Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Nov. 03, 2018 | Dec. 10, 2018 | |
Entity Registrant Name | FREDS INC | |
Entity Central Index Key | 724,571 | |
Document Type | 10-Q/A | |
Trading Symbol | FRED | |
Document Period End Date | Nov. 3, 2018 | |
Amendment Flag | true | |
Amendment Description | Explanatory Note This Amendment No. 1 to the Quarterly Report on Form 10-Q of Fred’s, Inc. (the “Company”) for the quarter ended November 3, 2018, originally filed on December 13, 2018 (the “Original Filing”), is being filed solely to include the XBRL documents as Exhibit 101, which were omitted from the Original Filing. Except as described above, no other changes have been made to the Original Filing, and this Form 10-Q/A does not modify, amend or update in any way any of the financial or other information contained in the Original Filing. | |
Current Fiscal Year End Date | --02-03 | |
Entity's Reporting Status Current | Yes | |
Entity Small Business | true | |
Entity Filer Category | Accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,019 | |
Common Class A [Member] | ||
Entity Common Stock, Shares Outstanding | 37,686,555 | |
Nonvoting Common Class B [Member] | ||
Entity Common Stock, Shares Outstanding | 0 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Thousands | Nov. 03, 2018 | Feb. 03, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 6,182 | $ 6,573 |
Inventories | 236,066 | 263,831 |
Receivables, less allowance for doubtful accounts of $1,360 and $1,355; respectively | 38,268 | 37,720 |
Other non-trade receivables | 26,379 | 31,500 |
Current assets held for sale | 13,849 | 35,247 |
Prepaid expenses and other current assets | 10,043 | 10,055 |
Total current assets | 330,787 | 384,926 |
Property and equipment, less accumulated depreciation and amortization | 105,124 | 115,466 |
Intangible assets, net | 25,183 | 34,347 |
Noncurrent assets held for sale | 16,471 | 62,258 |
Other noncurrent assets, net | 1,510 | 568 |
Total assets | 479,075 | 597,565 |
Current liabilities: | ||
Accounts payable | 112,883 | 129,213 |
Current portion of indebtedness | 68 | 65 |
Accrued expenses and other | 61,942 | 67,977 |
Current liabilities held for sale | 26,572 | |
Total current liabilities | 174,893 | 223,827 |
Long-term portion of indebtedness | 181,174 | 167,100 |
Noncurrent liabilities held for sale | 48 | |
Other noncurrent liabilities | 21,036 | 25,542 |
Total liabilities | 377,103 | 416,517 |
Shareholders' equity: | ||
Treasury Stock, at cost; 1,242,000 shares at November 3, 2018 and at February 3, 2018 | (4,975) | (4,975) |
Retained earnings (deficit) | (20,180) | 61,514 |
Accumulated other comprehensive income | 559 | 559 |
Total shareholders' equity | 101,972 | 181,048 |
Total liabilities and shareholders' equity | 479,075 | 597,565 |
Nonvoting Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock | ||
Nonvoting Series A Junior Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock | ||
Voting Series B Junior Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock | ||
Voting Series C Junior Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock | ||
Common Class A [Member] | ||
Shareholders' equity: | ||
Common stock | 126,568 | 123,950 |
Nonvoting Common Class B [Member] | ||
Shareholders' equity: | ||
Common stock |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Thousands | Nov. 03, 2018 | Feb. 03, 2018 |
Allowance for doubtful accounts | $ 1,360 | $ 1,355 |
Treasury Stock, shares | 1,242,000 | 1,242,000 |
Nonvoting Preferred Stock [Member] | ||
Preferred stock, no par value (in dollars per share) | ||
Preferred stock, authorized | 10,000,000 | 10,000,000 |
Preferred stock, outstanding | ||
Nonvoting Series A Junior Preferred Stock [Member] | ||
Preferred stock, no par value (in dollars per share) | ||
Preferred stock, authorized | 224,594 | 224,594 |
Preferred stock, outstanding | ||
Voting Series B Junior Preferred Stock [Member] | ||
Preferred stock, par value (in dollars per share) | $ 100 | $ 100 |
Preferred stock, authorized | 50,000 | 50,000 |
Preferred stock, issued | ||
Preferred stock, outstanding | ||
Voting Series C Junior Preferred Stock [Member] | ||
Preferred stock, par value (in dollars per share) | $ 60 | $ 60 |
Preferred stock, authorized | 50,000 | 50,000 |
Preferred stock, issued | ||
Preferred stock, outstanding | ||
Common Class A [Member] | ||
Common stock, no par value (in dollars per share) | ||
Common stock, authorized | 60,000,000 | 60,000,000 |
Common stock, issued | 37,686,555 | 38,366,517 |
Common stock, outstanding | 37,686,555 | 38,366,517 |
Nonvoting Common Class B [Member] | ||
Common stock, no par value (in dollars per share) | ||
Common stock, authorized | 11,500,000 | 11,500,000 |
Common stock, outstanding |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Nov. 03, 2018 | Oct. 28, 2017 | Nov. 03, 2018 | Oct. 28, 2017 | |
Income Statement [Abstract] | ||||
Net sales | $ 306,413 | $ 324,329 | $ 964,654 | $ 1,024,980 |
Cost of goods sold | 229,446 | 254,298 | 713,398 | 753,269 |
Gross profit | 76,967 | 70,031 | 251,256 | 271,711 |
Depreciation and amortization | 7,632 | 8,588 | 24,019 | 26,333 |
Selling, general and administrative expenses | 98,008 | 109,667 | 291,759 | 361,279 |
Operating loss | (28,673) | (48,224) | (64,522) | (115,901) |
Interest expense | 2,073 | 1,647 | 5,781 | 4,371 |
Loss before income taxes | (30,746) | (49,871) | (70,303) | (120,272) |
Provision (benefit) for income taxes | 71 | 567 | (354) | (1,103) |
Net loss from continuing operations | (30,817) | (50,438) | (69,949) | (119,169) |
Net income (loss) from discontinued operations | 3,438 | (1,377) | (11,745) | 1,376 |
Net Loss | $ (27,379) | $ (51,815) | $ (81,694) | $ (117,793) |
Net (loss) income per share - basic | ||||
Continuing operations (in dollars per share) | $ (0.83) | $ (1.35) | $ (1.91) | $ (3.18) |
Discontinued operations (in dollars per share) | 0.09 | (0.04) | (0.32) | 0.04 |
Total loss per common share - basic (in dollars per share) | (0.74) | (1.39) | (2.23) | (3.14) |
Net (loss) income per share - diluted | ||||
Continuing operations (in dollars per share) | (0.83) | (1.35) | (1.91) | (3.18) |
Discontinued operations (in dollars per share) | 0.09 | (0.04) | (0.32) | 0.04 |
Total loss per common share - diluted (in dollars per share) | $ (0.74) | $ (1.39) | $ (2.23) | $ (3.14) |
Weighted average shares outstanding | ||||
Basic (in shares) | 36,962 | 37,626 | 36,650 | 37,481 |
Effect of dilutive stock options (in shares) | ||||
Diluted (in shares) | 36,962 | 37,626 | 36,650 | 37,481 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Nov. 03, 2018 | Oct. 28, 2017 | Nov. 03, 2018 | Oct. 28, 2017 | |
Statement of Comprehensive Income [Abstract] | ||||
Net loss | $ (27,379) | $ (51,815) | $ (81,694) | $ (117,793) |
Other comprehensive income (expense), net of tax postretirement plan adjustment | ||||
Comprehensive loss | $ (27,379) | $ (51,815) | $ (81,694) | $ (117,793) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Nov. 03, 2018 | Oct. 28, 2017 | |
Cash flows from operating activities of continuing operations: | ||
Net loss | $ (69,949) | $ (119,169) |
Adjustments to reconcile net loss to net cash flows from operating activities: | ||
Depreciation and amortization | 24,019 | 26,333 |
Net gain on asset disposition | (437) | (140) |
Provision for store closures and asset impairment | 1,772 | 20,783 |
Stock-based compensation | 2,707 | 4,640 |
(Recovery) provision for uncollectible receivables | (817) | 37 |
Change in LIFO reserve | 2,693 | 640 |
Deferred income tax (expense) benefit | (23) | 1,286 |
Amortization of debt issuance costs | 432 | 182 |
(Increase) decrease in operating assets: | ||
Trade and non-trade receivables | 4,459 | 1,338 |
Insurance receivables | 395 | |
Inventories | 25,071 | (5,278) |
Other assets | (923) | 6,156 |
Increase (decrease) in operating liabilities: | ||
Accounts payable and accrued expenses | (22,366) | 20,885 |
Income taxes receivable | 1,062 | (28) |
Other noncurrent liabilities | (5,147) | 8,034 |
Net cash used in operating activities of continuing operations | (37,447) | (33,906) |
Cash flows from investing activities of continuing operations: | ||
Capital expenditures | (7,523) | (12,418) |
Proceeds from asset dispositions | 2,203 | 1,276 |
Asset acquisitions, net (primarily intangibles) | (1,853) | |
Net cash used in investing activities of continuing operations | (5,320) | (12,995) |
Cash flows from financing activities of continuing operations: | ||
Payments of indebtedness and capital lease obligations | (48) | (45) |
Proceeds from revolving line of credit | 542,741 | 715,228 |
Payments on revolving line of credit | (528,634) | (675,065) |
Debt issuance costs | (415) | (489) |
Payments from exercise of stock options and employee stock purchase plan | (149) | (112) |
Transfer from discontinued operations | 28,881 | 13,513 |
Cash dividends paid | (6,847) | |
Net cash provided by financing activities of continuing operations | 42,376 | 46,183 |
Decrease in cash and cash equivalents | (391) | (718) |
Cash flows from discontinued operations | ||
Cash flows from operating activities of discontinued operations, net | (10,025) | 13,927 |
Cash flows from investing activities of discontinued operations, net | 38,906 | (414) |
Cash flows from financing activities of discontinued operations, net | (28,881) | (13,513) |
Net decrease in cash and cash equivalents | (391) | (718) |
Cash and cash equivalents, beginning of year | 6,573 | 5,830 |
Cash and cash equivalents of discontinued operations/held for sale operations, beginning of year | ||
Net decrease in cash and cash equivalents | (391) | (718) |
Less: cash and cash equivalents of discontinued/held for sale operations at end of period | ||
Cash and cash equivalents, end of period | 6,182 | 5,112 |
Supplemental disclosures of cash flow information: | ||
Interest paid | 5,781 | 4,371 |
Income taxes refunded | $ (2,002) |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | 9 Months Ended |
Nov. 03, 2018 | |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION | NOTE 1: BASIS OF PRESENTATION Fred’s, Inc. and its subsidiaries (“Fred’s”, “We”, “Our”, “Us” or the “Company”) operate, as of November 3, 2018, 589 discount general merchandise stores in fifteen states in the Southeastern United States. Included in the count of discount general merchandise stores are 11 franchised locations. There are 346 full service pharmacy departments (179 of which are now classified as Assets held-for-sale) located within our discount general merchandise stores, including one within franchised locations. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X and therefore do not include all information and notes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. The accompanying financial statements reflect all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of financial position in conformity with GAAP. The accompanying financial statements should be read in conjunction with the Notes to the Consolidated Financial Statements for the fiscal year ended February 3, 2018 included in our Annual Report on Form 10-K, which we filed with the Securities and Exchange Commission (the “SEC”) on May 4, 2018. We meet the SEC’s definition of a “Smaller Reporting Company,” and therefore qualify for the SEC’s reduced disclosure requirements for smaller reporting companies. During the fourth quarter of 2017, Fred’s Board of Directors approved a plan to actively market its specialty pharmacy business. The specialty pharmacy business met the criteria for “Assets held for Sale” in accordance with Accounting Standards Codification (“ASC”) Topic 360 (ASC 360), Property, Plant and Equipment, as of February 3, 2018. The specialty pharmacy assets and liabilities are reflected as “Assets held-for-sale” on the consolidated balance sheets in this report in accordance with ASC 360. In addition, the results of operations for the specialty pharmacy business have been presented in this report as discontinued operations in accordance with ASC 205-20, Results of Operations – Discontinued Operations for all periods presented. Amounts and percentages for all periods discussed below reflect the results of operations and financial condition from Fred’s continuing operations, unless otherwise noted. On May 4, 2018, Fred’s entered into an Asset Purchase Agreement (the “Specialty Asset Purchase Agreement”) with Advance Care Scripts, Inc. (the “Specialty Buyer”), pursuant to which the Specialty Buyer agreed to purchase certain specialty pharmacy assets of certain subsidiaries of Fred’s, National Pharmaceutical Network, Inc. and Reeves-Sain Drug Store, Inc. (collectively referred to as “Entrust”), consisting of three pharmacy locations, pharmaceutical inventory, and related intellectual property. The Specialty Buyer paid Fred’s $40.0 million for the purchased assets (plus up to an additional $5.5 million for inventory). On June 1, 2018, the sale of the specialty pharmacy assets was completed. See Note 2: Assets Held for Sale and Discontinued Operations for additional information. On September 7, 2018 the Company entered into an Asset Purchase Agreement with Walgreen Co., an Illinois corporation. On October 23, 2018, the Company entered into an amendment to the Asset Purchase Agreement (the “Amendment”). Under such Asset Purchase Agreement, as amended by the Amendment (the “Amended WBA Asset Purchase Agreement”), the Company agreed to sell certain prescription files and related data and records, retail pharmaceutical inventory, and certain other assets from 179 of the Company’s 346 retail pharmacy stores (such assets from such 179 retail pharmacy stores collectively referred to as “Retail Pharmacy”) for a cash purchase price of approximately $157 million plus an amount equal to the value of the inventory included in the Retail Pharmacy assets up to an approximately $35 million cap, in each case subject to certain adjustments. During the third quarter of 2018, the assets therefore met the criteria for “Assets held-for-sale” in accordance with ASC 360. Such assets have been reflected as “held-for-sale” on the consolidated balance sheets in accordance with ASC 360. In addition, the results of operations have been presented as discontinued operations