Claire’s Stores is looking to refinance its debt as it struggles to regroup, the teen accessories retailer said Friday.
Claire's aims to get out from under the strain of heavy debt it acquired in a 2007 leveraged buyout by Apollo Global Management by exchanging three securities with $796.5 million of outstanding principal for as much as $230 million in 9% term loans due 2021.
Teen and tween shoppers are looking for low prices, and that’s a reality that a retailer loaded with debt isn’t well equipped to handle.
Headwinds faced by teen apparel retailers American Eagle, Abercrombie & Fitch, and Aeropostale (which is under bankruptcy protection) seem to be also hitting the accessories retailer. Claire's troubles, though, are exacerbated by its debt: Apollo took Claire's private in 2007 in a leveraged buyout valued at some $3.1 billion, and it already refinanced some debt earlier this year to delay interest payments.
American Eagle and Abercrombie, by comparison, have improved sales after making big changes to their marketing, store design and product quality in efforts to target an older customer base. But Claire's doesn't look like it's following suit. The retailer saw same-store sales fall 5.1% in the first quarter, including a 0.8% decrease in the U.S. and a 12.7% decrease in Europe. First quarter net sales fell $20.3 million, or 6.4% year over year, to $299.6 million due to the closure of more than 150 stores this past year, the strong dollar, and decreased shipments to franchisees, the company said in May.
Things have been looking increasingly dire for the largely mall-based retailer in recent quarters. Credit rating agency Moody’s has steadily downgraded Claire’s since 2014, and earlier this year slashed its outlook to negative in light of the company’s debt.
"Claire's continues to feel the ill-effects of declining mall traffic and an increasingly competitive landscape, with the result debt/EBITDA has risen to over eight times. The new ratings further acknowledge the challenges faced by Claire's to grow earnings sufficient to support its presently unsustainable capital structure,” Moody's Vice President Charlie O’Shea said in a statement in April.