New York & Co. could be the next mall-based fashion chain to succumb to COVID-19.
In a Securities and Exchange Commission regulatory filing Wednesday, NY&Co. parent company RTW Retailwinds suggested its chances of filing a Chapter 11 petition for bankruptcy protection are more likely than not.
The filing, in which RTW sought an extension on filing its annual report, indicated the company is working with independent auditor BDO USA LLP on finalizing disclosures related to the coronavirus pandemic.
RTW said the annual report will “reflect a substantial doubt about the company’s ability to continue as a going concern” and indicated that a bankruptcy filing is “probable.”
The filing details how COVID-19 has disrupted the fashion firm’s suppliers overseas and supply chain, hampered store operations, forced the furlough of all store associates and prompted the company to permanently reduce corporate headcount by more than 50 percent. Noting it expects a “material adverse impact” on its financial position and cash flows during fiscal year 2020, RTW has concluded there is considerable concern about its future, adding that it has a retained deficit of $164.6 million as of Feb. 1, the end of fiscal 2019.
“As such, the company has been considering available options, including restructuring its obligations or seeking protection under the bankruptcy laws, in which case there will likely not be any value distributed to its shareholders,” according to RTW’s filing. Prolonged store closures have eaten into its liquidity and left brick and mortars and distribution centers full of stale inventory.
RTW plans to begin reopening stores this week and get most locations open by the end of the month. It also is in talks with landlords and vendors to defer payments until those stores reopen. In the meantime, RTW said it has not paid rent to retail landlords for either April or May, and has not made any recent payments to many of its vendors. In turn, RTW has received default notices from some landlords and vendors for nonpayment.
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RTW said it drew down $40 million under a loan agreement with Wells Fargo Bank and is “likely in default” under the loan agreement, even though so far it hasn’t received any default notices from the bank.
As for how dire its financial position is, RTW said it has a reduced borrowing base under the Wells Fargo agreement and that it doesn’t have any other credit facilities it can access for additional borrowings. “The company believes without seeking protection under the bankruptcy laws it does not have [the] ability to raise additional capital at this time,” RTW said.
RTW disclosed that its “right-of-use assets,” consisting primarily of store leases, were valued at $189.8 million at the end of fiscal 2019. Due to the extent of store closures, and expected continuation of COVID-19’s impact on mall traffic and consumer spending, RTW warned that the assets could end up having little to no value. Fixed assets such as store fixtures and equipment were valued at $44.9 million at the end of fiscal 2019, but could now be worthless, or close to it, due to COVID-19.
RTW was founded in 1918 by Samuel A. Lerner and Harold M. Lane under the name Lerner Shops. Limited Brands, now L Brands, acquired the company in 1985 and changed the nameplate to Lerner New York. One of the other nameplates under the Lerner umbrella was New York & Co., which then became the new corporate name in 1995. The company was acquired by Bear Stearns Merchant Banking in 2002, and it became a public company in 2004. The company changed its corporate name again in 2018 to RTW Retailwinds Inc. Many of its stores still operate under the New York & Co. nameplate. The company in 2017 acquired plus-size retailer Fashion to Figure at bankruptcy court auction.
If a filing comes to fruition, New York & Co. would follow in the unfortunate footsteps of J. Crew, Neiman Marcus, John Varvatos, J.C. Penney, Stage Stores, and Aldo, which sought bankruptcy court protection in rapid succession last month.