in accordance with ASC 205-20, Results of Operations – Discontinued Operations for all periods presented. Amounts and percentages for all periods discussed below reflect the results of operations and financial condition from Fred’s continuing operations, unless otherwise noted. See Note 2: Assets Held for Sale and Discontinued Operations for additional information. Certain prior year amounts have been reclassified to conform to the 2018 presentation. Such reclassifications had no effect on previously reported net loss. The results of operations for the thirteen-week and thirty-nine week periods ended November 3, 2018 are not necessarily indicative of the results to be expected for the full fiscal year. All references in this Quarterly Report on Form 10-Q to 2017 and 2018 refer to the Company’s fiscal years ended February 3, 2018 and ending February 2, 2019, respectively. Recent Accounting Pronouncements In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. This ASU removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has evaluated all contracts and has implemented this standard and there was no material impact to the Company’s statement of position, results of operations, or statement of cash flow. Revenue Recognition Sales The vast majority of Fred’s contracts with customers are made at the point of sale (POS) in the retail stores, and the performance obligation is the transfer of merchandise which is satisfied at POS when customer pays for merchandise and title transfers to them. 340B Revenues We evaluated principal versus agent considerations with regards to the 340B Direct program under ASC 606. Because Fred’s is primarily responsible for fulfilling the promise to provide the 340B Direct prescription drugs and assumes control of and risk for inventory prior to transfer of goods to the customer, including pricing apart from when determined by federal mandate, Fred’s recognizes revenue on a gross basis as principal for the 340B Direct program. Gift Card and Breakage When customers purchase gift cards, the sale is not recognized until the card is redeemed. The gift cards are not always fully redeemed and as such, the Company recognizes breakage. Based on the results from our historical breakage model, the Company defines the likelihood of redemption as remote after three years of no activity. Layaway Plans Store layaways are agreements with our customers to provide or deliver goods for a specified price at a future date. Layaway programs run annually for a duration of less than one year and are most popular during the Christmas seasons. Under the Company’s layaway plan, the customer is obligated to pay only the amount equivalent to the value of the good plus sales tax. The Company does not assess a layaway fee or interest but requires an upfront deposit. The customer does not take delivery of the merchandise until the full value is collected. Our performance obligation is the transfer of merchandise which is satisfied at the point of customer pick-up, not at transaction initiation. Any payments received prior to customer pick-up are considered advance payments and deferred and recognized when the performance obligation is satisfied. Layaway sales are deferred when the customer transaction is initiated and are recognized as revenue when the layaway merchandise is transferred. Disaggregated Revenues In the following table, consolidated sales are disaggregated by major merchandising category. Thirteen Weeks Ended Thirty-Nine Weeks Ended (in thousands) November 3, 2018 November 3, 2018 Pharmacy $ 203,570 $ 692,766 Consumables 119,086 380,993 Household Goods and Softlines 80,277 270,401 Franchise 3,711 9,367 Total $ 406,644 $ 1,353,527 Termination of Rite Aid Asset Purchase Agreement On December 19, 2016, Fred’s and its wholly-owned subsidiary, AFAE, LLC (“AFAE”), entered into an Asset Purchase Agreement (the “Rite Aid Asset Purchase Agreement”) with Rite Aid Corporation (“Rite Aid”) and Walgreens Boots Alliance, Inc. (“Walgreens”), pursuant to which AFAE agreed to purchase 865 stores, certain intellectual property and other tangible assets and to assume certain liabilities for a cash purchase price of $950 million. Pursuant to Section 8.01(g) of the Rite Aid Asset Purchase Agreement, each of AFAE, Walgreens or Rite Aid was permitted to terminate the Rite Aid Asset Purchase Agreement upon the termination of that certain Agreement and Plan of Merger, dated as of October 27, 2015, among Walgreens, Rite Aid and the other parties thereto (as amended, the “Merger Agreement”). On June 29, 2017, the Merger Agreement was terminated and, accordingly, the Rite Aid Asset Purchase Agreement was also terminated. In connection with the termination of the Rite Aid Asset Purchase Agreement, the Company received a termination fee payment of $25 million on June 30, 2017, which was recorded in selling, general and administrative expenses to offset the expenses incurred. See Note 11: Indebtedness for additional information relating to the termination of the Rite Aid Asset Purchase Agreement. |
ASSETS HELD-FOR-SALE AND DISCON
ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS | 9 Months Ended |
Nov. 03, 2018 | |
Assets Held-for-sale And Discontinued Operations | |
ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS | NOTE 2: ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS During the fourth quarter of 2017, Fred’s Board of Directors approved a plan to actively market its specialty pharmacy business (“Entrust”). Accordingly, Entrust met the criteria for “Assets Held-for-Sale” in accordance with ASC 360 as of February 3, 2018. Entrust’s assets and liabilities were reflected as “held-for-sale” on the consolidated balance sheets in accordance with ASC 360 at February 3, 2018. In addition, the results of operations for the Entrust business have been presented as discontinued operations in accordance with ASC 205-20 for all periods presented. On May 4, 2018, Fred’s entered into the Specialty Asset Purchase Agreement with the Specialty Buyer, pursuant to which, the Specialty Buyer agreed to purchase Entrust, consisting of three pharmacy locations, pharmaceutical inventory, and related intellectual property. The Specialty Buyer paid Fred’s $40.0 million for the purchased assets (plus up to an additional $5.5 million for inventory). On June 1, 2018, the sale of the Entrust assets was completed. The results of the Entrust business were previously allocated to the Pharmacy segment within the sales mix. There were no earnings related to the Entrust business in the third quarter of 2018, but Entrust recorded a loss from discontinued operations, net of tax, of $1.9 million for the third quarter of 2017, and a loss from discontinued operations, net of tax, of $11.5 million and $1.1 million for the first nine months of 2018 and 2017, respectively. Certain corporate overhead and other costs previously allocated to the specialty pharmacy business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations. On September 7, 2018 the Company, entered into an Asset Purchase Agreement with Walgreen Co., an Illinois corporation. On October 23, 2018, the Company entered into an amendment to the Asset Purchase Agreement (the “Amendment”). Under the Asset Purchase Agreement, as amended by the Amendment (the “Amended WBA Asset Purchase Agreement”), the Company agreed to sell certain prescription files and related data and records, retail pharmaceutical inventory, and certain other assets from 179 of the Company’s 346 retail pharmacy stores (such assets from such 179 retail pharmacy stores collectively referred to as “Retail Pharmacy”) for a cash purchase price of approximately $157 million plus an amount equal to the value of the inventory included in the Retail Pharmacy assets up to an approximately $35 million cap, in each case subject to certain adjustments. The Company decided to sell the assets to raise cash to pay down existing debt. As of November 3, 2018, the Company had not yet completed any dispositions of assets. The Company intends to transfer ownership of the Retail Pharmacy assets to Walgreen Co. in a series of ongoing closings, with the initial closing occurring on November 13, 2018 and the final closing expected to occur in the first quarter of calendar year 2019. During the third quarter the assets therefore met the criteria for “Assets Held-for-Sale” in accordance with ASC 360. Such assets have been reflected as “held-for-sale” on the consolidated balance sheets in accordance with ASC 360. In addition, the results of operations have been presented as discontinued operations in accordance with ASC 205-20 for all periods presented. Assets and liabilities which meet the held for sale criteria are carried at the lesser of fair value less selling costs or carrying value. The Company determined the fair value less costs to sell exceeded the carrying value of the held for sale, therefore no adjustment to the disposal group's net book value was recognized. The results of the Retail Pharmacy business were previously allocated to the Pharmacy segment within the sales mix. Retail Pharmacy recorded a profit from discontinued operations, net of tax, of $3.4 million and $0.5 million for the third quarter of 2018 and 2017, respectively. Retail Pharmacy recorded a loss from discontinued operations, net of tax, of $0.2 million and a profit from discontinued operations, net of tax, of $2.5 million, for the first nine months of 2018 and 2017, respectively. The total recorded profit from discontinued operations for Entrust and Retail Pharmacy, net of tax, was $3.4 million for the third quarter of 2018 and the total recorded loss from discontinued operations for Entrust and Retail Pharmacy, net of tax, was $1.4 million for the third quarter 2017. The total recorded loss from discontinued operations for Entrust and Retail Pharmacy, net of tax, was $11.7 million for the first nine months of 2018 and the total recorded profit from discontinued operations for Entrust and Retail Pharmacy, net of tax, was $1.4 million for the first nine months of 2017. Summarized Discontinued Operations Financial Information The following table provides a reconciliation of the carrying amounts of major classes of assets and liabilities which are included in assets and liabilities held-for-sale in the accompanying consolidated balance sheet for each of the periods presented: Entrust Discontinued Retail Pharmacy Total Discontinued November 3, February 3, November 3, February 3, November 3, February 3, 2018 2018 2018 2018 2018 2018 (in thousands) (unaudited) (unaudited) (unaudited) Current assets: Receivables, less allowance for doubtful accounts $ — $ 15,983 $ — $ — $ — $ 15,983 Inventories — 3,756 13,849 15,344 13,849 19,100 Other non-trade receivables — 152 — — — 152 Prepaid expenses and other current assets — 12 — — — 12 Total current assets held-for-sale $ — $ 19,903 $ 13,849 $ 15,344 $ 13,849 $ 35,247 Property and equipment, less accumulated depreciation and amortization — 1,036 — — — 1,036 Goodwill — 30,609 — — — 30,609 Intangible assets, net — 9,533 16,471 20,541 16,471 30,074 Other noncurrent assets, net — 539 — — — 539 Total noncurrent assets held-for-sale $ — $ 41,717 $ 16,471 $ 20,541 $ 16,471 $ 62,258 Current liabilities: Accounts payable — 22,045 — — — 22,045 Accrued expenses and other — 4,527 — — — 4,527 Total current liabilities held-for-sale $ — $ 26,572 $ — $ — $ — $ 26,572 Deferred income taxes — — — — — — Other noncurrent liabilities — 48 — — — 48 Total noncurrent liabilities held-for-sale $ — $ 48 $ — $ — $ — $ 48 The following tables summarize the results of discontinued operations for the thirteen and thirty nine weeks ended November 3, 2018, and October 28, 2017, respectively: Discontinued Operations - Entrust For the Thirteen For the Thirty Nine (unaudited) (unaudited) November 3, October 28, November 3, October 28, (in thousands) 2018 2017 2018 2017 Net Sales $ — $ 68,168 $ 90,112 $ 205,626 Cost of goods sold — 66,238 88,454 196,097 Gross profit — 1,930 1,658 9,529 Depreciation and amortization — 631 796 2,010 Selling, general and administrative expenses — 2,763 12,398 8,424 Loss from discontinued operations — (1,464 ) (11,536 ) (905 ) Income tax expense — 394 — 244 Loss from discontinued operations, net of tax $ — $ (1,858 ) $ (11,536 ) $ (1,149 ) Discontinued Operations - Retail Pharmacy For the Thirteen For the Thirty Nine (unaudited) (unaudited) November 3, October 28, November 3, October 28, (in thousands) 2018 2017 2018 2017 Net Sales $ 100,403 $ 101,088 $ 298,933 $ 303,136 Cost of goods sold 80,948 78,432 241,695 230,847 Gross profit 19,455 22,656 57,238 72,289 Depreciation and amortization 616 1,751 4,071 5,549 Selling, general and administrative expenses 15,401 20,971 53,376 61,962 Income (loss) from discontinued operations 3,438 (66 ) (209 ) 4,778 Income tax (benefit) expense — (546 ) — 2,253 Income (loss) from discontinued operations, net of tax $ 3,438 $ 480 $ (209 ) $ 2,525 Total Discontinued Operations For the Thirteen For the Thirty Nine (unaudited) (unaudited) November 3, October 28, November 3, October 28, (in thousands) 2018 2017 2018 2017 Net Sales $ 100,403 $ 169,256 $ 389,045 $ 508,762 Cost of goods sold 80,948 144,670 330,149 426,944 Gross profit 19,455 24,586 58,896 81,818 Depreciation and amortization 616 2,382 4,867 7,559 Selling, general and administrative expenses 15,401 23,734 65,774 70,386 Income (loss) from discontinued operations 3,438 (1,530 ) (11,745 ) 3,873 Income tax (benefit) expense — (152 ) — 2,497 Income (loss) from discontinued operations, net of tax $ 3,438 $ (1,378 ) $ (11,745 ) $ 1,376 |
INVENTORIES
INVENTORIES | 9 Months Ended |
Nov. 03, 2018 | |
Inventory Disclosure [Abstract] | |
