Lucky's Files Chapter 11, Seeks to Sell All Stores

Lucky’s Markets, which last week said it would be closing 32 of its 39 stores, this week filed for protection under Chapter 11 of the U.S. Bankruptcy Code, seeking to facilitate a sale of all of its stores.

Batavia, Ill.-based discounter Aldi has already agreed to acquire six Lucky’s stores for an undisclosed price, and Publix Super Markets has agreed to buy five stores. Those deals will be subject to higher offers during the Chapter 11 process, Lucky’s said. The company was also working to finalize a deal to sell the seven stores it is continuing to operate, according to court filings.

Lucky’s is running going-out-of-business sales at 32 stores affected by last week’s announcement, which follows a withdrawal of financial support from The Kroger Co. and reflects increased competition and declining same-store sales as well as the company’s belief it needed some $100 million in new financing before the company could turn profitable.

Andrew Pillari, chief financial officer of Lucky's, said in a declaration filed in the U.S. Bankruptcy Court in Delaware that the company grew sales significantly during a period of expansion between 2016 and 2017, but that a concurrent ratcheting up of other competitors, including Sprouts Farmers Market and Earth Fare, had eroded its growth. “Notwithstanding the growth in sales, the portfolio of company stores was unable to achieve sustainable four-wall profitability,” he said.

In the fiscal year to date through Jan. 4, Lucky’s had about $22 million of store operating losses and a net loss of about $100 million, Pillari said. In the fiscal year to date through the week ending Jan. 18, its same-store sales were down by 10.6%.

“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 said. “Management determined that it would be unable to secure new sources of sufficient funding outside of these Chapter 11 cases.”

Lucky’s said it had about $15 million of cash and cash equivalents and assets consisting of about $425 million on an aggregate basis. Its liabilities are about $600 million.

Its largest unsecured creditor is supplier United Natural Foods, which was owed $13.3 million, the filing said.

Lucky’s financed its expansion through a variety of means, including a $25 million secured loan from Kroger, funding from the federal EB-5 program, and through new markets tax credits in the amount of $5.9 million.

PJ Solomon is Lucky’s investment banker, while Polsinelli is the company’s legal counsel and Alvarez & Marsal is the company’s restructuring adviser.

Lucky’s revealed that PJ Solomon had been marketing its assets for sale for some time, with the company identifying several potential purchasers with interest in different parts of its portfolio.

Lucky’s said it was finalizing terms of a sale of its seven operating stores in addition to a separate sale for other store locations.

Each sale will be subject to a separate bidding procedures motion to be filed and approved by the court.

At the time of filing, Lucky’s said it had sufficient cash on hand and an agreement for the consensual use of cash collateral to meet financial obligations of continuing to operate stores in Traverse City, Mich.; Cleveland and Columbus, Ohio; Columbia, Mo.; Melbourne, Fla.; and North Boulder and Fort Collins, Colo.

This story was update with additional information about Publix' bid.