers, which represent about 30% of malls in the US, are already battling declining customer traffic, falling occupancy rates, and low sales productivity, according to the real estate research firm Green Street Advisors.

United Airlines announces 300 management layoffs

United Airlines has announced 300 management layoffs according to this Chicago Tribune report.

United Airlines is laying off about 300 management positions at its Willis Tower headquarters as part of a restructuring.

United CEO Oscar Munoz said in January that “a relatively small number” of jobs would be cut to reduce redundancy, but the number of layoffs wasn’t clear until the state’s monthly report of mass layoffs was published Tuesday.

United spokesman Megan McCarthy said 300 is small, given the 87,000 people United employs. None of the reductions are among front-line staff at the airports.

“It’s part of work we were doing to be a more efficient, nimble organization,” McCarthy said. Most of the layoffs already have occurred but they will continue through the end of May, she said.

Radio Shack filing for BANKRUPTCY again…200 stores to close?

Its over. Radio Shack has announced its second bankruptcy in a little over two years according to this AL report.

RadioShack is reportedly preparing to file for bankruptcy for the second time in two years.

RadioShack’s parent company, General Wireless Operations, is in the process of closing an additional 200 stores as part of the restructuring, the Wall Street Journal reported. The Fort Worth, Texas-based company previously sought bankruptcy protection in 2015, selling 1,500 of its stores to General Wireless.

Additional RadioShack stores could close, the reports noted, if Sprint agrees to end leases for its “stores within stores” at some locations.

The stores closings are already underway but the company has not released a list of affected locations. The chain will continue to operate in a smaller capacity, sources said.

HHGregg officially files for chapter 11 bankruptcy

It’s official. HHGregg has filed for chapter 11 bankruptcy according to this IndyStar report.

Officials with electronics and appliance retailer HHGregg announced Tuesday that the struggling business has filed for Chapter 11 bankruptcy.

News of the filing comes just days after the company announced the shuttering of 88 stores in 15 states, a major move made to give the retailer a better chance at survival.

Indianapolis-based HHGregg has signed a term sheet with an anonymous party to purchase its assets, the news release says. The selling of assets will allow the company to exit Chapter 11 “debt free with significant improvement in liquidity for the future stability of the business.”

“We’ve given it a valiant effort over the past 12 months,” Robert J. Riesbeck, HHGregg’s president and CEO, said in a statement. “We have conducted an extensive review of alternatives and believe pursuing a restructuring through Chapter 11 is the best path forward to ensure HHGregg’s long-term success.

HHGregg, which has lost money for the past two years, recently reported poor holiday sales. Sales at stores that have been opened for at least a year declined by 22.2 percent during the most recent fiscal quarter, which included the holidays.

HHGregg will close stores in 15 states: Alabama, Delaware, Florida, Georgia, Illinois, Louisiana, Maryland, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. The company is also closing distribution centers in Brandywine, Md., Miami and Philadelphia.

State Farm posts $7B loss in auto insurance business, biggest hit in 95 year history

Expect an increase in auto premiums if your a State Farm policy holder. According to this Crain’s report the company lost $7 billion on auto insurance business.

State Farm Insurance lost more money insuring cars last year than it ever has in its 95-year history.

The Bloomington-based giant, by far the largest U.S. auto insurer, incurred $35.8 billion in claims and loss adjustment expenses. When combined with the costs of running its auto insurance business, State Farm lost $7 billion for the year in that segment.

That was 63 percent higher than its $4.4 billion auto underwriting loss in 2015.

State Farm’s staggering auto insurance loss is the most visible sign yet of how distracted driving and rising repair and medical costs are hammering car insurers. Many are hiking rates at levels not seen in years to try to keep pace with the claims payouts.

Malls take drastic measures to find tenants, recruit doctors libraries and hospitals

Your mall may be getting a makeover. According to this Market Watch report struggling malls are taking drastic measures to fill empty retail space. So don’t be surprised, the next time you walk into your mall you may see a library, doctors office or a high school.

Beneath some positive stats, shopping malls are facing serious problems that threaten their health, including a shift to non-retail tenants and forecasted rent declines, according to Wells Fargo analysts.

Wells Fargo stresses a need to look deeper at high mall occupancy rates. Occupancy for the fourth quarter of 2016 was 93.6%, near the 93.3% for all of 2015, according to data from the National Council of Real Estate Investment Fiduciaries, cited by the International Council of Shopping Centers. However, the type of tenants many malls have is shifting to a lower-quality occupant for the overall health of the retail-focused mall, the analysts said.

“[F]or example, there are far more ‘mom-and-pop’ stores, and some malls have repurposed space for non-retail uses such as doctors offices, town libraries and even a high school,” Wells Fargo said in the report published Sunday. “Mom-and-pop” retail in a mall setting may generally be seen as a more-vulnerable long-term tenant and less of a traffic pusher without big-name brand backing.

Malls have been feeling the pain of the shift from in-store shopping to e-commerce. The latest numbers from the business data and analytics company NPD Group shows that e-commerce sales rose to 19% of total apparel sales in 2016, up from 11% in 2011.

While some of the blame for the e-commerce shift can be placed on consumer preference, another part of it is the in-store experience. Retailers have failed to give shoppers a reason to show up.