Claire's taps Lazard to deal with debt

Dive Brief:

Claire's Stores on Monday announced the retention of Lazard as its investment banker to evaluate a capital structure solution, but said the move is unrelated to operations "which remain strong."
As of Oct. 28, 2017, the retailer’s cash and cash equivalents were $25.8 million, with $71 million drawn on its ABL Credit Facility. The company has sought to deal with $2.2 billion in debt and a year ago landed on Fitch’s "Bonds of Concern" list.
Sales, nevertheless, are healthy with same-store consolidated sales growth of 2.7% for the first three quarters of 2017, and improved adjusted EBITDA, which has grown $20.4 million, or 18.3%, according to a company press release.

Dive Insight:

Like many retailers in trouble — in bankruptcy, closing stores or both — Claire’s private equity ownership appears to have added to its woes. Apollo Global Management took Claire's private in 2007 in a leveraged buyout valued at roughly $3.1 billion, and then refinanced some debt in 2016 to delay interest payments.

But the pressure from private equity doesn't end with debt and that appears to be true at Claire's, according to Eileen Appelbaum, senior economist at the Center for Economic and Policy Research. In their deal with Claire’s, for example, Tri-Artisan Capital Partners and Apollo Global Management have an agreement entailing a $3 million annual cash payment to the private equity managers for unspecified services, which Appelbaum said may be required even in the absence of any services at all. "I believe that these are just hidden dividends," she told Retail Dive last year. And rather than taxable as such, they appear as deductible expenses — yet another boon to the financial sponsors.

Debt loads have also interfered with turnaround efforts, expansion plans and merger talks with J. Crew, Neiman Marcus and others. Dealing with it will enable the struggling retailer to improve operations to meet the changing needs of the consumer, CEO Ron Marshall said Monday.

"The steps we are taking now with Lazard will help to ensure Claire's long-term success for years to come," he said in a statement. "We believe this is the right time to undertake this initiative and we want to assure our vendors, employees and stakeholders that we believe we have ample liquidity to honor our commitments through the completion of this process."

The company has previously said that it is working to improve results in its Icing stores and has scaled back promotional activity, resulting in lower sales but higher margins compared to 2015.