Moody's lowered its outlook for Pier 1 to negative from stable, reflecting the rating firm's expectations for near-term default, according to a Thursday release.
Moody's also downgraded Pier 1's corporate family credit rating from Caa3 to Ca. Given Pier 1's approaching April 2021 term loan maturity and ongoing losses, Moody's analysts believe there's a "high likelihood" of near-term default.
In additionally downgrading Pier 1's senior secured term loan, the analysts pointed to "the erosion in its expected recovery, given the higher than originally expected level of EBITDA losses," which they noted reached roughly $230 million for the 12 months ending Nov. 30.
Moody's downgrades come just days after Pier 1 announced major store closure plans amid disappointing third quarter results.
The troubled home goods retailer on Monday said it plans to close up to 450 locations — nearly half of its store fleet — in addition to reducing its corporate headcount, though Pier 1 did not disclose how many corporate employees would be affected. This followed a report from Bloomberg that Pier 1 plans to cut about 40% of its headquarters staff, or 300 people, and began canceling orders.
In its most recent quarter, Pier 1 reported net sales fell some 13.3% to $358.4 million, while comparable sales fell 11.4%. EBITDA was negative $41 million from negative $16.9 million a year ago. Pier 1's long-term debt stood at $258.3 million, while its available assets continued to dwindle, now at about $11 million.
"While the planned store closures and cost cuts will reduce the company's cash burn, EBITDA losses will continue in the near term," Moody's Vice President and lead analyst Raya Sokolyanska said in the release.
Additionally, data from CreditRiskMonitor predicts Pier 1 has a 9.99% to 50% chance of filing for bankruptcy within the next 12 months. The retailer reportedly laid out a plan to its creditors in December that envisioned a smaller company, notching about $900 million in annual sales, according to Bloomberg. In fiscal 2019, the company reported annual sales of $1.6 billion.
Robert Risebeck, who was appointed to the chief role just over two months ago, has a strong financial background and experience leading distressed retailers through bankruptcy. Prior to joining the home goods retailer, Riesbeck served in executive roles at FullBeauty and H.H. Gregg while those retailers filed for bankruptcy protection.
"A Chapter 11 bankruptcy would allow the company to both reduce outstanding debt and exit or renegotiate leases, which may help avoid liquidation," Sokolyanska said.