Covid may have backed Tailored Brands into a corner where bankruptcy is the only viable option.
On Monday afternoon, the parent to Men’s Wearhouse and Jos. A. Bank said it could be forced to reorganize under existing bankruptcy laws “possibly as soon as during the third quarter of fiscal 2020,” which starts on Aug. 2, according to its 10Q regulatory filing with the Securities and Exchange Commission.
Just one week ago, Tailored announced plans to close up to 500 of its 1,450 stores and reduce corporate staff by 20 percent. The company has been hit especially hard by the coronavirus crisis as its office-friendly attire has little relevance to white-collar workers taking Zoom calls while decked out in their comfort-first quarantine uniform. And a social calendar all but wiped clean of weddings, proms and summer soirees means shoppers are skipping the suits in favor of shorts, tees and other laidback, casual fare.
All of this spells trouble for Tailored, whose portfolio also includes Moores Clothing for Men and K&G. The men’s clothing chain acknowledged the myriad factors that raise “substantial doubt” around its likelihood to continue as a “going concern,” including skipping a $6.1 million interest payment due July 1—which means the clock is winding down on the customary 30-day grace period.
Tailored’s narrative follows a trajectory similar to many other fashion companies that have failed to avoid a date in bankruptcy court in the wake of pandemic disruption. Both Standard & Poor’s Rating Service and Moody’s Investors Service downgraded the company’s credit rating in recent months, and on Wednesday, the New York Stock Exchange (NYSE) issued the men’s wear firm a notice of noncompliance with its listing standards. Tailored’s share price had averaged $0.97 cents over a 30-day period, below the $1.00 NYSE requires.
Plus, early into the pandemic Tailored adopted a so-called poison pill plan (formally known as a shareholder rights plan) designed to thwart a hostile takeover by activist shareholders hoping to seize on its plummeting share price. Ascena, which filed for bankruptcy last week, also formed a poison pill in May, and J. C. Penney, which filed its Chapter 11 petition on May 15, renewed in January the shareholder rights plan it had previously adopted.
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In the 10Q, Tailored said management has retained advisors to explore every option available besides bankruptcy, from restructuring to amending or refinancing debt. Executives are also searching for ways to shore up liquidity, like asking landlords for more time to make rental payments (and they hope, in lower amounts) and scaling back operating and capital outlay. Tailored is also looking at raising new capital.