Retailers just skating by might have no choice but to file for bankruptcy if holiday sales failed to get them back in the black.
Bed Bath & Beyond is already under the microscope in the earliest days of the new year. Sources said the ailing home goods retailer could file for bankruptcy before its new fiscal year begins next month. The Union, N.J.-based chain tops most retail restructuring professionals’ watchlists of retailers teetering on the brink.
Though bankruptcies help companies wiggle out of weighty debts, they don’t necessarily come cheap, especially when filers need to call in financial, legal, restructuring and investment banking expertise while worrying about paying creditors too. This is why many retail bankruptcies come in January when companies .have cash from holiday sales in the bank before before debtor-in-possession (DIP) financing is in place. Retailers this year might try to wait a few extra weeks before filing to squeeze a little more money out of January sales after a discount-heavy holiday.
Last year’s bankruptcy slowdown could set the stage for an uptick in the months ahead.
U.S. corporate bankruptcy filings fell to a 13-year low in 2022 with just 391 cases landing in courts. But activity picked up in December, when filings climbed to 49 from 31 in November, according to S&P Global Market Intelligence’s monthly bankruptcy tracker
Industrials had the most filings last year at 59 cases, followed by consumer discretionary at 54. In retail, Sears Hometown Stores filed on Dec. 12 and United Furniture Industries faced an involuntary Chapter 7 case filed by Wells Fargo and two suppliers. The defunct furniture company filed its own Chapter 11 petition on Friday.
David Berliner, restructuring and turnaround services partner at BDO, doesn’t believe 2023 filings will “approach the level of what we saw in the past few years,” namely the blockbuster bankruptcies that marked the pandemic’s earliest months back in 2020.
Bed Bath & Beyond’s years-long struggles reached fever pitch when company shares achieved meme-stock status last year and former finance chief Gustavo Arnal took his own life just days after the chain announced a sweeping restructuring involving massive job cuts, store closures and a private-label overhaul.
Sales have been sagging for several quarters running. Bed Bath & Beyond quickly dismissed former CEO Mark Tritton after last year’s first-quarter showed net losses ballooning to $358 million from a $51 million net loss in the comparable prior-year quarter. The second quarter wasn’t any better as a $366 million net loss marked a massive explosion from the prior comp period’s $73 million net loss.
Bed Bath Beyond was also blowing through a lot of cash, nearly $500 million in the first quarter, S&P reported last year. It also had trouble convincing people to buying the stuff it was trying to sell. Some vendors eventually stopped shipping their wholesale products to Bed Bath & Beyond, igniting concerns that a bankruptcy was more likely than not.
Troubled retailera Joann’s Fabrics and Party City are perennially on the bankruptcy radar. Contemporary fashion seller Vince Holding Corp. doesn’t have the best credit but it could avoid bankruptcy if it manages to find a buyer.
Luxury consignment retailer The RealReal is also a name that’s been mentioned as a possible bankruptcy filer. Express Inc. often comes up to, though the $400 million licensing deal it secured with brand management firm WHP Global last month gives it a bit of breathing room.
Digital Brands Group (DBG) is another to keep an eye on. Like Vince, it too has been on S&P’s list of most vulnerable retailers. The owner of fashion brands ACE Studios, Stateside, Bailey 44, DSTLD and Harper & Jones went public in May 2021. Just a year later, it said it could file for bankruptcy if it didn’t find new capital. While it hasn’t gotten any new investments, it postponed plans to acquire women’s fashion brand Sundry. The deal, first announced in January 2022, was a cash-and-stock scheme for $34 million and $7.5 million, respectively. In October, the deal was restructured to $7.5 million in cash, $1 million in equity and $5.5 million in debt to the sellers. To pay for the deal, DGB closed on a $10 million public stock offering on Dec. 1. A portion of the proceeds were earmarked to repay outstanding debts, DBG said.
On the home goods front, Tuesday Morning represents what can happen bankruptcy fails to address all of the retailer’s problems. The off-price retailer used a Chapter 11 bankruptcy in May 2020 to restructure debt and close 200 stores. Now it’s battling high supply chain costs, as well as lackluster sales. Tuesday Morning received a $35 million investment led by Pier 1 parent Retail Ecommerce Ventures in September. But it also told the Nasdaq Capital Market last month it plans delist its shares on Jan. 12, regulatory filings show. That usually happens when a company has liquidity problems or fails to meet a listing requirement. The filing said shares will move to the Pink Sheets platform of the OTC Markets Group for now. Eventually, Tuesday Morning will become a private company with lower overhead costs.
Another retailer that has struggled financially is furniture e-tailer Wayfair. It doesn’t help that the home furnishings category had an uphill battle for most of 2022. Wayfair’s negative free cash flow of $1.1 billion in the first three quarters of 2022 bears watching.