Once a retailer, or any other business, files for Chapter 11 bankruptcy, it loses control of its destiny.
You can file bankruptcy with a plan, but the court or the company's lenders and creditors can derail the process, making it impossible for the company to survive.
In most cases, the calculation involves whether the company's creditors consider it more valuable dead than alive. If you have assets that can be liquidated, creditors may want to sell the company in parts to recover some of their money.
Related: Chapter 11 Bankruptcy Forces Popular Retailer to Close All Stores
That's what happened with Christmas Tree Shops, Tuesday Morning and Bed Bath & Beyond. All three lost the trust of their suppliers and could not find banks willing to finance continued operations.
When a company starts to falter, especially a retailer that depends on having merchandise to sell, its salespeople can smell blood in the water. Payments arrive late (or not at all) and orders become smaller.
When that happens, the company's suppliers begin to demand cash on delivery or even payment in advance. That speeds up the death cycle process, as the cash-starved company can't afford to do that and files for Chapter 11 bankruptcy to try to fix its finances and live to fight another day.
Image source: Sean Gallup/Getty Images
Data predicts new retail bust
Rapid Ratings tracks publicly available data to predict which companies are at risk of filing for bankruptcy. Subscribers use company data to manage their own risk when receiving payments.
Rating service rates Joann Inc.'s business model. (JUAN) a popular fabric and craft retailer, is unsustainable and has urged its customers to take urgent action to mitigate their risk.
Joann has been a low rated company for Quick Qualifications for quite some time now and has entered dangerous territory.
“Joann Inc. is placed in our very high risk group, shows weakness in five of our seven performance categories, significantly underperforms in (return on capital employed) and was downgraded in the most recent period,” the company said of qualification.
“If current trends persist, it would be logical to expect Joann Inc. to face a very serious default risk next year and will struggle with efficiency and competitiveness issues in the medium term; therefore, the outlook is negative.”
Joann faces Chapter 11 bankruptcy
Rapid Ratings isn't the only data-driven service predicting Joann's bankruptcy. Debtwire, which according to its website examines “global capital markets with predictive analytics powered by human intelligence and machine learning,” also sees the popular retailer headed toward bankruptcy.
“Retailers often seek Chapter 11 bankruptcy protection to restructure their operations. It gives them some bargaining power with landlords as they reduce their retail footprint and rightize their balance sheet,” said Sarah Foss, global head of Debtwire legal and restructuring matters. TheStreet via email.
The news, however, is not all bad for the chain and its loyal customers.
“A restructuring of Joann will likely involve the closure of a portion of its 850 stores and, given the difficulty of leasing those large retail stores to new tenants, Joann will be in a strong position as it negotiates concessions from its landlords,” he added.
Foss cited news reports that a filing could come as soon as this week and noted that the company could be turned over to its lenders.
“Joann would need to accelerate any Chapter 11 filing in order to emerge from bankruptcy before the third and fourth quarters of this year, as the company typically generates the majority of its revenue from Halloween and holiday sales,” Foss shared.
The company has not commented on a possible bankruptcy filing. He had tried to sound optimistic in his publication of third quarter results.
“During the quarter, we continued to execute our Focus, Simplify and Grow cost reduction initiative where we had previously identified $200 million of target annual cost savings across supply chain, products and expenses (selling, general and administrative). )”. Chief Financial Officer Scott Sekella said.
“As we implement these cost savings initiatives, we are driving significant cash flow improvements that we expect to continue through the remainder of this fiscal year and beyond.”
Joann closed the quarter with $1.48 billion in debt and $28.3 million in cash and cash equivalents.
