(Bloomberg) – Ascena Retail Group, which owns clothing chains Ann Taylor and Lane Bryant, filed for bankruptcy Thursday after its business was hit by the Covid-19 pandemic.
The filing with the US Bankruptcy Court in the Eastern District of Virginia is the latest of retailers to be pushed to the limit by the nationwide store closure to combat the outbreak. Bankruptcy protection allows the company to avoid permanent closure, reduce its loans, and close weak stores to minimize costs. More than 50,000 jobs could be affected, according to data from Ascena’s most recent annual report.
The company, which included about $ 12.5 billion in debt, entered into a restructuring agreement with more than 68% of its guaranteed lenders, it said in a statement. The pre-established restructuring plan is expected to help the company reduce debt by approximately $ 1 billion. Additionally, Ascena will raise $ 150 million in fresh funds from existing lenders.
“With the cash generated from our ongoing operations and the new money financing commitments we receive from our lenders, we hope to have sufficient liquidity to meet our operating obligations during the court-supervised process,” said Carrie Teffner, interim executive president. from Ascena. the declaration. “We hope to advance this process in an accelerated time.”
Retailers, many already struggling with the competition from online shopping, have been among the hardest hit by Covid-19. Lockdowns drained the proceeds, helping to drive companies like JC Penney Co., J. Crew Group Inc. and Neiman Marcus Group Inc. to bankruptcy.
CEO Gary Muto temporarily closed some 2,800 stores in mid-March due to the outbreak. The Mahwah, New Jersey-based company began reopening in early May when state authorities lifted the restrictions. But pedestrian traffic remained lower than normal, with store sales falling 30% to 80% in the last three weeks of May, according to a June lender filing released today.
Management predicts revenue will fall 21% in the financial year ending August, with losses expected through 2021, according to the presentation.
Even before the pandemic, Ascena was in financial trouble of her own making, with declining sales and loans soaring to more than $ 1 billion. The retailer was trying to sell two of its chains amid growing losses and signs that creditors were losing confidence in their prospects, Bloomberg reported.
Under the restructuring plan, the company will close “a significant number” of Justice stores and also some outlets for Ann Taylor, LOFT, Lane Bryant and Lou & Gray, it said in the statement.
Ascena’s shares fell 18% to 64 cents at 10:03 am in New York. The stock had already fallen 90% this year as of yesterday’s close.
Video: Andrew Cuomo on Mitch McConnell’s idea of letting states go bankrupt
‘Behind the curve’
Craig Johnson, president of Customer Growth Partners, said Ascena was affected by the acquisitions it made between 2005 and 2015 that occurred when the women’s specialty market “began to stabilize.”
“Even closing hundreds of stores was not enough to rebalance supply and demand: ASNA was continually behind the curve,” Johnson said, referring to Ascena for its ticker for US trade. “To get out of the thousands of leases I was loaded with after a decade-long binge shopping, Chapter 11 was inevitable, it was just a matter of when, not if.”
The case is Ascena Retail Group, 20-33113, United States Bankruptcy Court in the Eastern District of Virginia.
(Updates to add share swap in tenth paragraph and analyst comments in paragraphs 11 and 12).
For more items like this, visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted source of business news.
© 2020 Bloomberg LP