INVENTORIES | NOTE 3: INVENTORIES Merchandise inventories are valued at the lower of cost or market using the retail first-in, first-out (FIFO) inventory method for goods in our stores and the cost FIFO inventory method for goods in our distribution centers. The retail inventory method is a reverse mark-up, averaging method which has been widely used in the retail industry for many years. This method calculates a cost-to-retail ratio that is applied to the retail value of inventory to determine the cost value of inventory and the resulting cost of goods sold and gross margin. The assumptions that the retail inventory method provides for valuation at lower of cost or market and the inherent uncertainties therein are discussed in the following paragraphs. In order to assure valuation at the lower of cost or market, the retail value of our inventory is adjusted on a consistent basis to reflect current market conditions. These adjustments include increases to the retail value of inventory for initial markups to set the selling price of goods or additional markups to adjust pricing for inflation and decreases to the retail value of inventory for markdowns associated with promotional, seasonal or other declines in the market value. Because these adjustments are made on a consistent basis and are based on current prevailing market conditions, they approximate the carrying value of the inventory at net realizable value (market value). Therefore, after applying the cost to retail ratio, the cost value of our inventory is stated at the lower of cost or market as is prescribed by GAAP. Because the approximation of net realizable value (market value) under the retail inventory method is based on estimates such as markups, markdowns and inventory losses (shrink), there exists an inherent uncertainty in the final determination of inventory cost and gross margin. In order to mitigate that uncertainty, the Company has a formal review process, conducted by product class which considers such variables as current market trends, seasonality, weather patterns and age of merchandise to ensure that markdowns are taken currently, or a markdown reserve is established to cover future anticipated markdowns on a particular product class. This review also considers current pricing trends and inflation to ensure that markups are taken if necessary. The estimation of inventory losses (shrink) is a significant element in approximating the carrying value of inventory at net realizable value, and as such the following paragraph describes our estimation method as well as the steps we take to mitigate the risk of this estimate in the determination of the cost value of inventory. The Company calculates inventory losses (shrink) based on actual inventory losses occurring as a result of physical inventory counts during each fiscal period and estimated inventory losses occurring between yearly physical inventory counts. The estimate for shrink occurring in the interim period between physical counts is calculated on a store-specific basis and is based on history, as well as performance on the most recent physical count. It is calculated by multiplying each store’s shrink rate, which is based on the previously mentioned factors, by the interim period’s sales for each store. Additionally, the overall estimate for shrink is adjusted at the corporate level to a three-year historical average to ensure that the overall shrink estimate is the most accurate approximation of shrink based on the Company’s overall history of shrink. The three-year historical estimate is calculated by dividing the “book to physical” inventory adjustments for the trailing 36 months by the related sales for the same period. In order to reduce the uncertainty inherent in the shrink calculation, the Company first performs the calculation at the lowest practical level (by store) using the most current performance indicators. This ensures a more reliable number, as opposed to using a higher level aggregation or percentage method. The third portion of the calculation ensures that the extreme negative or positive performance of any particular store or group of stores does not skew the overall estimation of shrink. This portion of the calculation removes additional uncertainty by eliminating short-term peaks and valleys that could otherwise cause the underlying carrying cost of inventory to fluctuate unnecessarily. The methodology that we have applied in estimating shrink has resulted in variability that is not material to our financial statements. Management believes that the Company’s retail inventory method provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market. For pharmacy inventories, which were approximately $14.6 million and $18.0 million at November 3, 2018 and February 3, 2018, respectively, cost was determined using the retail last-in, first-out (LIFO) inventory method in which inventory cost is maintained using the retail inventory method, then adjusted by application of the Producer Price Index published by the U.S. Department of Labor for cumulative annual periods. The current cost of inventories exceeded LIFO cost by approximately $27.6 million at November 3, 2018 and $28.8 million at February 3, 2018. The Company has historically included an estimate of inbound freight and certain general and administrative costs in merchandise inventory as prescribed by GAAP. These costs include activities surrounding the procurement and storage of merchandise inventory such as merchandise planning and buying, warehousing, accounting, information technology and human resources, as well as inbound freight. The total amount of procurement and storage costs and inbound freight, inclusive of the accelerated recognition of freight capitalization expense, included in merchandise inventory at November 3, 2018 is $17.6 million, with the corresponding amount of $17.2 million at February 3, 2018. During 2016, the Company recorded impairment charges for inventory clearance of product that management identified as low-productive and does not fit our go-forward model. The Company recorded a below-cost inventory adjustment in accordance with FASB Accounting Standards Codification (“ASC”) 330, “ Inventory During the third quarter of 2017, the Company recorded impairment charges for inventory clearance of product that management identified as low-productive and does not fit our go-forward model. The Company recorded a below-cost inventory adjustment in accordance with FASB Accounting Standards Codification (“ASC”) 330, “ Inventory The following table illustrates the inventory impairment charges related to the inventory clearance initiatives discussed in the previous paragraph (in millions): Balance at February 3, 2018 Additions Utilization Ending Balance November 3, 2018 Inventory markdown on low-productive inventory (2016 initiatives) $ 1.7 — (1.7 ) $ — Inventory provision for freight capitalization expense (2016 initiatives) 0.1 — (0.1 ) — Inventory markdown on low-productive inventory (2017 initiatives) 3.3 — (2.7 ) 0.6 Inventory provision for freight capitalization expense (2017 initiatives) 1.0 — (1.0 ) 0.0 Total $ 6.1 $ — $ (5.5 ) $ 0.6 |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended |
Nov. 03, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK-BASED COMPENSATION | NOTE 4: STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation plans in accordance with FASB ASC 718 “ Compensation – Stock Compensation. FASB ASC 718 also requires the benefits of income tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required prior to FASB ASC 718. The following information includes separate disclosures for discontinued operations. These disclosures relate solely to our Entrust discontinued operation. There are no stock-based compensation disclosures related to the Retail Pharmacy discontinued operations. A summary of the Company’s stock-based compensation (a component of selling, general and administrative expenses) and related income tax benefit is as follows: Thirteen Weeks Ended Thirty Nine Weeks Ended (in thousands) November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Continuing Operations Stock option expense $ 215 $ 307 $ 709 $ 1,152 Restricted stock expense 226 1,059 1,976 3,026 ESPP expense — 244 — 428 Total stock-based compensation $ 441 $ 1,610 $ 2,685 $ 4,606 Income tax benefit on stock-based compensation $ 11 $ 414 $ 34 $ 1,192 Thirteen Weeks Ended Thirty Nine Weeks Ended (in thousands) November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Discontinued Operations Stock option expense $ 13 $ 50 $ 48 $ 174 Restricted stock expense 9 15 34 63 Total stock-based compensation $ 22 $ 65 $ 82 $ 237 Income tax benefit on stock-based compensation $ — $ — $ 4 $ 14 The fair value of each option granted during the thirteen and thirty-nine week periods ended November 3, 2018 and October 28, 2017 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: Thirteen Weeks Ended Thirty Nine Weeks Ended Continuing Operations November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Stock Options Expected volatility 0.0 % 46.1 % 0.0 % 41.7 % Risk-free interest rate 0.0 % 1.9 % 0.0 % 2.1 % Expected option life (in years) 0 5.84 0 5.84 Expected dividend yield 0.00 % 1.98 % 0.00 % 1.87 % Weighted average fair value at grant date $ — $ 2.44 $ — $ 4.11 Thirteen Weeks Ended Thirty Nine Weeks Ended Discontinued Operations November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Stock Options Expected volatility 0.0 % 0.0 % 0.0 % 43.1 % Risk-free interest rate 0.0 % 0.0 % 0.0 % 2.2 % Expected option life (in years) 0 0 0 5.84 Expected dividend yield 0.00 % 0.00 % 0.00 % 1.85 % Weighted average fair value at grant date $ — $ — $ — $ 4.89 Thirteen Weeks Ended Thirty Nine Weeks Ended November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Employee Stock Purchase Plan Expected volatility 0.0 % 86.1 % 0.0 % 82.2 % Risk-free interest rate 0.0 % 1.0 % 0.0 % 1.0 % Expected option life (in years) 0.00 0.75 0.00 0.50 Expected dividend yield 0.00 % 1.24 % 0.00 % 0.81 % Weighted average fair value at grant date $ — $ 7.95 $ — $ 6.86 The following is a summary of the methodology applied to develop each assumption: Expected Volatility Risk-free Interest Rate Expected Lives Dividend Yield Employee Stock Purchase Plan The 2004 Employee Stock Purchase Plan (“ESPP”) (the “2004 Plan”), which was approved by Fred’s shareholders, permits eligible employees to purchase shares of our common stock through payroll deductions at the lower of 85% of the fair market value of the stock at the time of grant, or 85% of the fair market value at the time of exercise. During the fourth quarter of 2017, management and the Board of Directors suspended purchases through the ESPP effective December 31, 2017. The ESPP suspension resulted in zero shares issued during the thirty-nine weeks ended November 3, 2018. There are 1,410,928 shares approved to be issued under the 2004 Plan and as of November 3, 2018, there were 595,681 shares available. Stock Options The following table summarizes stock option activity during the thirty-nine weeks ended November 3, 2018: Continuing Operations Options Weighted- Average Exercise Price Weighted-Average Contractual Life (years) Aggregate Intrinsic Value (000s) Outstanding at February 3, 2018 1,171,825 $ 13.12 5.1 $ — Granted — — Cancelled (537,254 ) 12.29 Exercised — — Outstanding at November 3, 2018 634,571 $ 13.83 4.4 $ — Exercisable at November 3, 2018 442,605 $ 14.60 4.2 — Discontinued Operations Options Weighted- Average Exercise Price Weighted-Average Contractual Life (years) Aggregate Intrinsic Value (000s) Outstanding at February 3, 2018 167,375 $ 14.23 5.4 $ — Granted — — Cancelled (158,984 ) 14.17 Exercised — — Outstanding at November 3, 2018 8,391 $ 15.44 4.5 $ — Exercisable at November 3, 2018 3,356 $ 15.44 4.5 $ — The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Fred’s closing stock price on the last trading day of the period ended November 3, 2018 and the exercise price of the option multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that date. As of November 3, 2018, total unrecognized stock-based compensation expense net of estimated forfeitures related to non-vested stock options for continuing operations was approximately $1.0 million, which is expected to be recognized over a weighted average period of approximately 3.0 years. As of November 3, 2018, there was no unrecognized stock-based compensation expense, net of estimated forfeitures related to non-vested stock options for discontinued operations. The total fair value of options vested during the thirty-nine weeks ended November 3, 2018 for continuing operations was $146.3 thousand. The total fair value of options vested during the thirty-nine weeks ended November 3, 2018 for discontinued operations was $10.3 thousand. Restricted Stock The following table summarizes restricted stock activity during the thirty-nine weeks ended November 3, 2018: Continuing Operations Number of Shares Weighted-Average Grant Date Fair Value Non-vested Restricted Stock at February 3, 2018 653,895 $ 10.14 Granted 649,233 2.23 Forfeited / Cancelled (109,512 ) 10.68 Vested (413,630 ) 7.73 Non-vested Restricted Stock at November 3, 2018 779,986 $ 4.77 Discontinued Operations Number of Shares Weighted-Average Grant Date Fair Value Non-vested Restricted Stock at February 3, 2018 11,194 $ 15.35 Granted — — Forfeited / Cancelled (8,862 ) 14.95 Vested (2,332 ) 15.44 Non-vested Restricted Stock at November 3, 2018 — $ — For continuing operations, the aggregate pre-tax intrinsic value of restricted stock outstanding as of November 3, 2018 is $2.3 million with a weighted average remaining contractual life of 8.6 years. The unrecognized compensation expense net of estimated forfeitures, related to the outstanding stock is approximately $2.2 million, which is expected to be recognized over a weighted average period of approximately 2.9 years. The total fair value of restricted stock awards that vested during the thirty-nine weeks ended November 3, 2018 was $3.2 million. For discontinued operations, there was no aggregate pre-tax intrinsic value of restricted stock outstanding as of November 3, 2018, no weighted average remaining contractual life, and no unrecognized compensation expense related to the outstanding stock The total fair value of restricted stock awards related to discontinued operations that vested during the thirty-nine weeks ended November 3, 2018 was $0.04 million. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Nov. 03, 2018 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE MEASUREMENTS | NOTE 5: FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. ● Level 1, defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. ● Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. ● Level 3, defined as unobservable inputs for the asset or liability, which are based on an entity’s own assumptions as there is little, if any, observable activity in identical assets or liabilities. Due to their short-term nature, the Company’s financial instruments, which include cash and cash equivalents, receivables and accounts payable, are presented on the condensed consolidated balance sheets at a reasonable estimate of their fair value as of November 3, 2018 and February 3, 2018. The fair value of the revolving lines of credit and our mortgage loans are estimated using Level 2 inputs based on the Company’s current incremental borrowing rate for comparable borrowing arrangements. The table below details the fair value and carrying values for the revolving line of credit, notes payable and mortgage loans as of the following dates: November 3, 2018 February 3, 2018 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Revolving line of credit $ 167,539 $ 167,539 $ 153,431 $ 153,431 Mortgage loans on land & buildings 1,531 1,615 1,579 1,684 Notes Payable 13,000 12,185 13,000 12,421 |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 9 Months Ended |
