Sears, Nine West among retailers in trouble TOUGH times
Christmas sales could be make or break
The holiday season is always a pressure cooker for retailers, but this year promises to be more stressful than usual.
With foot traffic dwindling and more consumers shopping online, brick-and-mortar chains are having to fight harder for customers. Many U.S. retailers also are laboring under a mountain of debt, turning the season into a high-stakes fight for survival.
More retailers are at risk of running out of cash or defaulting on debt now than at the peak of the last recession, according to Moody’s Investors Service, and subpar holiday sales could deepen their distress. To be sure, wide-open credit markets have kept a lot of overleveraged retailers chugging along with even more borrowed money. But time is running out for several well-known names at the local mall, some of which may not be around next holiday season — at least not in their present form or in the hands of their current owners.
Here are some of the chains that have the most riding on holiday sales as Christmas nears.
SEARS
It’s hard to imagine holiday shopping without Sears, the 131-year-old department store whose Wish Book was a Christmas staple for much of the 20th century. But a Sears-free existence is already the reality in many cities following hundreds of store closures.
Concerned suppliers have begun demanding tighter payment terms and are even withholding delivery of products — an echo of the supply crunch that preceded Toys “R” Us’ September bankruptcy. But Sears has been able to rely on help from Chief Executive Officer Eddie Lampert, a hedge fund manager who serves as the company’s biggest investor.
Claire’s
Even after two distressed exchanges in the span of six months, Claire’s Stores is still under the gun to turn itself around. The accessories seller must pay off or refinance $1.3 billion in maturities in 2019. With leverage around 11 times earnings, Claire’s has little room to breathe — and bond prices reflect its tough position. Claire’s 9 percent first lien notes due in 2019 trade at about 60 cents on the dollar, and its 8.875 percent second lien notes trade closer to 20 cents.
Bon-ton Stores
Bon-ton Stores is living paycheck-to-paycheck — or loan-toloan. The department store chain received a lifeline from its bank lenders last month, when it amended its $880 million asset-backed credit line in an effort to maintain sufficient cash to get through the holiday season. The extension came in response to wary vendors scaling back shipments to the chain, and asking to be paid sooner to protect themselves from potential losses in case Bon-ton’s turnaround plans fail.
Nine West
Shoe and clothing maker Nine West has one of the highest leverage ratios in the retail industry. In January its debt load was about 18 times its adjusted earnings, according to Moody’s. Bondholders have
Sears has lost more than $10 billion in recent years, and it warned in March that its ability to keep operating is uncertain. Same-store sales have continued to decline, falling 17 percent last quarter.
been working with advisers since at least September to come up with a financial rescue plan, but analysts say the company is most likely heading toward a distressed exchange or restructuring.
J. Crew
J. Crew Group has been at odds with its lenders all year after a restructuring moved the company’s iconic brand name out of reach of secured creditors and incurred new debt against it. According to S&P Global Ratings, J. Crew’s term-loan lenders now stand to recover as little as 15 percent in a bankruptcy. The company’s total debt was at $1.7 billion as of Oct. 28, up from $1.5 billion a year earlier. Despite extending the most near-term maturities, the company’s liquidity remains “less than adequate” and its capital structure is “unsustainable in the long run,” S&P analysts wrote in a report upon completion of the deal.