Claire's close to filing for bankruptcy, report says
- Teen retailer Claire's is preparing to file for bankruptcy in the coming weeks, Bloomberg reported Thursday. The company did not immediately reply to requests for comment from Retail Dive.
- The retailer is nearing a deal wherein its lenders, including Elliott Capital Management and Monarch Alternative Capital, would take over the company in Chapter 11, according to Bloomberg, which cited unnamed sources familiar with the plan. Private equity firm Apollo Global Management has owned Claire's since its leveraged buyout of the retailer last decade.
- The plan would deliver some much-needed debt relief for Claire's, Bloomberg noted.
Claire's has been teetering on the brink of bankruptcy for some time now. Like so many retailers snatched up in debt-fueled deals by private equity, the retailer's high debt load has become a crisis in an era defined by declining mall traffic and shifting spending patterns.
Claire's in January said it had hired investment banker Lazard to help deal with its debt, often a precursor to restructuring or bankruptcy. The move came even as the retailer has posted reasonably healthy sales, with same-store consolidated sales growth of 2.7% for the first three quarters of 2017, and improved adjusted EBITDA, which has grown $20.4 million, or 18.3%, according to a company press release. But that only highlights the difficulties for retailers with high debt loads.
Teen and tween-focused Claire's Stores calls itself a "girl's best friend," but girls and young women have plenty other options these days, among them H&M, Forever 21 and Zara, as well as discount and online players. Trying to free up cash and stem losses, the company closed 166 stores in 2016 because they were unprofitable or the lease terms weren't favorable.
Like many retailers in trouble, private equity ownership appears to have added to Claire's Stores' woes. Apollo Global Management took Claire's private in 2007 in a $3.1 billion leveraged buyout. The retailer has already refinanced some debt to delay interest payments. In 2017, credit rating firm Fitch Ratings listed Claire's among retailers on its "Bonds of Concern" list.
Claire's has been working to improve results in its Icing stores and has scaled back its promotional activity, executives told analysts last April. That resulted in lower sales but higher margins compared to 2015. For 2016, the company posted net income of $53.9 million compared to a net loss of $236.4 million in 2015. And while the company has positive cash flow, it says that much of its cash goes to paying its debt, which makes it hard for any retailer to compete in the current climate.
Debtwire analysts wrote in October that — even after a "refinancing bonanza" — "the company has generally exhausted capacity to pursue additional debt-for-debt refinancing."
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