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ANALYST: BELOVED RETAILER HEADED FOR CHAPTER 11 BANKRUPTCY

It has been a very rough period for retailers with a number of big names going
under last year.
 * Author:
   Daniel Kline
 * Jan 12, 2024 11:01 AM EST




Over the past 12 months, the retail world was rocked by big names going under
and a couple of others just barely surviving. In most cases, you can blame the
financial damage done by the covid pandemic which forced many companies to burn
cash while selling very little.

Bed Bath & Beyond led the list as its merchandise was non-essential during the
pandemic. People were improving their homes, but that tended to be things like
painting rooms or building home offices, not upgrading their bedding or getting
new towels.


COSTCO TAKES ON A PROBLEM BIGGER THAN RETAIL THEFT

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Christmas Tree Shops suffered a Chapter 7 bankruptcy liquidation because it
simply could not operate for months. It was a store-based business and it simply
never recovered from the lockdown period when its stores were either closed or
sparsely visited. That's the same fate the befell Tuesday Morning, a similar,
albeit less-loved chain that also used the treasure hunt heavy discount model.



Both Party City and David's Bridal narrowly survived their bankruptcy filings
which were caused because people basically did not have parties or large
weddings for over a year. It's hard to sell wedding dresses and party supplies
when people are hunkered down in their homes afraid to see other people, but
both of those companies managed to find the money needed to continue.





Now, a company that should have been a pandemic winner stands on the brink of
collapse, and its prospects are bleak, according to Creditsafe Head of Brand
Ragini Bhalla.

Joann has been struggling to pay its bills

Image source: Getty Images.


JOANN FACES DEEP FINANCIAL PROBLEMS

In theory, people being stuck at home should have been good for the sewing
enthusiasts and other hobbyists that make up Joann's (JOAN) customer base. It's
possible, however, that even when stores were opened, those customers opted to
buy their supplies online.

That could have shifted some of Joann's regulars to Amazon and the ease of
buying from the online giant may have changed customer behavior. It's also
possible that some of the company's fanbase died, or changed their hobbies
during the covid period. 



No matter what the reason is, Bhalla thinks the situation is dire.

"Given the struggles JoAnn has had with cash flow, its inability to stay current
with many of its bills, its declining sales in FY 2023, and its $1 billion debt
load, our Creditsafe algorithm has classified the company as a high risk of
becoming seriously delinquent on payments and could be headed for bankruptcy
very soon. Without strong leadership (still no permanent CEO), it could be hard
to right the ship," she told TheStreet via email.






JOANN HAS A LOT OF RISKS

Bhalla pointed out that Joann has been late in paying its bills, something which
often foreshadows a bankruptcy filing.

"Creditsafe data shows that Joann struggled to make on-time payments in the
second half of 2023. For most of that time, about 20% to 31% of its bills were
paid late (1-30 days), while about 1% to 8% of its bills were paid late (31-60
days)," she shared.

Sales have also been falling.

Net sales declined by 4.1% compared to the same period last year to $539.8
million with total comparable sales decreasing 4.1%, the company shared in its
fourth-quarter earnings report.

Joann's interim leaders, as all executives do in this situation, tried to paint
a positive picture.



"We are pleased with our third quarter results and importantly, have increased
our top line full-year outlook. Our third quarter appeared to focus on
operational retail fundamentals with an agile, data-driven approach helping us
to win in our core categories, while over-delivering on the implementation and
execution of our Focus, Simplify and Grow cost-savings initiative," Chief
Customer Officer Christopher DiTullio said during the Q3 earnings call. 





Despite all of that corporate speak happy talk, Bhalla sees the company's risk
of bankruptcy increasing.

"Joann is rated as a high risk: Based on Creditsafe’s risk algorithm which takes
into account both trade payment data and financial results, JoAnn is deemed to
be a high risk (D), meaning it could be at risk of bankruptcy. Its risk score
dropped from C to D in July 2023 and has stayed there since," she added. 


By
Daniel Kline

Arena Group Editor at Large Daniel Kline focuses on the travel industry while
also writing about retail, pop culture, and technology.

Follow worstideasTST
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