The clothing retailer said on Monday that it had filed a lawsuit to begin Chapter 11 proceedings in the Federal Bankruptcy Court of the Eastern District of Virginia. The company also claimed to have reached an agreement with its lenders to convert approximately $ 1.65 billion of debt into equities.
Filing for bankruptcy does not necessarily mean that a company will go out of business. Many companies use bankruptcy to lose debt and other liabilities they cannot afford by closing unprofitable transactions and positions.
In addition, retailers often use store closing sales to liquidate inventory and collect the liquidity they need to finance operations during a bankruptcy reorganization, said Reshmi Basu, a retail bankruptcy expert at Debtwire, who tracks the finances of companies in difficulty.
J.Crew’s bankruptcy is the latest sign of the tension that the pandemic has caused to retailers. UBS analysts said last month that “retail store closings could accelerate in a post-COVID-19 world” and that the gap between well-positioned retailers and ailing chains will expand as a result of the outbreak.
The group estimated assets and liabilities between $ 1 billion and $ 10 billion in its bankruptcy filing.
J.Crew started as a catalog-only retailer in 1983, before opening his first store in New York City in 1989. The company, known for its preppy clothes, was purchased by private equity firms TPG Capital and Leonard Green. & Partner in a $ 3 billion deal that was closed in 2011.
It has grown rapidly in the nine years since the deal was closed, almost doubling the number of stores. But he has also accumulated many more debts. He had a long-term debt of $ 50 million in his books in 2010 before the agreement was announced. It had $ 1.7 billion on February 1.
The company operates nearly 500 stores, including the J.Crew, Madewell and J.Crew factory stores, but the outlets have been closed due to health problems surrounding the coronavirus.
The company’s total sales rose 2% last year to $ 2.5 billion. But there has been a strong division between the success of the two brands, as sales in Madewell’s offices that have been open for at least a year have increased by 10% last year, while sales have decreased by 1% in brand stores J.Crew.
“Madewell should have been the saving grace. This is a resource that lenders have fought on for years,” said Basu. “But nobody wants to do an IPO right now, especially a retail IPO. Covid-19 has turned everything upside down.”
The company posted a net loss of $ 78.8 million in the last fiscal year, an improvement over the loss of $ 120 million the previous year. Its earnings adjusted before interest and taxes were $ 250.7 million, more than double the previous year – $ 112.8 million – suggesting that the company would have been able to complete its turnaround if plans to a Madewell IPO had not been derailed by the virus.
“As we try to reopen our stores as quickly and safely as possible, this complete financial restructuring should allow our businesses and brands to thrive for years to come,” said Singer on Monday.
– Michelle Toh contributed to this report.
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