Gymboree CEO to step down amid possible $1B debt restructuring
Gymboree Corp. on Thursday announced that CEO Mark Breitbard will step down from his role once a successor has been appointed, but he won't be leaving the company. Breitbard will become the Chairman of the Board of Directors effective Feb. 1, according to a press release.
Breitbard said in a statement that he believes the children’s apparel retailer needs a new CEO as it continues to “focus on the strategic plans for our brands.”
As of October 29, 2016, there was $769.1 million of principal outstanding under Gymboree's $820 million senior secured term loan due in February 2018, the company said in December. A group of its lenders is has hired Rothschild Inc. to guide a possible restructuring of some $1 billion in debt, according to Bloomberg.
Gymboree is the latest mall-based retailer to stumble in the face of declining store traffic and a debt burden piled on by its private equity owner, Bain Capital.
Adjusted EBITDA from continuing operations, defined as net loss from continuing operations attributable to Gymboree before interest, income taxes and depreciation and amortization was $17.8 million, compared to $26.5 million for the third quarter of fiscal 2015, the company said in December. The reduction was attributed primarily to the decrease in same-store sales, according to that report.
The Limited and Wet Seal in recent weeks have thrown in the towel, closing stores, laying off workers and filing for bankruptcies that are unlikely to result in those retailers’ survival.
“Now private equity is there with billions in debt — and goodbye,” Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive regarding Wet Seal and others. “The first thing they do is borrow billions, and retailers can’t function that way because the business is too volatile and it’s too unpredictable. These poor apparel chains end up one way or another in the hands of private equity — and in the end, there’s no company, no stores, no employees, and the private equity made money. Congratulations. That’s how it works.”
Private equity is unlikely to have the patience it takes for a proper retail turnaround, in part because those firms keep their focus on getting out with decent profits. The Limited’s owner, private equity firm Sun Capital, told its investors that despite the closures, it had nearly doubled its Limited Stores investment, according to an email to shareholders obtained by Reuters. Due to prior distributions and dividends, Sun Capital made back its original $50 million 1.8 times over, and will write down the remaining equity value of Limited Stores to zero.
“Private equity wants to be in and out in five to seven years,” Suneet Chandvani, head of middle market research at corporate debt intelligence firm Debtwire, told Retail Dive. “The goal is after five years, sell it or IPO it. Closing the stores, slashing jobs, the fact that Sun Capital is marking the capital to zero — that just says it all. Retail is just a declining business, especially the brick-and-mortar business where fixed costs are high and margins are thin. It’s not they haven’t done what they were supposed to do as far as managing costs, cutting costs, cutting down on their brick and mortar footprint — it’s the nature of the business.”
Follow Daphne Howland on Twitter