(CNN Business) – The J.Crew Group, which operates the J.Crew and Madewell brands, has become the first national retailer in the United States to file for bankruptcy protection since the coronavirus pandemic forced a wave of store closings.
The clothing retailer said Monday that it registered to begin Chapter 11 proceedings in federal bankruptcy court in the Eastern District of Virginia. The company also said it had reached an agreement with its lenders to convert approximately $ 1.65 billion of debt into equity.
The retailer hopes to stay in business and emerge from bankruptcy as a profitable business. Madewell, the fast-growing denim brand that had been slated for an Initial Public Sale (IPO) offering, will continue to be part of the business.
“We will continue all day-to-day operations,” J.Crew Group Chief Executive Jan Singer said in a statement.
A bankruptcy does not necessarily mean that a company goes bankrupt. Many companies use bankruptcy to get rid of debt and other liabilities that they cannot pay when closing unprofitable operations and locations.
But this is a unique time for a retail bankruptcy. Many stores have been closed due to quarantines and mandatory confinement orders, and some potential shoppers are nervous about venturing into any store that is open.
Retailers also frequently use store closing sales to clear inventory and raise cash they need to finance operations during a bankruptcy reorganization, said Reshmi Basu, a retail bankruptcy expert at Debtwire, who tracks companies’ finances. in trouble.
J.Crew’s bankruptcy filing is the latest sign of the strain the pandemic has placed on retailers. UBS analysts said last month that “retail store closings are likely to accelerate in a post-covid-19 world,” and that the gap between well-positioned retailers and struggling chains will widen due to the outbreak.
The group estimated both assets and liabilities between $ 1 billion and $ 10 billion in its bankruptcy.
J.Crew started as a catalog-only retailer in 1983, before opening its first store in New York City in 1989. The company, known for its ‘preppy’ clothing (a style of clothing associated with American high school students, in classic colors and styles), was purchased by private equity firms TPG Capital and Leonard Green & Partners in a $ 3 billion deal that closed in 2011.
It has grown rapidly in the nine years since the deal closed, nearly doubling the number of stores. But it has also accumulated much more debt. He had $ 50 million of long-term debt on his ledgers in 2010 before the deal was announced. It had $ 1.7 billion as of February 1.
A J.Crew store on 5th Avenue in New York City. The retailer announced Monday that it had filed for bankruptcy protection.
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Numerous retailers that have closed their businesses in recent years were first purchased by privately held companies that paid off an unaffordable amount of debt, including Toys “R” Us, Sports Authority, Payless ShoeSource, and Gymboree.
J.Crew Group had around 14,500 employees as of a year ago, according to the company’s latest filing to reveal a count. About 10,000 of those employees were part-time.
The company operates about 500 stores, including the J.Crew, Madewell and J.Crew factories, but the points of sale have been closed due to coronavirus-related health problems.
Widespread store closings due to the coronavirus were not just a sales setback. They also derailed plans to have an initial public offering of the company’s most successful Madewell brand, which would have allowed it to pay off debts.
The company’s total sales increased 2% last year to $ 2.5 billion. But there was a big divide between the success of the two brands, as sales at Madewell locations open for at least a year increased 10% last year, while sales fell 1% at the brand’s stores. J.Crew.
Madewell was supposed to be saving grace. This is an asset that lenders have been fighting for years, ”said Basu. “But no one wants to make an initial public offering (IPO) right now, especially a retail IPO. The covid-19 reversed everything. ”
The company posted a net loss of $ 78.8 billion during its most recent fiscal year, an improvement from the loss of $ 120 million the previous year. Its adjusted earnings before interest and taxes were $ 250.7 million, more than double the previous year, at $ 112.8 million, suggesting that the company may have completed its move if plans for an IPO Madewell would not have been derailed by the virus.
“As we seek to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should allow our business and our brands to thrive for years to come,” Singer said Monday.
– Michelle Toh contributed to this report.
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