For off-price retailer Stein Mart, the coronavirus crisis sent its already struggling business into an out-of-control tailspin.
On Wednesday, Stein Mart filed a voluntary Chapter 11 petition in a Jacksonville, Fla., bankruptcy court, detailing plans to “close a significant portion, if not all, of its brick-and-mortar stores” in a store closing and liquidation process that’s already underway.
Stein Mart said it’s considering strategic alternatives, such as a potential sale of its e-commerce business and related intellectual property assets.
“The combined effects of a challenging retail environment coupled with the impact of the coronavirus (COVID-19) pandemic have caused significant financial distress on our business. The Company has determined that the best strategy to maximize value will be a liquidation of its assets pursuant to an organized going out of business sale,” Hunt Hawkins, chief financial officer and CEO, said. “The Company lacks sufficient liquidity to continue operating in the ordinary course of business. I would like to thank all of our employees for their dedication and support.”
The 281-store chain has already let go most of its employees at its Jacksonville headquarters, which employed about 375 staff members. Another 8,500 store associates were furloughed when discretionary stores temporarily closed in mid-March. Though all of Stein Mart’s stores had reopened by June 15 with reduced hours, not all store associates were called back.
On June 30, the company reported first-quarter results for the period ended May 2, which showed a net loss of $65.7 million, or $1.38 a diluted share, against net income of $4.0 million, or 8 cents, on a 57.3 percent drop in net sales to $134.3 million. The report included a $10.3 million in non-cash long-lived asset impairment charges.
“As our stores re-opened, we have seen traffic steadily increase and omnichannel sales remain strong. However, while sales are exceeding our expectations, they continue to be down to last year and we expect it will take some time for them to fully recover. COVID-19 has put a strain on our credit facilities, as we are borrowing seasonally higher amounts to cover cash shortfalls from lower sales,” Hawkins said at the time of the earnings report.
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The company also warned in mid-June that Covid-19’s economic impact raised substantial doubt about its ability to continue as a going concern over the next 12 months.
Stein Mart had been exploring its strategic options and was in talks to sell itself. This past January, it had entered into an agreement to merge with an affiliate of Kingswood Capital Management, but that deal was called off on April 16 after the coronavirus outbreak scrambled the economic outlook.
So far 2020 has seen a rash of retail bankruptcies that has included Neiman Marcus, J.C. Penney, J. Crew, and more recently Brooks Brothers and Lord & Taylor.
Other retailers also are on the watch list of many credit analysts, such as J.Jill Group., which could see another extension of its two forbearance agreements. Separately, Canadian retailer Le Château has warned that it too may not be able to stay in business. Last Friday when it reported first-quarter results, the Canadian retailer said it has reached agreements with landlords regarding COVID-19 rent obligations. And while it has amended certain terms of its financial agreements, there’s no guarantee it will be able to complete a refinance if it needed to do so. The retailer said management is “evaluating its alternatives” as the pandemic has also “further strained the company’s ability to return to profitability.” For the quarter ended April 25, the net loss widened to 13.4 million Canadian dollars ($10.1 million) from a loss of 10.8 million Canadian dollars ($8.2 million) a year ago on a 51.0 percent decline in net sales to 17.7 million Canadian dollars ($13.4 million).