Southeastern Grocers said it expects to generate net income of $19 million in the last six months of 2018 following its planned emergence from bankruptcy, after posting a loss of $139 million last year.
As expected, the Jacksonville, Fla.-based parent of the Winn-Dixie, Bi-Lo, Harveys and Fresco y Más banners on Tuesday filed its prepackaged Chapter 11 bankruptcy reorganization plan, which calls for the sale or closure of about 120 stores, a new supply agreement with C&S Wholesale Grocers and a revamped debt/equity structure.
In a disclosure statement filed with the U.S. Bankruptcy Court in Delaware, Southeastern projected net income of $48 million on revenues of $8.45 billion in fiscal 2019, with both net income and revenues improving modestly in each of the following two years.
For the fiscal year that ended last Dec. 27, the company tallied revenues of about $9.88 billion.
Southeastern said it plans to continue to operate about 580 stores after store sales and closures when it emerges from bankruptcy in June, down from 700 stores that it currently operates. It said it plans to liquidate about 95 stores.
Through the restructuring, Southeastern said it expects to reduce its overall debt levels by more than $500 million, which will allow it to reduce interest expense and invest in remodels and new stores. The company said it has secured exit financing in the form of a $525 million, six-year term-loan facility and an asset-based lending facility.
All holders of unsecured claims, including supplier partners and other trade creditors, will be paid in full on existing obligations, the company said.
In addition, Southeastern said it plans to implement a new supply agreement with its wholesaler, Keene, N.H.-based C&S Wholesale Grocers, after reviewing cost savings that could be achieved through network optimization. Through the agreement, which must be approved by the bankruptcy court, C&S will provide incremental credit terms equivalent to about $100 million throughout the reorganization.
In the bankruptcy filing, Southeastern listed assets of about $1.87 billion and liabilities totaling $2.63 billion. The liabilities include $1.2 billion in secured financial obligations, $521 million in unsecured financing and trade claims totaling about $362 million.
As previously reported, the unsecured notes will be exchanged for equity in the company. Current equity holder Lone Star Funds will receive a settlement and warrants that can be exchanged for future equity.
“This pre-packaged, court-supervised financial restructuring process provides for a clear and expedited path to put [Southeastern] in the best position to serve our communities and succeed in the competitive retail market in which we do business,” said Anthony Hucker, president and CEO of Southeastern, in a statement.
A hearing on the proposed reorganization is scheduled for May 10. The plan has been approved by a majority of the company’s bondholders, Southeastern said.
In its bankruptcy disclosure statement, Southeastern cited food-price deflation and competitive pressures as contributing to its financial difficulties. The company said deflation of 1.3% in 2016 contributed to a 20% reduction in EBITDA that year. In addition, Southeastern said the April 2016 reduction in benefits through the Supplemental Nutrition Assistance Program also contributed to its sales challenges.
Southeastern cited competitive pressures both from aggressive pricing and from other retailers adding more organic offerings, prepared foods and gourmet assortments. The company has been “at a disadvantage to companies that have the financial flexibility to devote greater resources to sourcing, promoting, and selling the most in-demand products,” Southeastern said in the filing.
Meanwhile, competitors have recently sought to increase market share by expanding their footprints and discount pricing, “creating a more difficult environment in which to consistently increase year-over-year sales,” Southeastern said.