Nov. 03, 2018 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 6: PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of assets. Improvements to leased premises are amortized using the straight-line method over the shorter of the initial term of the lease or the useful life of the improvement. Leasehold improvements added late in the lease term are amortized over the shorter of the remaining term of the lease (including the upcoming renewal option if the renewal is reasonably assured) or the useful life of the improvement. Assets under capital leases are amortized in accordance with the Company’s normal depreciation policy for owned assets or over the lease term (regardless of renewal options), if shorter, and the charge to earnings is included in depreciation expense in the consolidated financial statements. Gains or losses on the sale of assets are recorded as a component of selling, general and administrative expenses. The following illustrates the breakdown of the major categories within property and equipment (in thousands): (in thousands) Property and equipment, at cost: November 3, 2018 February 3, 2018 Buildings and building improvements $ 116,808 $ 119,039 Leasehold improvements 89,071 86,402 Automobiles and vehicles 3,772 4,525 Furniture, fixtures and equipment 288,346 286,962 497,997 496,928 Less: Accumulated depreciation and amortization (403,790 ) (390,633 ) 94,207 106,295 Construction in progress 2,447 590 Land 8,470 8,581 Total Property and equipment, at depreciated cost $ 105,124 $ 115,466 |
EXIT AND DISPOSAL ACTIVITIES
EXIT AND DISPOSAL ACTIVITIES | 9 Months Ended |
Nov. 03, 2018 | |
Restructuring and Related Activities [Abstract] | |
EXIT AND DISPOSAL ACTIVITIES | NOTE 7: EXIT AND DISPOSAL ACTIVITIES Fixed Assets The Company’s policy is to review the carrying value of all long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure impairment losses of fixed assets and leasehold improvements as the amount by which the carrying amount of a long-lived asset exceeds its fair value as prescribed by FASB ASC 360, “Impairment or Disposal of Long-Lived Assets.” In 2015, the Company recorded impairment charges for fixed assets and leasehold improvements related to 2014 and 2015 planned store closures. In 2016, the Company utilized all of the impairment charges related to the 2015 store closures and $0.2 million related to the 2014 store closures, leaving $0.5 million of impairment charges. None of the remaining $0.5 million impairment charges were utilized as of November 3, 2018. During fiscal 2016, the Company recorded impairment charges of $3.6 million for fixed asset impairments related to the corporate headquarters. None of the impairment charges relating to the corporate headquarters were utilized as of November 3, 2018. In the third quarter of 2017, in association with the planned closure of additional underperforming stores and pharmacies, the Company recorded charges in the amount of $0.8 million in selling, general and administrative expense for the impairment of fixed assets associated with the closing stores and pharmacies and $1.4 million for the accelerated recognition of amortization of intangible assets associated with the closing pharmacies. None of these charges were utilized as of November 3, 2018. In the fourth quarter of 2017, the Company recorded a charge of $1.1 million in selling, general and administrative expense for the impairment of fixed assets associated with several underperforming locations. None of the impairment charges relating to these assets were utilized as of November 3, 2018. Inventory As discussed in Note 3 - Inventories, we adjust inventory values on a consistent basis to reflect current market conditions. In accordance with FASB ASC 330, “Inventories,” Lease Termination For lease obligations related to closed stores, we record the estimated future liability associated with the rental obligation on the cease use date (when the stores were closed). The lease obligations are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs, as prescribed by FASB ASC 420, “ Exit or Disposal Cost Obligations In the first quarter of 2017, the Company recorded a lease liability relating to the 39 underperforming store closures in fiscal 2017 of $8.2 million. Additional $0.2 million reserve was recorded in the fourth quarter of 2017 and $2.1 million of reserve was utilized during the year, leaving $6.3 million reserve balance as of February 3, 2018. In the first three quarters of 2018, the Company utilized $1.7 million, leaving $4.6 million reserve balance as of November 3, 2018. The following table illustrates the exit and inventory related to store closures, inventory strategic initiatives along with the lease liability related to the planned store closures discussed in the previous paragraphs (in millions): Balance at Additions Utilization Ending Balance November 3, 2018 Impairment charge for the disposal of fixed assets for 2014 planned closures $ 0.5 $ — $ — $ 0.5 Impairment charge for the disposal of fixed assets for corporate office 3.6 — — 3.6 Impairment charge for the disposal of fixed assets for 2017 planned closures 0.8 — — 0.8 Impairment charge for the disposal of intangible assets for 2017 planned closures 1.4 — — 1.4 Impairment charge for the write down of fixed assets for underperforming stores 1.1 — — 1.1 Subtotal $ 7.4 $ — $ — $ 7.4 Lease contract termination liability, 2017 closures 6.3 (1.7 ) 4.6 Total $ 13.7 $ — $ (1.7 ) $ 12.0 |
ACCUMULATED OTHER COMPREHENSIVE
ACCUMULATED OTHER COMPREHENSIVE INCOME | 9 Months Ended |
Nov. 03, 2018 | |
Equity [Abstract] | |
ACCUMULATED OTHER COMPREHENSIVE INCOME | NOTE 8: ACCUMULATED OTHER COMPREHENSIVE INCOME Comprehensive income consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income pursuant to GAAP. The Company’s accumulated other comprehensive income includes the unrecognized prior service costs, transition obligations and actuarial gains/losses associated with our post-retirement benefit plan. The following table illustrates the activity in accumulated other comprehensive income: Thirteen Weeks Ended Year Ended (in thousands) November 3, 2018 October 28, 2017 February 03, 2018 Accumulated other comprehensive income $ 559 $ 466 $ 466 Amortization of post-retirement benefit — — 93 Ending balance $ 559 $ 466 $ 559 |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Nov. 03, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 9: RELATED PARTY TRANSACTIONS On April 10, 2015, the Company completed the acquisition of Reeves-Sain Drug Store, Inc., a provider of retail and specialty pharmaceutical services. As part of the total consideration for the purchase, Fred’s provided notes payable totaling $13.0 million to the sellers of Reeves-Sain Drug Store, Inc., who became employees of Fred’s as part of the acquisition. As of May 5, 2018, the sellers were former employees. The notes payable are due in three equal installments to be paid on January 31 st |
LEGAL CONTINGENCIES
LEGAL CONTINGENCIES | 9 Months Ended |
Nov. 03, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
LEGAL CONTINGENCIES | NOTE 10: LEGAL CONTINGENCIES On October 15, 2015, a lawsuit entitled Southern Independent Bank v. Fred’s, Inc. was filed in the U.S. District Court, Middle District of Alabama. The complaint includes allegations made by the plaintiff on behalf of itself and financial institutions similarly situated (“alleged class of financial institutions”) that the Company was negligent in failing to use reasonable care in obtaining, retaining, securing and deleting the personal and financial information of customers who use debit cards issued by the plaintiff and alleged class of financial institutions to make purchases at Fred’s stores. The complaint also includes allegations that the Company made negligent misrepresentations that the Company possessed and maintained adequate data security measures and systems that were sufficient to protect the personal and financial information of shoppers using debit cards issued by the plaintiff and alleged class of financial institutions. The complaint seeks monetary damages and equitable relief to be proved at trial as well as attorneys’ fees and costs. The Company has denied the allegations and has filed a motion to dismiss all claims. This motion has since been denied, and the Company filed a motion to reconsider by certifying the question to the Alabama Supreme Court for clarity. However, the Company’s motion was denied, and the Company has now completed discovery and is moving to trial. A motion for class certification is currently pending before the U.S. District Court, Middle District of Alabama. Future costs or liabilities related to the incident may have a material adverse effect on the Company. The Company has not made an accrual for future losses related to these claims at this time as the future losses are not considered probable. The Company has a cyber liability policy with a $10 million limit and $100,000 deductible. On July 27, 2016, a lawsuit entitled The State of Mississippi v. Fred’s Inc., et al was filed in the Chancery Court of Desoto County, Mississippi, Third Judicial District. The complaint alleges that the Company fraudulently reported their usual and customary prices to Mississippi’s Division of Medicaid in order to receive higher reimbursements for prescription drugs. The complaint seeks declaratory and monetary relief for the profits alleged to have been unfairly earned as well as attorney costs. The Company denies these allegations and believes it acted appropriately in its dealings with the Mississippi Division of Medicaid. The Company successfully filed a Motion to Transfer to Circuit Court. The State filed a Petition for Interlocutory Appeal with the Mississippi Supreme Court, but the Mississippi Supreme Court ruled in our favor and the case is now proceeding in Circuit Court. Future costs and liabilities related to this case may have a material adverse effect on the Company; however, the Company has not made an accrual for future losses related to these claims as it is not possible at this time to evaluate the likelihood of an unfavorable outcome or to estimate the amount or range of any potential loss. The Company has multiple insurance policies which the Company believes will limit its potential exposure. On September 29, 2016, the Company reported to the Office of Civil Rights (“OCR”) that an unencrypted laptop containing clinical and demographic data for 9,624 individuals had been stolen from an employee’s vehicle while the vehicle was parked at the employee’s residence. On January 13, 2017, the OCR opened an investigation into the incident. The Company has fully complied with the investigation and timely responded to all requests for information from the OCR. The Company received several supplemental requests for information from the OCR during the third and fourth fiscal quarters of 2018, to which the Company has timely responded. Future costs and liabilities related to this case may have a material adverse effect on the Company; however, the Company has not made an accrual for future losses related to these claims as future losses are not considered probable and an estimate is unavailable. On March 30, 2017, a lawsuit entitled Tiffany Taylor, individually and on behalf of others similarly situated, v. Fred’s Inc. and Fred’s Stores of Tennessee, Inc. was filed in the United Stated District Court for the Northern District of Alabama Southern Division. The complaint alleges that the Company wrongfully and willfully violated the Fair and Accurate Credit Transactions Act (“FACTA”). On April 11, 2017, a lawsuit entitled Melanie Wallace, Sascha Feliciano, and Heather Tyler, on behalf of themselves and all others similarly situated, v. Fred’s Stores of Tennessee, Inc. was filed in the Superior Court of Fulton County in the state of Georgia. The complaint alleges that the Company wrongfully and willfully violated FACTA. On April 13, 2017, a lawsuit entitled Lillie Williams and Cussetta Journey, on behalf of themselves and all others similarly situated, v. Fred’s Stores of Tennessee, Inc. was filed in the Superior Court of Fulton County in the state of Georgia. The complaint also alleges that the Company wrongfully and willfully violated FACTA. The complaints are filed as Class Actions, with the class being open for five (5) years before the date the complaint was filed. The complaint seeks statutory damages, attorney’s fees, punitive damages, an injunctive order, and other such relief that the court may deem just and equitable. The Company filed a Motion to Dismiss the Taylor complaint, and this Motion has been granted by the Court. Plaintiff’s counsel has appealed the Taylor complaint, which appeal is pending before the 11 th th th On March 3, 2018, a lawsuit entitled Abel Eddington and Judy Hudson, individually and on behalf of all others similarly situated, v. Fred’s Inc., and Fred’s Stores of Tennessee, Inc. was filed in the United States District Court Eastern District of Texas, Marshall Division. The complaint alleges that the Company committed various Federal and state wage and hours violations. The complaint is filed as Class Action and seeks back wages, attorneys’ fees, and all other damages allowable by law. The Company denies these allegations and believes it acted appropriately in its wage and hour calculations and payments. The Company and the named plaintiffs have reached an agreement in principle to settle the case for $250,000, including plaintiffs’ attorneys’ fees, and the Court has accepted the parties’ notice of settlement and cancelled all pending deadlines. The parties are currently negotiating the formal settlement agreement and preparing the related court filings. On March 16, 2018, a lawsuit entitled Roxie Whitley , individually and as next friend of Baby Z.B.D., and Chris and Diane Denson, individually and as next friends of Baby L.D.L., on behalf of themselves and all others similarly situated, v. Purdue Pharma L.P.; Purdue Pharma, Inc.; The Purdue Frederick Company, Inc.; McKesson Corporation; Cardinal Health, Inc.; AmeriSourceBergen Corporation; Teva Pharmaceutical Industries, Ltd.; Teva Pharmaceuticals USA, Inc.; Cephalon, Inc.; Johnson & Johnson; Janssen Pharmaceuticals, Inc.; Ortho-McNeil-Janssen Pharmaceuticals, Inc. n/k/a Janssen Pharmaceuticals, Inc.; Janssen Pharmaceuticals, Inc. n/k/a Janssen Pharmaceuticals, Inc.; Endo Health Solutions Inc.; Endo Pharmaceuticals, Inc; Allergan PLC; Watson Pharmaceuticals, Inc. n/k/a Actavis, Inc.; Watson Laboratories, Inc.; Actavis LLC; Actavis Pharma, Inc. f/k/a Watson Pharma, Inc.; and Fred’s Stores of Tennessee, Inc. was filed in the Circuit Court of Fayette County, Tennessee for the 25 th In addition to the matters disclosed above, the Company is party to several pending legal proceedings and claims arising in the normal course of business. Although the outcomes of these proceedings and claims against the Company cannot be determined with certainty, management of the Company is of the opinion that these proceedings and claims should not have a material adverse effect on the Company’s financial statements as a whole. