Ascena becomes latest US retail giant to file for chapter 11 bankruptcy
Ascena shares have fallen 90% in 2020
New York — Ascena Retail, the owner of the Ann Taylor and Lane Bryant apparel chains, filed for bankruptcy protection on Thursday after its business was thrown into disarray by the Covid-19 pandemic.
The filing in US bankruptcy court is the latest from retailers that were pushed over the edge by the nationwide closure of stores to combat the outbreak. Bankruptcy protection allows the company to avoid a permanent shutdown, cut its borrowings and close weak stores to minimise costs. More than 50,000 jobs could be affected, based on data from Ascena’s most recent annual report.
The company, which listed about $12.5bn of debts, entered into a restructuring support agreement with more than 68% of its secured term lenders, it said in a statement. The pre-arranged restructuring plan is expected to help the company reduce debt by about $1bn. In addition, Ascena will be getting $150m in fresh funds from existing lenders.
“With the cash generated from our ongoing operations and the new money financing commitments we received from our lenders, we expect to have sufficient liquidity to meet our operational obligations during the court-supervised process,” Carrie Teffner, Ascena’s interim executive chair, said in the statement. “We expect to move through this process on an expedited time frame.”
Retailers, many already struggling with competition from online shopping, have been among the hardest hit by Covid-19. Lockdowns drained revenue, helping to tip companies including JC Penney, J Crew and Neiman Marcus Group into bankruptcy.
CEO Gary Muto temporarily shut about 2,800 stores in mid-March due to the outbreak. The New Jersey-based company began to reopen in early May as state authorities lifted restrictions. But foot traffic remained lower than normal, with store sales falling between 30% and 80% in the last three weeks of May, according to a June lender presentation, made public on Thursday.
Management forecasts revenues to fall 21% in the financial year ending August, with losses expected through to 2021, according to the presentation.
Even before the pandemic, Ascena was having financial troubles of its own making, with sales sliding and borrowings that ballooned to more than $1bn. The retailer was trying to sell two of its chains amid mounting losses and signs that creditors were losing confidence in its prospects, Bloomberg reported.
Under the restructuring plan, the company will close “a significant number” of Justice stores and also some Ann Taylor, Loft, Lane Bryant and Lou & Grey outlets, it said in the statement.
Ascena shares fell 18% to 64c in New York. The stock had already plunged 90% in 2020.
‘Behind the curve’
Craig Johnson, president of Customer Growth Partners, said Ascena was weighed down by acquisitions it made from 2005 to 2015 that came as the women’s speciality market “started plateauing”.
“Even closing hundreds of stores was not enough to rebalance supply and demand — ASNA was continually behind the curve,” Johnson said, referring to Ascena by its ticker for US trading. “To exit the thousands of leases it was burdened with after the decade-long buying binge, chapter 11 was inevitable, only a matter of when, not whether.”
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