Niwot, Colo.-based Lucky’s Market, after announcing last week that it would close 32 of its 39 locations, has filed for Chapter 11 bankruptcy and aims to sell its remaining stores.
The 32 stores that are closing will do so in the next couple of weeks, as will the company’s new distribution center in Orlando, Fla. Aldi has agreed to purchase six stores and Publix five, according to a news release. In addition, Lucky’s is “finalizing the terms of a sale of the operating stores,” according to the court filing.
“The debtors, in their business judgment, believe that sale of the operating stores provides value to the debtors in excess of what would otherwise be realized in a liquidation,” chief financial officer Andrew Pillari wrote in the document.
Lucky’s had aggregate assets of about $425 million and aggregate liabilities of about $600 million when it declared bankruptcy Jan. 27, according to the court filing.
Kroger, which owns 55% of the organization’s parent company, is owed $301 million under a secured loan. United Natural Foods is the largest unsecured creditor, owed $13.2 million.
Lucky’s had 17 stores in 11 states when Kroger bought a stake in the company in April 2016. Lucky’s had 20 stores by the end of that year, 26 stores by the end of 2017, 33 stores by the end of 2018, and 39 stores by the end of 2019.
Sales grew as the company expanded, but not enough to keep pace with expenses. Kroger announced in December that it would divest its stake in Lucky’s.
Pillari wrote in the document that competition in Florida from Sprouts Farmers Market, Fresh Thyme Farmers Market, Earth Fare and similar banners kept Lucky’s from achieving “sustainable four-wall profitability.” For 2019, Lucky’s had about $22 million of store operating losses and about $100 million net loss, according to the bankruptcy filing.
“Based on performance of the company’s business, the company’s management determined that it would require approximately $100 million in incremental funding to continue operations until the company would be cash flow positive,” Pillari wrote in the document. “Management determined that it would be unable to secure new sources of sufficient funding outside of these Chapter 11 cases.”
The filing detailed some of the other metrics evaluated by Lucky’s management.
“Prior to the petition date, the debtors and their advisors engaged in a systematic review of each of their 39 open stores and 19 unopened stores, analyzing their performance, profitability, liquidity and market impact,” Pillari wrote in the document. “Historically, the debtors’ underperforming stores are, among other things, in regions oversaturated with competition (new and historical) and/or are too costly for the debtors to operate. Accordingly, continued operation of such underperforming stores no longer remains viable.
“ ... In formulating the list of closing stores, the debtors considered, among other factors, current occupancy costs, historical store profitability, recent and projected sales trends, specific circumstances related to a store’s performance, current liquidity, and whether any firm offer for such store was obtained or likely available from third parties,” Pillari wrote.