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial statements as a whole. |
INDEBTEDNESS
INDEBTEDNESS | 9 Months Ended |
Nov. 03, 2018 | |
Debt Disclosure [Abstract] | |
INDEBTEDNESS | NOTE 11: INDEBTEDNESS On April 9, 2015, the Company entered into a Revolving Loan and Credit Agreement (the “Agreement”) with Regions Bank and Bank of America to replace the Company’s previous revolving credit facility. The proceeds were used to refinance amounts outstanding under the prior credit and to support acquisitions and the Company’s working capital needs. The Agreement initially provided for a $150.0 million secured revolving line of credit, including a sublimit for letters of credit and swingline loans. The Agreement, which expires on April 9, 2020, was amended effective January 30, 2017 to increase the loan commitment from $150.0 million to $225.0 million. On July 31, 2017, the Company amended the Agreement and related security agreement to: (i) increase the revolving loan commitment from $225 million to $270 million, (ii) increase the pharmacy scripts advance rate, (iii) revise the excess availability requirements for certain acquisitions, and (iv) add Bank of America as a co-collateral agent. Draws are limited to the lesser of the commitment amount or the borrowing base, which is periodically determined by reference to the value of certain receivables, inventory and scripts, less applicable reserves. The Company may choose to borrow at a spread to either LIBOR or a Base Rate. For LIBOR loans the spread ranges from 1.75% to 2.25% and for Base Rate loans the spread ranges from 0.75% to 1.25%. The spread depends on the level of excess availability. Commitment fees on the unused portion of the credit line are 37.5 basis points. The Agreement included an up-front credit facility fee which is being amortized over the Agreement term. There were $167.5 million of borrowings outstanding and $33.3 million, net of borrowings and letters of credit, remaining available under the Agreement at November 3, 2018. On October 15, 2018, the Company entered into the Third Amendment to the Amended and Restated Addendum to Credit Agreement (the “Third Amendment”). The Third Amendment amends the Company’s existing Amended and Restated Addendum to Credit Agreement, dated as of January 27, 2017, as amended as of July 31, 2017 and August 23, 2018. The Third Amendment does not otherwise amend the Credit Agreement dated as of April 9, 2015, as amended as of October 23, 2015, December 28, 2016, January 27, 2017, July 31, 2017, August 22, 2017, April 5, 2018 and August 23, 2018 (the “Credit Agreement”), or the Security Agreement, dated as of April 9, 2015, as amended as of July 31, 2017 and August 23, 2018 (the “Security Agreement”). Among other things, the Third Amendment increases the frequency of certain financial reporting obligations of the Company and its subsidiaries to the lenders that apply only during the period from October 15, 2018 until the earlier of November 30, 2018 and the date on which the Company fails to comply with such reporting obligations, reduces the excess availability requirements during such period, and increases the percentage of the projected value of customer prescription files under the borrowing base, potentially allowing for increased borrowing capability during such period. On August 23, 2018, the Company entered into the Seventh Amendment to Credit Agreement, Second Amendment to Amended and Restated Addendum to Credit Agreement and Second Amendment to Security Agreement (the “Amendment”). Among other changes, the Amendment decreases, at the Company’s request, the revolving loan commitment from $270.0 million to $210.0 million, permits certain sale-leaseback transactions, allows transfers of properties to non-Loan Party (as defined in the Credit Agreement) subsidiaries for financing and allows for the assumption of debt and financing for such transactions, permits the sale of real estate, other than distribution centers for fair market value and adds repurchases and redemption to the definition of restricted payments, which are limited under the restricted payments covenant. On December 19, 2016, the Company entered into a commitment letter with respect to a senior secured asset based loan facility (the “ABL Commitment Letter”), and a commitment letter with respect to a term loan facility (the “Term Loan Commitment Letter”); and on January 18, 2017, the Company entered into an amended and restated ABL Commitment Letter (the “Amended and Restated ABL Commitment Letter”). The Amended and Restated ABL Commitment Letter and the Term Loan Commitment Letter were entered into with lenders who agreed to provide $1.65 billion of debt financing to be used by the Company to fund its proposed acquisition of 865 stores, certain intellectual property and certain other tangible assets of Rite Aid Corporation. On June 9, 2017, the Company amended and restated the Amended and Restated ABL Commitment (the “Second Amended and Restated ABL Commitment Letter”), and the Term Loan Commitment Letter (the “Amended and Restated Term Loan Commitment Letter”) for the purpose of increasing the aggregate committed debt financing available thereunder to $2.2 billion. Upon termination of the Rite Aid Asset Purchase Agreement, as discussed in Note 1 above, the Company terminated the Second Amended and Restated ABL Commitment Letter and the Amended and Restated Term Loan Commitment Letter. In connection with such termination, the Company incurred applicable termination fees contemplated by the Second Amended and Restated ABL Commitment Letter and Amended and Restated Term Loan Commitment Letter, which were paid in the third quarter of 2017. In connection with the aforementioned commitment letters, the Company incurred approximately $30 million of debt issuance costs. These costs are reflected in SG&A in the Statement of Operations. The $25 million termination fee paid by Walgreens, on June 30, 2017, discussed in Note 1: Basis of Presentation, partially offset these costs. During the second and third quarter of fiscal 2007, the Company acquired the land and buildings, occupied by seven Fred’s stores which we had previously leased. In consideration for the seven properties, the Company assumed debt that has fixed interest rates from 6.31% to 7.40%. Mortgages remain on two locations with a combined balance of $1.5 million outstanding at November 3, 2018. The weighted average interest rate on mortgages outstanding at November 3, 2018 was 7.40%. The debt is collateralized by the land and buildings. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Nov. 03, 2018 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 12: INCOME TAXES The Company accounts for its income taxes in accordance with FASB ASC 740 “ Income Taxes |
SUBSEQUENT EVENT
SUBSEQUENT EVENT | 9 Months Ended |
Nov. 03, 2018 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENT | NOTE 13: SUBSEQUENT EVENT As described in Note 2, the Company entered into the Amended WBA Asset Purchase Agreement with Walgreen Co., an Illinois corporation, to sell certain prescription files and related data and records, retail pharmaceutical inventory, and certain other assets from 179 of the Company’s 346 retail pharmacy stores (such assets collectively referred to as “Retail Pharmacy”). The Company intends to transfer ownership of the Retail Pharmacy assets to Buyer in a series of ongoing closings, with the goal of completing the asset transfers in the first month of calendar year 2019. As of December 12, 2018, the Company had transferred to Walgreen Co. assets from 138 stores and had received cash proceeds of approximately $152.5 million for such assets, subject to $11.2 million in adjustments for the final inventory valuation as described in the Amended WBA Asset Purchase Agreement. The remaining transfers of such assets remain subject to certain customary closing conditions as specified in the Amended WBA Asset Purchase Agreement. |
BASIS OF PRESENTATION (Policies
BASIS OF PRESENTATION (Policies) | 9 Months Ended |
Nov. 03, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Fred’s, Inc. and its subsidiaries (“Fred’s”, “We”, “Our”, “Us” or the “Company”) operate, as of November 3, 2018, 589 discount general merchandise stores in fifteen states in the Southeastern United States. Included in the count of discount general merchandise stores are 11 franchised locations. There are 346 full service pharmacy departments (179 of which are now classified as Assets held-for-sale) located within our discount general merchandise stores, including one within franchised locations. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X and therefore do not include all information and notes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. The accompanying financial statements reflect all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of financial position in conformity with GAAP. The accompanying financial statements should be read in conjunction with the Notes to the Consolidated Financial Statements for the fiscal year ended February 3, 2018 included in our Annual Report on Form 10-K, which we filed with the Securities and Exchange Commission (the “SEC”) on May 4, 2018. We meet the SEC’s definition of a “Smaller Reporting Company,” and therefore qualify for the SEC’s reduced disclosure requirements for smaller reporting companies. During the fourth quarter of 2017, Fred’s Board of Directors approved a plan to actively market its specialty pharmacy business. The specialty pharmacy business met the criteria for “Assets held for Sale” in accordance with Accounting Standards Codification (“ASC”) Topic 360 (ASC 360), Property, Plant and Equipment, as of February 3, 2018. The specialty pharmacy assets and liabilities are reflected as “Assets held-for-sale” on the consolidated balance sheets in this report in accordance with ASC 360. In addition, the results of operations for the specialty pharmacy business have been presented in this report as discontinued operations in accordance with ASC 205-20, Results of Operations – Discontinued Operations for all periods presented. Amounts and percentages for all periods discussed below reflect the results of operations and financial condition from Fred’s continuing operations, unless otherwise noted. On May 4, 2018, Fred’s entered into an Asset Purchase Agreement (the “Specialty Asset Purchase Agreement”) with Advance Care Scripts, Inc. (the “Specialty Buyer”), pursuant to which the Specialty Buyer agreed to purchase certain specialty pharmacy assets of certain subsidiaries of Fred’s, National Pharmaceutical Network, Inc. and Reeves-Sain Drug Store, Inc. (collectively referred to as “Entrust”), consisting of three pharmacy locations, pharmaceutical inventory, and related intellectual property. The Specialty Buyer paid Fred’s $40.0 million for the purchased assets (plus up to an additional $5.5 million for inventory). On June 1, 2018, the sale of the specialty pharmacy assets was completed. See Note 2: Assets Held for Sale and Discontinued Operations for additional information. On September 7, 2018 the Company entered into an Asset Purchase Agreement with Walgreen Co., an Illinois corporation. On October 23, 2018, the Company entered into an amendment to the Asset Purchase Agreement (the “Amendment”). Under such Asset Purchase Agreement, as amended by the Amendment (the “Amended WBA Asset Purchase Agreement”), the Company agreed to sell certain prescription files and related data and records, retail pharmaceutical inventory, and certain other assets from 179 of the Company’s 346 retail pharmacy stores (such assets from such 179 retail pharmacy stores collectively referred to as “Retail Pharmacy”) for a cash purchase price of approximately $157 million plus an amount equal to the value of the inventory included in the Retail Pharmacy assets up to an approximately $35 million cap, in each case subject to certain adjustments. During the third quarter of 2018, the assets therefore met the criteria for “Assets held-for-sale” in accordance with ASC 360. Such assets have been reflected as “held-for-sale” on the consolidated balance sheets in accordance with ASC 360. In addition, the results of operations have been presented as discontinued operations in accordance with ASC 205-20, Results of Operations – Discontinued Operations for all periods presented. Amounts and percentages for all periods discussed below reflect the results of operations and financial condition from Fred’s continuing operations, unless otherwise noted. See Note 2: Assets Held for Sale and Discontinued Operations for additional information. Certain prior year amounts have been reclassified to conform to the 2018 presentation. Such reclassifications had no effect on previously reported net loss. The results of operations for the thirteen-week and thirty-nine week periods ended November 3, 2018 are not necessarily indicative of the results to be expected for the full fiscal year. All references in this Quarterly Report on Form 10-Q to 2017 and 2018 refer to the Company’s fiscal years ended February 3, 2018 and ending February 2, 2019, respectively. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. This ASU removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has evaluated all contracts and has implemented this standard and there was no material impact to the Company’s statement of position, results of operations, or statement of cash flow. |
