Bankruptcy filings could increase in 2022 after one year with an all-time low number of deposits that have been kept alive using federal stimulus programs and low interest rates.
However, many retail companies will look to renegotiate leases and refinance debt to avoid going to bankruptcy court, according to Bill Brandt, president of turnaround management firm Development Specialists Inc.
“Retail isn’t going to be great, but it’s going to get confused,” Brandt told TheStreet. “It’s hard to go bankrupt when the money is free. It is impossible to go bankrupt when the level of government intervention is at the level it has been. Interest rates are at zero and the debt is manageable. You’re not going to have a flood of people heading to chapter 11.
“Business bankruptcies are not good for fundraising sponsors. Traders will at least take some time in raising interest rates to refinance their debt. They will make deals to get out of leases because the bricks and mortar are overstocked. The real losers will be shopping center owners, landowners and real estate companies, ”he said.
Chapter 11s Down in 2021
Chapter 11 filings for all sectors have declined significantly so far in 2021, registering 5,622 filings in the 12 months ending September 30, compared to 8,188 in the same period in 2020 and 7,320 for the period of 2019, according to a report from the United States. Courts in November.
When it comes to retail bankruptcies, a dozen major retailers have filed for Chapter 11 this year, including department store chain Belk, sunglasses retailer Solstice, stationery and gift shop. Paper Source, Christopher & Banks women’s clothing store, Alex and Ani jewelry retailer, and Loves Furniture. .
Financial distress in 2020 linked to the Covid-19 pandemic has led to around 30 major bankruptcy filings, including JC Penney, Neiman Marcus, Tuesday Morning, Brooks Brothers, Aldo, GNC and True Religion.
The wave of bankruptcies of 2020 followed a year with roughly half as many retailer bankruptcies in 2019, which included Forever 21, Gymboree, Payless Shoesource, Charlotte Russe, Avenue, Things Remembered and Charming Charlie.
Which retailers might not survive in 2022?
A visit to one of the Sears department stores whose inventory is still in dispute may convince shoppers that the store chain, whose previous owner filed for bankruptcy in October 2018, is unlikely to be around for the next holiday season.
Some retailers exhibit some of the risk characteristics as possible Chapter 11 candidates in 2022, including Capri Holdings (CPRI) – Get the report from Capri Holdings Limited, The hole (GPS) – Get the report from Gap, Inc., Coty (COTY) – Get the Class A report from Coty Inc. and Casper Sleep (CSPR) – Get the Casper Sleep Inc report. These retail companies are heavily in debt and out-of-court restructuring is underway, but may also be able to push the limits through debt refinancing and lease renegotiations.
“Retail Chapter 11 filings are typically required when a company no longer has the financial backing of its financial sponsors in private equity or hedge funds and everyone realizes that the concept, the brand and inventory no longer work, ”Brandt said.
The four companies listed similar risks and challenges in their recent Securities and Exchange Commission Form 10Q reports, such as the effects of the Covid-19 pandemic, global supply chain issues, global economic uncertainties. and rising inventory costs.
Capri is closing 170 stores over two fiscal years in 2021 and 2022 as part of its restructuring plan. The company, which operates the Michael Kors, Jimmy Choo and Versace brands, has about $ 7.5 billion in assets, $ 1.1 billion in long-term debt, $ 1.5 billion in bonds. lease and approximately $ 234 million in cash and cash equivalents, according to its quarterly report. report for period ending September 25.
It had $ 1.3 billion in revenue for the quarter, with income of $ 200 million or $ 1.30 per share.
The Gap is reducing the number of its Gap and Banana Republic stores by 350 units by 2030 as part of its restructuring. It had closed 217 stores until October 30. The company has listed $ 12 billion in assets, nearly $ 1.5 billion in long-term debt and $ 4.16 billion in lease obligations for the quarter ending October 30.
The clothing retailer reported a loss of $ 152 million on revenue of $ 2.77 billion for the quarter.
Cosmetics retailer Coty, which markets CoverGirl, Max Factor, Wella and Clairol cosmetics, began a four-year restructuring plan in July 2019 to cut costs.
It has $ 124 billion in assets, $ 5.2 billion in long-term debt, $ 377 million in cash and $ 257 million in lease obligations. It reported net income of $ 226 million or 13 cents per share on sales of $ 1.37 billion for the quarter ending September 30.
Casper Sleep is perhaps the least likely to file Chapter 11, as its sale to private equity firm Durational Capital Management is expected to close in the first quarter of 2022.
The company has $ 220 million in assets, $ 50 million in long-term debt, and $ 43 million in free cash and cash equivalents. It reported revenue of $ 156.5 million with a loss of $ 25.3 million or 61 cents per share in the quarter ending September 30.