Chillin' out till it needs to be funded
So far, it’s shaping up to be a dreadful year for the retail industry. American shoppers generally soldier on through thick and thin. “But sales are down 2.5 percent in the first four months of 2009,” says Michael Niemira, chief economist at the International Council of Shopping Centers. The fancier the store, the uglier the results. Sales at Tiffany’s Fifth Avenue flagship were off 42 percent in the most recent quarter.
It’s also been an ugly period for the private-equity honchos who toil in offices a gemstone’s throw from Tiffany’s. The executives at the Blackstone Group and Kohlberg Kravis & Roberts (KKR), it turned out, were no smarter than the rest of us. In 2006 and 2007 they used loads of debt to purchase huge, cyclical companies at absurd valuations. Many of those firms are now struggling. Things are getting so bad that some private-equity barons may be forced to sell their seventh homes.
In late May, KKR reported that it lost $1.2 billion in 2008. As of March 31, 2009, the value of the five large companies on which it closed in 2007 was off 20 to 50 percent. Only one of KKR’s 2007 mega-deals was in the black. And it couldn’t be farther away—geographically, socioeconomically, culturally—from KKR’s Manhattan headquarters at 9 West 57th Street. It’s Dollar General, the largest of the thriving chains of 99-cent stores. At Dollar Tree, Inc. (3,667 stores), earnings were up nearly 38 percent in the most recent quarter. In its most recent quarter, Family Dollar Stores (6,654 stores) said same-store sales were up 6.2 percent. Both companies’ stocks are higher than they were when the market peaked in October 2007. But Dollar General (8,400 stores, $10.5 billion in 2008 sales) is performing even better. KKR says the value of its stake in the company is up 30.8 percent since July 2007, when KKR and several other partners completed the $7.3 billion acquisition, just as the fat lady was singing her final leveraged aria.