- Ascena restored base salaries and awarded cash retention bonuses for top executives amid reports that the troubled apparel retailer is headed for bankruptcy.
- In a securities filing, the company said that this week a cash "retention award" of about $1.1 million each will go to the CEO and interim executive chair, and another more than $600,000 will go to the executive vice president and CFO. The awards, which cover a six-month period, are subject to repayment if the executives are terminated or leave without "Good Reason," according to the filing. The company also accelerated executive performance bonuses for fiscal years 2018 and 2019 so that they are to be paid in August 2020 and 2021, respectively.
- Ascena said that the compensation changes will "enable the Company to retain and continue to motivate" its executives.
Like a lot of retailers, Ascena cut the pay of its top brass amid the COVID-19 closures, a time when companies across the industry were furloughing staff, skipping rent, pushing out vendor payments and making other painful cuts that affected multiple stakeholders.
Since then, Ascena's financial situation hasn't become any less precarious. The company's sales have been in decline for three years running and it has operated at a loss for even longer. The apparel retailer has reportedly hired law firm Kirkland & Ellis as an adviser and is considering a possible bankruptcy filing.
And although some of Ascena's banners have recently performed well — including Ann Taylor, Lane Bryant and its plus fashion business — the company's sales continue to sag. Ascena's top-line fell 4.3% in the fourth quarter as its operating loss widened by 120%. Meanwhile long-term debt stands at more than $1.2 billion, after a years-long acquisitive spree made just before apparel and mall retail went into a decline that has wiped several chains off the map entirely.
The COVID-19 crisis has exacerbated those problems after the retailer closed its stores in March. "Like all companies today, ascena is operating in an unprecedented and highly dynamic environment and the Company continues to take steps to reduce expenses and optimize its liquidity position," a company spokesperson told Retail Dive earlier this month following reports of a possible bankruptcy. "We are evaluating all options available to preserve our ongoing operations and we will reassess our position on all of these decisions on an ongoing basis."
Potentially on the brink of a bankruptcy, the company is now restoring its executive pay and doling out cash bonuses. It's not the first retailer in that situation to do so. J.C. Penney, weeks before it filed for Chapter 11, paid out nearly $10 million to executives. Ascena's reasons for paying out bonuses in a time of severe distress and layoffs mirror those of Penney, which said it made its compensation changes to "enable the Company to retain and continue to motivate its named executive officers... and other employees through the volatile and uncertain environment affecting the retail industry."
Toys R Us also paid out millions to top executives just before it filed for bankruptcy. Years later, those executives are now defendants in a lawsuit filed by the now-defunct toy retailer's former unsecured creditors. One of the allegations in the lawsuit centered on a plan devised by then-Toys R Us CEO Dave Brandon — after being warned by lawyers at Kirkland & Ellis about court scrutiny of bonuses in Chapter 11 — to pay himself and other executives millions in the days just before Toys R Us filed.