The company, which has been struggling long before the coronavirus attack, said it would close all of its Catherines stores, a significant (but undisclosed) number of Justice stores and a smaller number of Ann Taylor, LOFT, Lane Bryant and Lou & Gray stores. .
As of August 3, 2019, at the end of its last fiscal year, the company had approximately 53,000 employees, 40,000 of whom worked part-time. As of February 1, it had 2,764 stores spread across its various brands.
But that store count decreased 600 from the beginning of August after it closed another 200 locations in each of the previous two fiscal years, and close to 100 net store closings in fiscal year 2017. It had to sell one of its brands, Maurices, last year.
It closed all its stores on March 18, due to health problems surrounding the pandemic. The company suspended 90% of its staff, withheld rental payments in closed stores, and delayed payments to vendors. It started reopening stores in early May. The company said Thursday that 95% of its stores are already open.
The letter was on the wall from Ascena’s bankruptcy for quite some time. He borrowed $ 230 million from existing lines of credit to try to get out of the crisis. She ended her fiscal third quarter in early May with $ 439 million in cash on her balance sheet and a debt of $ 1.3 billion. In late May, he warned that there were substantial doubts about his ability to stay in business for the next year.
Ascena said he reached an agreement with his creditors to reduce his debt by $ 1 billion, and received $ 150 million in new capital to continue operating during his bankruptcy.
“The significant progress we have made in driving sustainable growth, improving our operating margins and strengthening our financial base has been severely disrupted by the Covid-19 pandemic,” Carrie Teffner, interim CEO of Ascena, said in a statement. “As a result, we have taken a strategic step today to protect the business future for all of our shareholders.”
A history of problems
Ascena (ASNA) It has reported just one year with a positive operating profit for the past five years, with operating losses of $ 2.4 billion since the summer of 2014.
The company owns brands such as Ann Taylor and LOFT, which are in its premium women’s clothing category. She bought those brands in 2015 in a deal valued at $ 2 billion. It also owns the plus size women’s clothing brands Lane Bryant and Catherines, as well as children’s clothing retailer Justice and the value brand Dressbarn.
But the 2015 acquisition of Ann Taylor and LOFT did not change the fate of the company as expected. As losses increased, the stock price collapsed, losing 96% of its value between the time of the deal and last December, when the company implemented a 20-to-1 reverse stock split to increase the price and prevent actions from going off the list.
That didn’t help: Shares lost more than 90% of that inflated value between the time of the reverse split and Wednesday’s close.
The company warned that its shares will cease to have value as part of the bankruptcy. But they could continue to operate during the reorganization process and even see some gains. Shares of various bankrupt companies, including Hertz (HTZ) and JCPenney (JCP), have posted strong gains recently due to the interest of the daily operator.
As was the case with several bankruptcy companies, including JCPenney and Hertz, Ascena approved a lucrative retention bonus plan for its top employees in mid-June. CEO Gary Muto and Acting Chairman of the Board Carrie Teffner received bonuses of $ 1.1 million each, while Chief Financial Officer Dan Lamadrid received just over $ 600,000.
Bankruptcies are becoming common
The coronavirus crisis has wreaked havoc on clothing retailers and department store chains. Non-core businesses were closed for weeks at a time. Job losses increased and millions of people working from home have not needed to buy clothing.
The bankruptcy follows Brooks Brothers, the 200-year-old menswear retailer that dressed 40 of the nation’s 45 presidents. A number of other national retailers also filed for bankruptcy beginning with clothing retailer J. Crew on May 4. This was followed shortly by department store operators Neiman Marcus and JCPenney. Another clothing retailer, Custom brands (TLRD), owner of Men’s Wearhouse and Jos. A. Banks warned that he could be forced to file for bankruptcy.
A declaration of bankruptcy does not mean that a company will be forced to close. Many companies have used the process to eliminate debt and other financial obligations, reduce costs, and then record record profits. That includes automaker General Engines (GM) and many of the country’s airlines.
But many companies that have filed for bankruptcy with the intention of staying in business have not survived the process. That’s what happened to Toys “R” Us in 2018, and most recently to furniture retailer Pier 1, which filed for bankruptcy in February before the Covid-19 pandemic hit retail in the United States. He intended to stay in business, but announced plans in May to permanently close all of his stores.
All of the major retailers who have filed for bankruptcy had struggled before the health crisis.
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