Revenue Recognition | Revenue Recognition Sales The vast majority of Fred’s contracts with customers are made at the point of sale (POS) in the retail stores, and the performance obligation is the transfer of merchandise which is satisfied at POS when customer pays for merchandise and title transfers to them. 340B Revenues We evaluated principal versus agent considerations with regards to the 340B Direct program under ASC 606. Because Fred’s is primarily responsible for fulfilling the promise to provide the 340B Direct prescription drugs and assumes control of and risk for inventory prior to transfer of goods to the customer, including pricing apart from when determined by federal mandate, Fred’s recognizes revenue on a gross basis as principal for the 340B Direct program. Gift Card and Breakage When customers purchase gift cards, the sale is not recognized until the card is redeemed. The gift cards are not always fully redeemed and as such, the Company recognizes breakage. Based on the results from our historical breakage model, the Company defines the likelihood of redemption as remote after three years of no activity. Layaway Plans Store layaways are agreements with our customers to provide or deliver goods for a specified price at a future date. Layaway programs run annually for a duration of less than one year and are most popular during the Christmas seasons. Under the Company’s layaway plan, the customer is obligated to pay only the amount equivalent to the value of the good plus sales tax. The Company does not assess a layaway fee or interest but requires an upfront deposit. The customer does not take delivery of the merchandise until the full value is collected. Our performance obligation is the transfer of merchandise which is satisfied at the point of customer pick-up, not at transaction initiation. Any payments received prior to customer pick-up are considered advance payments and deferred and recognized when the performance obligation is satisfied. Layaway sales are deferred when the customer transaction is initiated and are recognized as revenue when the layaway merchandise is transferred. Disaggregated Revenues In the following table, consolidated sales are disaggregated by major merchandising category. Thirteen Weeks Ended Thirty-Nine Weeks Ended (in thousands) November 3, 2018 November 3, 2018 Pharmacy $ 203,570 $ 692,766 Consumables 119,086 380,993 Household Goods and Softlines 80,277 270,401 Franchise 3,711 9,367 Total $ 406,644 $ 1,353,527 |
Termination of Rite Aid Asset Purchase Agreement | Termination of Rite Aid Asset Purchase Agreement On December 19, 2016, Fred’s and its wholly-owned subsidiary, AFAE, LLC (“AFAE”), entered into an Asset Purchase Agreement (the “Rite Aid Asset Purchase Agreement”) with Rite Aid Corporation (“Rite Aid”) and Walgreens Boots Alliance, Inc. (“Walgreens”), pursuant to which AFAE agreed to purchase 865 stores, certain intellectual property and other tangible assets and to assume certain liabilities for a cash purchase price of $950 million. Pursuant to Section 8.01(g) of the Rite Aid Asset Purchase Agreement, each of AFAE, Walgreens or Rite Aid was permitted to terminate the Rite Aid Asset Purchase Agreement upon the termination of that certain Agreement and Plan of Merger, dated as of October 27, 2015, among Walgreens, Rite Aid and the other parties thereto (as amended, the “Merger Agreement”). On June 29, 2017, the Merger Agreement was terminated and, accordingly, the Rite Aid Asset Purchase Agreement was also terminated. In connection with the termination of the Rite Aid Asset Purchase Agreement, the Company received a termination fee payment of $25 million on June 30, 2017, which was recorded in selling, general and administrative expenses to offset the expenses incurred. See Note 11: Indebtedness for additional information relating to the termination of the Rite Aid Asset Purchase Agreement. |
BASIS OF PRESENTATION (Tables)
BASIS OF PRESENTATION (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Accounting Policies [Abstract] | |
Schedule of sales major classes merchandising category | In the following table, consolidated sales are disaggregated by major merchandising category. Thirteen Weeks Ended Thirty-Nine Weeks Ended (in thousands) November 3, 2018 November 3, 2018 Pharmacy $ 203,570 $ 692,766 Consumables 119,086 380,993 Household Goods and Softlines 80,277 270,401 Franchise 3,711 9,367 Total $ 406,644 $ 1,353,527 |
ASSETS HELD-FOR-SALE AND DISC_2
ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Assets Held-for-sale And Discontinued Operations | |
Schedule of major classes of assets and liabilities | The following table provides a reconciliation of the carrying amounts of major classes of assets and liabilities which are included in assets and liabilities held-for-sale in the accompanying consolidated balance sheet for each of the periods presented: Entrust Discontinued Retail Pharmacy Total Discontinued November 3, February 3, November 3, February 3, November 3, February 3, 2018 2018 2018 2018 2018 2018 (in thousands) (unaudited) (unaudited) (unaudited) Current assets: Receivables, less allowance for doubtful accounts $ — $ 15,983 $ — $ — $ — $ 15,983 Inventories — 3,756 13,849 15,344 13,849 19,100 Other non-trade receivables — 152 — — — 152 Prepaid expenses and other current assets — 12 — — — 12 Total current assets held-for-sale $ — $ 19,903 $ 13,849 $ 15,344 $ 13,849 $ 35,247 Property and equipment, less accumulated depreciation and amortization — 1,036 — — — 1,036 Goodwill — 30,609 — — — 30,609 Intangible assets, net — 9,533 16,471 20,541 16,471 30,074 Other noncurrent assets, net — 539 — — — 539 Total noncurrent assets held-for-sale $ — $ 41,717 $ 16,471 $ 20,541 $ 16,471 $ 62,258 Current liabilities: Accounts payable — 22,045 — — — 22,045 Accrued expenses and other — 4,527 — — — 4,527 Total current liabilities held-for-sale $ — $ 26,572 $ — $ — $ — $ 26,572 Deferred income taxes — — — — — — Other noncurrent liabilities — 48 — — — 48 Total noncurrent liabilities held-for-sale $ — $ 48 $ — $ — $ — $ 48 |
Schedule of discontinued operations | The following tables summarize the results of discontinued operations for the thirteen and thirty nine weeks ended November 3, 2018, and October 28, 2017, respectively: Discontinued Operations - Entrust For the Thirteen For the Thirty Nine (unaudited) (unaudited) November 3, October 28, November 3, October 28, (in thousands) 2018 2017 2018 2017 Net Sales $ — $ 68,168 $ 90,112 $ 205,626 Cost of goods sold — 66,238 88,454 196,097 Gross profit — 1,930 1,658 9,529 Depreciation and amortization — 631 796 2,010 Selling, general and administrative expenses — 2,763 12,398 8,424 Loss from discontinued operations — (1,464 ) (11,536 ) (905 ) Income tax expense — 394 — 244 Loss from discontinued operations, net of tax $ — $ (1,858 ) $ (11,536 ) $ (1,149 ) Discontinued Operations - Retail Pharmacy For the Thirteen For the Thirty Nine (unaudited) (unaudited) November 3, October 28, November 3, October 28, (in thousands) 2018 2017 2018 2017 Net Sales $ 100,403 $ 101,088 $ 298,933 $ 303,136 Cost of goods sold 80,948 78,432 241,695 230,847 Gross profit 19,455 22,656 57,238 72,289 Depreciation and amortization 616 1,751 4,071 5,549 Selling, general and administrative expenses 15,401 20,971 53,376 61,962 Income (loss) from discontinued operations 3,438 (66 ) (209 ) 4,778 Income tax (benefit) expense — (546 ) — 2,253 Income (loss) from discontinued operations, net of tax $ 3,438 $ 480 $ (209 ) $ 2,525 Total Discontinued Operations For the Thirteen For the Thirty Nine (unaudited) (unaudited) November 3, October 28, November 3, October 28, (in thousands) 2018 2017 2018 2017 Net Sales $ 100,403 $ 169,256 $ 389,045 $ 508,762 Cost of goods sold 80,948 144,670 330,149 426,944 Gross profit 19,455 24,586 58,896 81,818 Depreciation and amortization 616 2,382 4,867 7,559 Selling, general and administrative expenses 15,401 23,734 65,774 70,386 Income (loss) from discontinued operations 3,438 (1,530 ) (11,745 ) 3,873 Income tax (benefit) expense — (152 ) — 2,497 Income (loss) from discontinued operations, net of tax $ 3,438 $ (1,378 ) $ (11,745 ) $ 1,376 |
INVENTORIES (Tables)
INVENTORIES (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Inventory Disclosure [Abstract] | |
Schedule of inventory impairment charges | The following table illustrates the inventory impairment charges related to the inventory clearance initiatives discussed in the previous paragraph (in millions): Balance at February 3, 2018 Additions Utilization Ending Balance November 3, 2018 Inventory markdown on low-productive inventory (2016 initiatives) $ 1.7 — (1.7 ) $ — Inventory provision for freight capitalization expense (2016 initiatives) 0.1 — (0.1 ) — Inventory markdown on low-productive inventory (2017 initiatives) 3.3 — (2.7 ) 0.6 Inventory provision for freight capitalization expense (2017 initiatives) 1.0 — (1.0 ) 0.0 Total $ 6.1 $ — $ (5.5 ) $ 0.6 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of stock-based compensation | A summary of the Company’s stock-based compensation (a component of selling, general and administrative expenses) and related income tax benefit is as follows: Thirteen Weeks Ended Thirty Nine Weeks Ended (in thousands) November 3, 2018 October 28, 2017 November 3, 2018 October 28 Continuing Operations Stock option expense $ 215 $ 307 $ 709 $ 1,152 Restricted stock expense 226 1,059 1,976 3,026 ESPP expense — 244 — 428 Total stock-based compensation $ 441 $ 1,610 $ 2,685 $ 4,606 Income tax benefit on stock-based compensation $ 11 $ 414 $ 34 $ 1,192 Thirteen Weeks Ended Thirty Nine Weeks Ended (in thousands) November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Discontinued Operations Stock option expense $ 13 $ 50 $ 48 $ 174 Restricted stock expense 9 15 34 63 Total stock-based compensation $ 22 $ 65 $ 82 $ 237 Income tax benefit on stock-based compensation $ — $ — $ 4 $ 14 |
Schedule of stock option granted using the Black-Scholes option-pricing model | The fair value of each option granted during the thirteen and thirty-nine week periods ended November 3, 2018 and October 28, 2017 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: Thirteen Weeks Ended Thirty Nine Weeks Ended Continuing Operations November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Stock Options Expected volatility 0.0 % 46.1 % 0.0 % 41.7 % Risk-free interest rate 0.0 % 1.9 % 0.0 % 2.1 % Expected option life (in years) 0 5.84 0 5.84 Expected dividend yield 0.00 % 1.98 % 0.00 % 1.87 % Weighted average fair value at grant date $ — $ 2.44 $ — $ 4.11 Thirteen Weeks Ended Thirty Nine Weeks Ended Discontinued Operations November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Stock Options Expected volatility 0.0 % 0.0 % 0.0 % 43.1 % Risk-free interest rate 0.0 % 0.0 % 0.0 % 2.2 % Expected option life (in years) 0 0 0 5.84 Expected dividend yield 0.00 % 0.00 % 0.00 % 1.85 % Weighted average fair value at grant date $ — $ — $ — $ 4.89 Thirteen Weeks Ended Thirty Nine Weeks Ended November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017 Employee Stock Purchase Plan Expected volatility 0.0 % 86.1 % 0.0 % 82.2 % Risk-free interest rate 0.0 % 1.0 % 0.0 % 1.0 % Expected option life (in years) 0.00 0.75 0.00 0.50 Expected dividend yield 0.00 % 1.24 % 0.00 % 0.81 % Weighted average fair value at grant date $ — $ 7.95 $ — $ 6.86 |
Schedule of stock option activity | The following table summarizes stock option activity during the thirty-nine weeks ended November 3, 2018: Continuing Operations Options Weighted- Average Exercise Price Weighted-Average Contractual Life (years) Aggregate Intrinsic Value (000s) Outstanding at February 3, 2018 1,171,825 $ 13.12 5.1 $ — Granted — — Cancelled (537,254 ) 12.29 Exercised — — Outstanding at November 3, 2018 634,571 $ 13.83 4.4 $ — Exercisable at November 3, 2018 442,605 $ 14.60 4.2 — Discontinued Operations Options Weighted- Average Exercise Price Weighted-Average Contractual Life (years) Aggregate Intrinsic Value (000s) Outstanding at February 3, 2018 167,375 $ 14.23 5.4 $ — Granted — — Cancelled (158,984 ) 14.17 Exercised — — Outstanding at November 3, 2018 8,391 $ 15.44 4.5 $ — Exercisable at November 3, 2018 3,356 $ 15.44 4.5 $ — |
Schedule of restricted stock activity | The following table summarizes restricted stock activity during the thirty-nine weeks ended November 3, 2018: Continuing Operations Number of Shares Weighted-Average Grant Date Fair Value Non-vested Restricted Stock at February 3, 2018 653,895 $ 10.14 Granted 649,233 2.23 Forfeited / Cancelled (109,512 ) 10.68 Vested (413,630 ) 7.73 Non-vested Restricted Stock at November 3, 2018 779,986 $ 4.77 Discontinued Operations Number of Shares Weighted-Average Grant Date Fair Value Non-vested Restricted Stock at February 3, 2018 11,194 $ 15.35 Granted — — Forfeited / Cancelled (8,862 ) 14.95 Vested (2,332 ) 15.44 Non-vested Restricted Stock at November 3, 2018 — $ — |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Fair Value Disclosures [Abstract] | |
