Stark & Stark Shareholder Thomas S. Onder unveiled his list of top retailers to watch for a bankruptcy filing in 2023. Mr. Onder is Chair of the firm’s Shopping Center & Retail Development Group as well as a member of its Real Estate, Litigation, and Bankruptcy & Creditors’ Rights Groups.
“The Fed rate hikes have slowly started to reduce inflation, yet prices remain high,” Mr. Onder commented. “Unemployment figures persist at record lows, despite many large employers cutting back. Continuing supply chain issues persist as China reopens in the face of its COVID crisis. Consumer spending also is tightening in preparation for bumps in the year ahead.” He added, “This volatile mix of economic data may lead several retailers to use the bankruptcy process to stay viable.”
Following are the top 10 retailers to watch for a possible Chapter 11 filing during 2023, according to Mr. Onder.
- Bed, Bath & Beyond – Is it Beyond Saving? The Motley Fool noted that management, with just $135 million in cash, is trying to maneuver around some of its debt. However, it may be too late as Business of the Home reported that several of the company’s key suppliers and smaller vendors stopped shipping to the company or were not accepting new orders. In addition, can the retailer of home goods and college furnishings survive with the looming “education cliff,” which is where college enrollments are expected to contract significantly?
- JOANN – Can the Retailer Craft a Strategy to Stay in Business? Seeking Alpha reports that Jo-Ann Fabrics, now formally known as JOANN, faces declining sales, comps, margins, and increasing costs, creating an uphill battle for the crafts retailer. Retail Dive reported that third-quarter net sales were $562.8 million, almost an 8% decline and that to improve its liquidity and balance sheet, the company said it is suspending its quarterly dividend. Can the retailer survive without filing for Chapter 11?
- Tuesday Morning – Does a Chapter 22 Lie Ahead for 2023? The Dallas Morning News reported that the Dallas-based off-priced, home goods and décor store, which filed for Chapter 11 in 2020 and successfully exited, is planning to go private. Investor Place cited that the company expects a delisting to occur in early January. The company’s most recent quarterly report noted that it had nearly 500 stores, but lost $28 million on sales of $151 million for the quarter ending October 1. A second Chapter 11 filing (a “Chapter 22”) could allow a sale of the business in an organized fashion.
- AMC – Is it Curtains for the Movie Chain? According to Investor Place, rumors persist that first and second lien holders are working with restructuring advisors. Further, allegations continue that Sam Bankman-Fried’s FTX may have manipulated AMC stock. Yet, Forbes reported that the company is issuing a co-branded visa card next year to boost revenue. With consumers still not returning to movie theatres at pre-COVID levels, how long can the chain last before having to significantly restructure?
- Dollar General – Reducing its Footprint Through Bankruptcy? BestLife noted that many middle and high-income shoppers are now going to the retailer, which is good news. Further, CT Insider reported that the retailer was the fastest-growing retailer in the country just before the pandemic, per the National Retail Federation. But, MSN cited that, like Bed, Bath & Beyond, the retailer is closing stores. Will all the newly opened stores pre-COVID cause Dollar General to use bankruptcy to reduce its footprint in the new year due to labor shortages and supply chain issues?
- Mattress Firm – Sleeping into a Chapter 22 in the First Quarter? Previously, Mattress Firm (now owned by Steinhoff) emerged from Chapter 11 in 2018 with a reduced footprint. However, according to Bloomberg, bedding demand is in decline as consumers cut spending. Further, Bloomberg reported that Serta Simons Bedding, a major mattress manufacturer, is planning to file for bankruptcy in January 2023. In October 2022, Retail Dive listed Steinhoff as having a 4 to 9.99% chance of filing for bankruptcy.
- Rite Aid – Not What the Doctor Ordered. In April of last year, The Motley Fool noted that the Philadelphia-based company had three (3) major red flags, which persist to date: deteriorating financing, inability to deleverage, and “rock bottom” valuation. Fitch Ratings on November 9, 2022, downgraded Rite Aid’s long-term issuer default rating to C from B-. Higher costs related to its plan to close stores, rising pressure on consumer spending, and supply chain concerns do not bode well for the retailer.
- The Gap – Will a Drop in Consumer Spending/Supply Chain Issues Force a Filing? According to Retail Dive, third-quarter sales rose 2.4%, with Banana Republic leading the way with an increase of 8% in net sales. Despite the rosy sales figures last quarter, there is much concern that supply chain issues and expected lower consumer spending could severely affect sales in the first part of the new year. If this occurs, how long can the retailer last before it considers a bankruptcy filing?
- Kohl’s – One of the Last Department Stores. According to The New York Times, November 2022 U.S. retail sales were down by 0.6 percent from October (November has the biggest shopping days of the year—Black Friday and Cyber Monday). Insider reported that during the company’s third-quarter earnings call, sales decelerated in October and early November compared to the year prior. Thin margins with inflation and a decline in discretionary spending are squeezing the company and could lead to a bankruptcy filing.
- 99 Cents Only – Tough Times for Less than a Dollar. Business Insider reports that the California-based discount retailer with 350 stores in four states has, along with other “dollar-type stores” taken a beating by consumers, who describe these types of stores as “unhygienic” and “disgusting”. Further, in November 2022, Business Insider noted that Moody's reported the company was at a "competitive disadvantage" and had "negative free cash flow." Like other competitors, a tight labor market and supply chain issues weigh heavily on operations.
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