J.Crew Group has filed for bankruptcy

J.Crew Group has filed for bankruptcy

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.

The retailer plans to stay in business and emerge from bankruptcy as a profitable company. Madewell, the rapidly growing denim brand that had been slated for an IPO, will remain part of the business.
“We will continue all daily operations,” said Jan Singer, CEO of J.Crew Group declaration.

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.

But this is a unique time for retail failure. Many stores have been closed by quarantine and house orders and some potential buyers are nervous about venturing into all the open shops.

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.

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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.

A J.Crew store on 5th Avenue in New York City. The dealer announced on Monday that it had filed for bankruptcy protection.
Numerous resellers that have gone out of business in recent years have been purchased for the first time by private equity firms that have invested in an indebted amount of debt, including Toys “R” Us, Sports authority, Payless ShoeSource and Gymboree.
J.Crew Group had around 14,500 employees about a year ago, according to the most recent business archiving to reveal a head count. About 10,000 of these employees were part-time.

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.

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Store closings because of the coronavirus were not just a sales setback. They also derailed plans for an initial public offering of the company’s most successful Madewell brand, which would help pay off the debt.

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.”

US retail sales plunged 8.7% in March, the deepest drop ever

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.

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“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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