Schedule of fair value and carrying values for the revolving line of credit, notes payable and mortgage loans | The table below details the fair value and carrying values for the revolving line of credit, notes payable and mortgage loans as of the following dates: November 3, 2018 February 3, 2018 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Revolving line of credit $ 167,539 $ 167,539 $ 153,431 $ 153,431 Mortgage loans on land & buildings 1,531 1,615 1,579 1,684 Notes Payable 13,000 12,185 13,000 12,421 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property plant and equipment | The following illustrates the breakdown of the major categories within property and equipment (in thousands): (in thousands) Property and equipment, at cost: November 3, 2018 February 3, 2018 Buildings and building improvements $ 116,808 $ 119,039 Leasehold improvements 89,071 86,402 Automobiles and vehicles 3,772 4,525 Furniture, fixtures and equipment 288,346 286,962 497,997 496,928 Less: Accumulated depreciation and amortization (403,790 ) (390,633 ) 94,207 106,295 Construction in progress 2,447 590 Land 8,470 8,581 Total Property and equipment, at depreciated cost $ 105,124 $ 115,466 |
EXIT AND DISPOSAL ACTIVITIES (T
EXIT AND DISPOSAL ACTIVITIES (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Restructuring and Related Activities [Abstract] | |
Schedule of exit and disposal reserves | The following table illustrates the exit and inventory related to store closures, inventory strategic initiatives along with the lease liability related to the planned store closures discussed in the previous paragraphs (in millions): Balance at Additions Utilization Ending Balance November 3, 2018 Impairment charge for the disposal of fixed assets for 2014 planned closures $ 0.5 $ — $ — $ 0.5 Impairment charge for the disposal of fixed assets for corporate office 3.6 — — 3.6 Impairment charge for the disposal of fixed assets for 2017 planned closures 0.8 — — 0.8 Impairment charge for the disposal of intangible assets for 2017 planned closures 1.4 — — 1.4 Impairment charge for the write down of fixed assets for underperforming stores 1.1 — — 1.1 Subtotal $ 7.4 $ — $ — $ 7.4 Lease contract termination liability, 2017 closures 6.3 (1.7 ) 4.6 Total $ 13.7 $ — $ (1.7 ) $ 12.0 |
ACCUMULATED OTHER COMPREHENSI_2
ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables) | 9 Months Ended |
Nov. 03, 2018 | |
Equity [Abstract] | |
Schedule of accumulated other comprehensive income | The following table illustrates the activity in accumulated other comprehensive income: Thirteen Weeks Ended Year Ended (in thousands) November 3, 2018 October 28, 2017 February 03, 2018 Accumulated other comprehensive income $ 559 $ 466 $ 466 Amortization of post-retirement benefit — — 93 Ending balance $ 559 $ 466 $ 559 |
BASIS OF PRESENTATION (Details)
BASIS OF PRESENTATION (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended |
Nov. 03, 2018 | Nov. 03, 2018 | |
Total | $ 406,644 | $ 1,353,527 |
Pharmacy [Member] | ||
Total | 203,570 | 692,766 |
Consumables [Member] | ||
Total | 119,086 | 380,993 |
Household Goods and Softlines [Member] | ||
Total | 80,277 | 270,401 |
Franchise [Member] | ||
Total | $ 3,711 | $ 9,367 |
BASIS OF PRESENTATION (Details
BASIS OF PRESENTATION (Details Narrative) $ in Thousands | May 04, 2018USD ($) | Nov. 03, 2018USD ($)Number | Oct. 28, 2017USD ($) | Feb. 03, 2018USD ($) | Jun. 30, 2017USD ($) | Dec. 19, 2016USD ($)Number |
Number of stores | 589 | |||||
Number of pharmacy facilities | 3 | |||||
Number of states | 15 | |||||
Proceeds from of assets | $ | $ 2,203 | $ 1,276 | ||||
Inventory | $ | $ 236,066 | $ 263,831 | ||||
General Merchandise [Member] | ||||||
Number of stores | 12 | |||||
Number of retail Pharmacy stores | 179 | |||||
Number of pharmacy | 346 | |||||
Asset Purchase Agreement [Member] | Rite Aid Corporation & Walgreens Boots Alliance, Inc [Member] | ||||||
Number of stores | 865 | |||||
Total purchase consideration | $ | $ 950,000 | |||||
Termination fee received | $ | $ 25,000 | |||||
Asset Purchase Agreement [Member] | Advance Care Scripts, Inc. [Member] | Entrust Discontinued Operations [Member] | ||||||
Proceeds from of assets | $ | $ 40,000 | |||||
Asset Purchase Agreement [Member] | Advance Care Scripts, Inc. [Member] | Entrust Discontinued Operations [Member] | Maximum [Member] | ||||||
Inventory | $ | $ 5,500 |
ASSETS HELD-FOR-SALE AND DISC_3
ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS (Details) - USD ($) $ in Thousands | Nov. 03, 2018 | Feb. 03, 2018 |
Current assets: | ||
Receivables, less allowance for doubtful accounts | $ 15,983 | |
Inventories | 13,849 | 19,100 |
Other non-trade receivables | 152 | |
Prepaid expenses and other current assets | 12 | |
Total current assets held-for-sale | 13,849 | 35,247 |
Property and equipment, less accumulated depreciation and amortization | 1,036 | |
Goodwill | 30,609 | |
Intangible assets, net | 16,471 | 30,074 |
Other noncurrent assets, net | 539 | |
Total noncurrent assets held-for-sale | 16,471 | 62,258 |
Current liabilities: | ||
Accounts payable | 22,045 | |
Accrued expenses and other | 4,527 | |
Total current liabilities held-for-sale | 26,572 | |
Deferred income taxes | ||
Other noncurrent liabilities | 48 | |
Total noncurrent liabilities held-for-sale | 48 | |
Entrust Discontinued Operations [Member] | ||
Current assets: | ||
Receivables, less allowance for doubtful accounts | 15,983 | |
Inventories | 3,756 | |
Other non-trade receivables | 152 | |
Prepaid expenses and other current assets | 12 | |
Total current assets held-for-sale | 19,903 | |
Property and equipment, less accumulated depreciation and amortization | 1,036 | |
Goodwill | 30,609 | |
Intangible assets, net | 9,533 | |
Other noncurrent assets, net | 539 | |
Total noncurrent assets held-for-sale | 41,717 | |
Current liabilities: | ||
Accounts payable | 22,045 | |
Accrued expenses and other | 4,527 | |
Total current liabilities held-for-sale | 26,572 | |
Deferred income taxes | ||
Other noncurrent liabilities | 48 | |
Total noncurrent liabilities held-for-sale | 48 | |
Retail Pharmacy Discontinued Operations [Member] | ||
Current assets: | ||
Receivables, less allowance for doubtful accounts | ||
Inventories | 13,849 | 15,344 |
Other non-trade receivables | ||
Prepaid expenses and other current assets | ||
Total current assets held-for-sale | 13,849 | 15,344 |
Property and equipment, less accumulated depreciation and amortization | ||
Goodwill | ||
Intangible assets, net | 16,471 | 20,541 |
Other noncurrent assets, net | ||
Total noncurrent assets held-for-sale | 16,471 | 20,541 |
Current liabilities: | ||
Accounts payable | ||
Accrued expenses and other | ||
Total current liabilities held-for-sale | ||
Deferred income taxes | ||
Other noncurrent liabilities | ||
Total noncurrent liabilities held-for-sale |
ASSETS HELD-FOR-SALE AND DISC_4
ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS (Details 1) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Nov. 03, 2018 | Oct. 28, 2017 | Nov. 03, 2018 | Oct. 28, 2017 | |
Net Sales | $ 100,403 | $ 169,256 | $ 389,045 | $ 508,762 |
Cost of goods sold | 80,948 | 144,670 | 330,149 | 426,944 |
Gross profit | 19,455 | 24,586 | 58,896 | 81,818 |
Depreciation and amortization | 616 | 2,382 | 4,867 | 7,559 |
Selling, general and administrative expenses | 15,401 | 23,734 | 65,774 | 70,386 |
Income (loss) from discontinued operations, net of tax | 3,438 | (1,530) | (11,745) | 3,873 |
Income tax expense (benefit) | (152) | 2,497 | ||
Income (loss) from discontinued operations | 3,438 | (1,377) | (11,745) | 1,376 |
Entrust Discontinued Operations [Member] | ||||
Net Sales | 68,168 | 90,112 | 205,626 | |
Cost of goods sold | 66,238 | 88,454 | 196,097 | |
Gross profit | 1,930 | 1,658 | 9,529 | |
Depreciation and amortization | 631 | 796 | 2,010 | |
Selling, general and administrative expenses | 2,763 | 12,398 | 8,424 | |
Income (loss) from discontinued operations, net of tax | (1,464) | (11,536) | (905) | |
Income tax expense (benefit) | 394 | 244 | ||
Income (loss) from discontinued operations | (1,858) | (11,536) | (1,149) | |
Retail Pharmacy Discontinued Operations [Member] | ||||
Net Sales | 100,403 | 101,088 | 298,933 | 303,136 |
Cost of goods sold | 80,948 | 78,432 | 241,695 | 230,847 |
Gross profit | 19,455 | 22,656 | 57,238 | 72,289 |
Depreciation and amortization | 616 | 1,751 | 4,071 | 5,549 |
Selling, general and administrative expenses | 15,401 | 20,971 | 53,376 | 61,962 |
Income (loss) from discontinued operations, net of tax | 3,438 | (66) | (209) | 4,778 |
Income tax expense (benefit) | (546) | 2,253 | ||
Income (loss) from discontinued operations | $ 3,438 | $ 480 | $ (209) | $ 2,525 |
ASSETS HELD-FOR-SALE AND DISC_5
ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS (Details Narrative) $ in Thousands | May 04, 2018USD ($) | Nov. 03, 2018USD ($) | Oct. 28, 2017USD ($) | Nov. 03, 2018USD ($) | Oct. 28, 2017USD ($) | Oct. 23, 2018USD ($)Number | Feb. 03, 2018USD ($) |
Income (loss) from discontinued operations | $ 3,438 | $ (1,377) | $ (11,745) | $ 1,376 | |||
Proceeds from of assets | 2,203 | 1,276 | |||||
Amount equal to value of inventory | 236,066 | 236,066 | $ 263,831 | ||||
Entrust Discontinued Operations [Member] | |||||||
Income (loss) from discontinued operations | (1,858) | (11,536) | (1,149) | ||||
Retail Pharmacy Discontinued Operations [Member] | |||||||
Income (loss) from discontinued operations | $ 3,438 | $ 480 | $ (209) | $ 2,525 | |||
Asset Purchase Agreement [Member] | Advance Care Scripts, Inc. [Member] | Entrust Discontinued Operations [Member] | |||||||
Proceeds from of assets | $ 40,000 | ||||||
Asset Purchase Agreement [Member] | Advance Care Scripts, Inc. [Member] | Entrust Discontinued Operations [Member] | Maximum [Member] | |||||||
Amount equal to value of inventory | $ 5,500 | ||||||
Amended WBA Asset Purchase Agreement [Member] | Walgreen Co., an Illinois corporation [Member] | |||||||
Number of retail pharmacy sold | Number | 179 | ||||||
Number of pharmacy | Number | 346 | ||||||
Total purchase consideration | $ 157,000 | ||||||
Amended WBA Asset Purchase Agreement [Member] | Maximum [Member] | Walgreen Co., an Illinois corporation [Member] | |||||||
Amount equal to value of inventory | $ 35,000 |
INVENTORIES (Details)
INVENTORIES (Details) $ in Thousands | 9 Months Ended |
Nov. 03, 2018USD ($) | |
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | |
Balance at beginning | $ 6,100 |
Additions | |
Utilization | (5,500) |
Balance at ending | 600 |
Inventory Markdown on Low Productive Inventory (2016 Initiatives) [Member] | |
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | |
Balance at beginning | 1,700 |
Additions | |
Utilization | (1,700) |
Balance at ending | |
Inventory Provision For Freight Capitalization Expense (2016 Initiatives) [Member] | |
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | |
Balance at beginning | 100 |
Additions | |
Utilization | (100) |
Balance at ending | |
Inventory Markdown on Low Productive Inventory (2017 Initiatives) [Member] | |
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | |
Balance at beginning | 3,300 |
Additions | |
Utilization | (2,700) |
Balance at ending | 600 |
Inventory Provision For Freight Capitalization Expense (2017 Initiatives) [Member] | |
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | |
Balance at beginning | 1,000 |
Additions | |
Utilization | (1,000) |
Balance at ending | $ 0 |
INVENTORIES (Details Narrative)
INVENTORIES (Details Narrative) - USD ($) $ in Thousands | Feb. 05, 2018 | Nov. 03, 2018 | Feb. 03, 2018 | Jan. 28, 2017 |
Inventory | $ 236,066 | $ 263,831 | ||
Inventory adjustments | 15,600 | $ 13,000 | ||
Freight capitalization expense | 1,300 | $ 1,600 | ||
Inventory impairment | 600 | 6,100 | ||
Inventory (2016 Initiatives) [Member] | ||||
Inventory adjustments | $ 1,800 | 1,800 | ||
Freight capitalization expense | 100 | 100 | ||
Inventory impairment | 1,800 | |||
Inventory (2017 Initiatives) [Member] | ||||
Inventory adjustments | 4,300 | 600 | ||
Freight capitalization expense | $ 1,000 | 1,000 | ||
Inventory impairment | 3,700 | |||
Merchandise Inventory [Member] | ||||
Procurement and storage costs and inbound freight cost | 17,600 | 17,200 | ||
Pharmacy Department [Member] | ||||
Inventory | 14,600 | 18,000 | ||
LIFO inventory amount | $ 27,600 | $ 28,800 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - Selling, General and Administrative Expenses [Member] - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Nov. 03, 2018 | Oct. 28, 2017 | Nov. 03, 2018 | Oct. 28, 2017 | |
Continuing Operations [Member] | ||||
Total stock-based compensation | $ 441 | $ 1,610 | $ 2,685 | $ 4,606 |
Income tax benefit on stock-based compensation | 11 | 414 | 34 | 1,192 |
Continuing Operations [Member] | 2004 Employee Stock Purchase Plan [Member] | ||||
Total stock-based compensation | 244 | 428 | ||
Continuing Operations [Member] | Stock Option [Member] | ||||
Total stock-based compensation | 215 | 307 | 709 | 1,152 |
Continuing Operations [Member] | Restricted Stock [Member] | ||||
Total stock-based compensation | 226 | 1,059 | 1,976 | 3,026 |
Discontinued Operations [Member] | ||||
Total stock-based compensation | 22 | 65 | 82 | 237 |
Income tax benefit on stock-based compensation | 4 | 14 | ||
Discontinued Operations [Member] | Stock Option [Member] | ||||
Total stock-based compensation | 13 | 50 | 48 | 174 |
Discontinued Operations [Member] | Restricted Stock [Member] | ||||
Total stock-based compensation | $ 9 | $ 15 | $ 34 | $ 63 |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details 1) - $ / shares | 3 Months Ended | 9 Months Ended | ||
Nov. 03, 2018 | Oct. 28, 2017 | Nov. 03, 2018 | Oct. 28, 2017 | |
Continuing Operations [Member] | Stock Option [Member] | ||||
Expected volatility | 0.00% | 46.10% | 0.00% | 41.70% |
Risk-free interest rate | 0.00% | 1.90% | 0.00% | 2.10% |
Expected option life (in years) | 0 months | 5 years 10 months 2 days | 0 months | 5 years 10 months 2 days |
Expected dividend yield | 0.00% | 1.98% | 0.00% | 1.87% |
Weighted average fair value at grant date | $ 2.44 | $ 4.11 | ||
Discontinued Operations [Member] | Stock Option [Member] | ||||
Expected volatility | 0.00% | 0.00% | 0.00% | 43.10% |
Risk-free interest rate | 0.00% | 0.00% | 0.00% | 2.20% |
Expected option life (in years) | 0 months | 0 months | 0 months | 5 years 10 months 2 days |
Expected dividend yield | 0.00% | 0.00% | 0.00% | 1.85% |
Weighted average fair value at grant date | $ 4.89 | |||
2004 Employee Stock Purchase Plan [Member] | ||||
Expected volatility | 0.00% | 86.10% | 0.00% | 82.20% |
Risk-free interest rate | 0.00% | 1.00% | 0.00% | 1.00% |
Expected option life (in years) | 0 months | 9 months | 0 months | 6 months |
Expected dividend yield | 0.00% | 1.24% | 0.00% | 0.81% |
Weighted average fair value at grant date | $ 7.95 | $ 6.86 |
STOCK-BASED COMPENSATION (Det_3
STOCK-BASED COMPENSATION (Details 2) - Stock Option [Member] | 9 Months Ended |
Nov. 03, 2018USD ($)$ / sharesshares | |
Continuing Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |
Outstanding, beginning | shares | 1,171,825 |
Granted | shares | |
Cancelled | shares | (537,254) |
Exercised | shares | |
Outstanding, ending | shares | 634,571 |
Exercisable, ending | shares | 442,605 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | |
Outstanding, beginning | $ / shares | $ 13.12 |
Granted | $ / shares | |
Cancelled | $ / shares | 12.29 |
Exercised | $ / shares | |
Outstanding, ending | $ / shares | 13.83 |
Exercisable, ending | $ / shares | $ 14.60 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Weighted Average Remaining Contractual Life [Roll Forward] | |
Outstanding, beginning | 5 years 1 month 6 days |
Outstanding, ending | 4 years 5 months 24 days |
Exercisable, ending | 4 years 4 months 12 days |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Aggregate Intrinsic Value [Roll Forward] | |
Outstanding, beginning | $ | |
Outstanding, ending | $ | |
Exercisable, ending | $ | |
Discontinued Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |
Outstanding, beginning | shares | 167,375 |
Granted | shares | |
Cancelled | shares | (158,984) |
Exercised | shares | |
Outstanding, ending | shares | 8,391 |
Exercisable, ending | shares | 3,356 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | |
Outstanding, beginning | $ / shares | $ 14.23 |
Granted | $ / shares | |
Cancelled | $ / shares | 14.17 |
Exercised | $ / shares | |
Outstanding, ending | $ / shares | 15.44 |
Exercisable, ending | $ / shares | $ 15.44 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Weighted Average Remaining Contractual Life [Roll Forward] | |
Outstanding, beginning | 5 years 4 months 24 days |
Outstanding, ending | 4 years 6 months |
Exercisable, ending | 4 years 6 months |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Aggregate Intrinsic Value [Roll Forward] | |
Outstanding, beginning | $ | |
Outstanding, ending | $ | |
Exercisable, ending | $ |
STOCK-BASED COMPENSATION (Det_4
STOCK-BASED COMPENSATION (Details 3) - Restricted Stock [Member] | 9 Months Ended |
Nov. 03, 2018$ / sharesshares | |
Continuing Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares [Roll Forward] | |
Non-vested Restricted Stock at Beginning | shares | 653,895 |
Granted | shares | 649,233 |
Forfeited / Cancelled | shares | (109,512) |
Vested | shares | (413,630) |
Non-vested Restricted Stock at Ending | shares | 779,986 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward] | |
Non-vested Restricted Stock at Beginning | $ / shares | $ 10.14 |
Granted | $ / shares | 2.23 |
Forfeited / Cancelled | $ / shares | 10.68 |
Vested | $ / shares | 7.73 |
Non-vested Restricted Stock at Ending | $ / shares | $ 4.77 |
Discontinued Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares [Roll Forward] | |
Non-vested Restricted Stock at Beginning | shares | 11,194 |
Granted | shares | |
Forfeited / Cancelled | shares | (8,862) |
Vested | shares | (2,332) |
Non-vested Restricted Stock at Ending | shares | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward] | |
Non-vested Restricted Stock at Beginning | $ / shares | $ 15.35 |
Granted | $ / shares | |
Forfeited / Cancelled | $ / shares | 14.95 |
Vested | $ / shares | 15.44 |
Non-vested Restricted Stock at Ending | $ / shares |
STOCK-BASED COMPENSATION (Det_5
STOCK-BASED COMPENSATION (Details Narrative) | 9 Months Ended |
Nov. 03, 2018USD ($)shares | |
Stock Option [Member] | Continuing Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of shares granted | shares | |
Unrecognized compensation expense | $ 1,000,000 |
Recognized weighted average period | 3 years |
Fair value of awards vested | $ 146,300 |
Stock Option [Member] | Discontinued Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of shares granted | shares | |
Fair value of awards vested | $ 10,300 |
Stock Option [Member] | Minimum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expiration term | 7 years |
Stock Option [Member] | Maximum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expiration term | 10 years |
Restricted Stock [Member] | Continuing Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Unrecognized compensation expense | $ 2,200,000 |
Recognized weighted average period | 2 years 11 months 24 days |
Intrinsic value | $ 2,300,000 |
Weighted average remaining contractual life | 8 years 7 months 6 days |
Fair value of awards vested | $ 3,200,000 |
Restricted Stock [Member] | Discontinued Operations [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Fair value of awards vested | $ 40,000 |
2004 Employee Stock Purchase Plan [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of shares authorized | shares | 1,410,928 |
Number of shares available for grant | shares | 595,681 |
Description of plan | Purchase shares of our common stock through payroll deductions at the lower of 85% of the fair market value of the stock at the time of grant, or 85% of the fair market value at the time of exercise. |
Number of shares granted | shares | 0 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands | Nov. 03, 2018 | Feb. 03, 2018 |
Secured Revolving Line of Credit [Member] | ||
Short-term Debt [Line Items] | ||
Carrying Value | $ 167,539 | $ 153,431 |
Fair Value | 167,539 | 153,431 |
Mortgage Loans on Land and Buildings [Member] | ||
Short-term Debt [Line Items] | ||
Carrying Value | 1,531 | 1,579 |
Fair Value | 1,615 | 1,684 |
Notes Payable [Member] | ||
Short-term Debt [Line Items] | ||
Carrying Value | 13,000 | 13,000 |
Fair Value | $ 12,185 | $ 12,421 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands | Nov. 03, 2018 | Feb. 03, 2018 |
Property and equipment, at cost: | ||
Property and equipment, gross | $ 497,997 | $ 496,928 |
Less: Accumulated depreciation and amortization | (403,790) | (390,633) |
Property and equipment before construction in progress and land | 94,207 | 106,295 |
Construction in progress | 2,447 | 590 |
Land | 8,470 | 8,581 |
Total Property and equipment, at depreciated cost | 105,124 | 115,466 |
Buildings and Building Improvements [Member] | ||
Property and equipment, at cost: | ||
Property and equipment, gross | 116,808 | 119,039 |
Leasehold Improvements [Member] | ||
Property and equipment, at cost: | ||
Property and equipment, gross | 89,071 | 86,402 |
Automobiles and Vehicles [Member] | ||
Property and equipment, at cost: | ||
Property and equipment, gross | 3,772 | 4,525 |
Furniture, Fixtures and Equipment [Member] | ||
Property and equipment, at cost: | ||
Property and equipment, gross | $ 288,346 | $ 286,962 |
EXIT AND DISPOSAL ACTIVITIES (D
EXIT AND DISPOSAL ACTIVITIES (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | |
Feb. 03, 2018 | Apr. 29, 2017 | Nov. 03, 2018 | Feb. 03, 2018 | |
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | $ 13,700 | |||
Additions | ||||
Utilization | (1,700) | |||
Ending Balance | $ 13,700 | 12,000 | $ 13,700 | |
Impairment Charge for the Disposal of Fixed Assets for 2014 Planned Closures [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 500 | |||
Additions | ||||
Utilization | ||||
Ending Balance | 500 | 500 | 500 | |
Impairment Charge for the Disposal of Fixed Assets for Corporate Office [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 3,600 | |||
Additions | ||||
Utilization | ||||
Ending Balance | 3,600 | 3,600 | 3,600 | |
Impairment Charge for the Disposal of Fixed Assests for 2017 Planned Closures [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 800 | |||
Additions | ||||
Utilization | ||||
Ending Balance | 800 | 800 | 800 | |
Impairment Charge for the Disposal of Intangible Assests for 2017 Planned Closures [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 1,400 | |||
Additions | ||||
Utilization | ||||
Ending Balance | 1,400 | 1,400 | 1,400 | |
Impairment Charge for the Write Down of Fixed Assets for Underperforming Stores [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 1,100 | |||
Additions | ||||
Utilization | ||||
Ending Balance | 1,100 | 1,100 | 1,100 | |
Subtotal [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 7,400 | |||
Additions | ||||
Utilization | ||||
Ending Balance | 7,400 | 7,400 | 7,400 | |
Lease Contract Termination Liability, 2017 Closures [Member] | ||||
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items] | ||||
Beginning Balance | 6,300 | |||
Additions | 200 | $ 8,200 | ||
Utilization | (1,700) | (2,100) | ||
Ending Balance | $ 6,300 | $ 4,600 | $ 6,300 |
EXIT AND DISPOSAL ACTIVITIES _2
EXIT AND DISPOSAL ACTIVITIES (Details Narrative) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Feb. 03, 2018USD ($) | Oct. 28, 2017USD ($) | Apr. 29, 2017USD ($)Number | Nov. 03, 2018USD ($) | Oct. 28, 2017USD ($) | Feb. 03, 2018USD ($) | |
Asset impairment charges | $ 1,772 | $ 20,783 | ||||
Additions lease contract termination liability | ||||||
Utilization Lease contract termination liability | 1,700 | |||||
Lease contract termination liability | $ 13,700 | 12,000 | $ 13,700 | |||
Lease Contract Termination Liability, 2017 Closures [Member] | ||||||
Number of underperforming stores | Number | 39 | |||||
Additions lease contract termination liability | 200 | $ 8,200 | ||||
Utilization Lease contract termination liability | 1,700 | 2,100 | ||||
Lease contract termination liability | 6,300 | 4,600 | $ 6,300 | |||
2014 Store Closures [Member] | ||||||
Asset impairment charges | 200 | |||||
Store Closures [Member] | ||||||
Asset impairment charges | 500 | |||||
2014 Store Closures [Member] | ||||||
Asset impairment charges | 500 | |||||
Corporate Headquarters [Member] | ||||||
Asset impairment charges | $ 3,600 | |||||
2016 Store Closures [Member] | ||||||
Asset impairment charges | 1,100 | $ 800 | ||||
Additions lease contract termination liability | 200 | |||||
Utilization Lease contract termination liability | $ 2,100 | |||||
Pharmacy closures [Member] | ||||||
Amortization of intangible assets | $ 1,400 |
ACCUMULATED OTHER COMPREHENSI_3
ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |
Nov. 03, 2018 | Oct. 28, 2017 | Feb. 03, 2018 | |
Equity [Abstract] | |||
Accumulated other comprehensive income | $ 559 | $ 466 | $ 466 |
Amortization of post-retirement benefit | 93 | ||
Ending balance | $ 559 | $ 466 | $ 559 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - Reeves-Sain Drug Store, Inc [Member] $ in Thousands | Apr. 10, 2015USD ($) |
Adjusted purchase consideration in notes payable | $ 13,000 |
Description of notes payable | Three equal installments to be paid on January 31st of 2021, 2022 and 2023. |
LEGAL CONTINGENCIES (Details Na
LEGAL CONTINGENCIES (Details Narrative) - USD ($) | 9 Months Ended | |
Oct. 28, 2017 | Mar. 03, 2018 | |
Defined Contribution Plan Disclosure [Line Items] | ||
General liability policy limit | $ 10,000,000 | |
Agreement [Member] | ||
Defined Contribution Plan Disclosure [Line Items] | ||
Principle to settle the case | $ 250,000 | |
First Tennessee Bank National Association [Member] | ||
Defined Contribution Plan Disclosure [Line Items] | ||
General liability deductible amount | $ 100,000 |
INDEBTEDNESS (Details Narrative
INDEBTEDNESS (Details Narrative) $ in Thousands | Jun. 30, 2017USD ($) | Apr. 09, 2015USD ($) | Nov. 03, 2018USD ($)Number | Oct. 28, 2017USD ($) | Aug. 23, 2018USD ($) | Jul. 31, 2017USD ($) | Jun. 09, 2017USD ($) | Jan. 30, 2017USD ($) | Dec. 19, 2016Number | Jul. 29, 2007 |
Weighted average interest rate | 7.40% | |||||||||
Purchase of mortgage debt | $ 1,500 | |||||||||
Description of collateral | Land and buildings. | |||||||||
Number of stores | Number | 589 | |||||||||
Minimum [Member] | ||||||||||
Fixed interest rates | 6.31% | |||||||||
Maximum [Member] | ||||||||||
Fixed interest rates | 7.40% | |||||||||
Walgreens Boots Alliance, Inc. [Member] | Asset Purchase Agreement [Member] | ||||||||||
Agreement termination fees | $ 25,000 | |||||||||
Commitment Letters [Member] | Lenders [Member] | Rite Aid Corporation [Member] | ||||||||||
Debt issuance costs | $ 30,000 | |||||||||
Number of stores | Number | 865 | |||||||||
Face amount | $ 2,200,000 | |||||||||
Revolving Line of Credit [Member] | ||||||||||
Maximum line of credit | $ 150,000 | $ 270,000 | $ 225,000 | |||||||
Maturity date of agreement | Apr. 9, 2020 | |||||||||
Commitment fees for unused portion | 3.75% | |||||||||
Current borrowing line of credit | $ 167,500 | |||||||||
Aggregate line of credit | $ 33,300 | |||||||||
Revolving Line of Credit [Member] | London Interbank Offered Rate (LIBOR) [Member] | ||||||||||
Description of variable rate basis | The Company may choose to borrow at a spread to either LIBOR or a Base Rate. For LIBOR loans the spread ranges from 1.75% to 2.25% and for Base Rate loans the spread ranges from 0.75% to 1.25%. | |||||||||
Seventh Amendment Line of Credit [Member] | ||||||||||
Maximum line of credit | $ 210,000 |
SUBSEQUENT EVENT (Details Narra
SUBSEQUENT EVENT (Details Narrative) $ in Thousands | Dec. 12, 2018USD ($)Number | Nov. 03, 2018USD ($)Number | Oct. 28, 2017USD ($) |
Subsequent Event [Line Items] | |||
Proceeds from of assets | $ | $ 2,203 | $ 1,276 | |
Number of stores | Number | 589 | ||
Asset Purchase Agreement [Member] | Subsequent Event [Member] | Walgreen Co., an Illinois corporation [Member] | |||
Subsequent Event [Line Items] | |||
Proceeds from of assets | $ | $ 152,500 | ||
Number of stores | Number | 138 | ||
Number of retail pharmacy stores | Number | 346 | ||
Adjustments of final inventory valuation | $ | $ 11,200 |