UPDATE: May 21, 2019: In an emailed statement, a David's Bridal spokesperson said of the S&P Global downgrade, "Under its new management team, David's Bridal is executing a strategic transformation and strengthening its financial foundation to return the Company to its position as the clear leader in the bridal industry."

Dive Brief:

• S&P Global downgraded David's Bridal's credit rating into junk territory after the wedding apparel retailer's performance "remained significantly weaker than anticipated after emergence from bankruptcy," according to an S&P release emailed to Retail Dive. David's Bridal did not immediately respond to Retail Dive's request for comment.
• Analysts with the ratings agency said that David's Bridal was at risk of failing to repay its debt "as we expect poor customer traffic will pressure operating performance and lead to added volatility."
• The analysts project negative cash flow and tight liquidity over the next year. They also described the retailer's debt levels as "potentially unsustainable based on its rapidly weakening operating performance, which makes it vulnerable to unfavorable business and financial conditions to meet its commitments in the long term." Along with its corporate rating, S&P downgraded two separate term loans to David's Bridal totaling $300 million.

Dive Insight:

David's Bridal hasn't even been out of bankruptcy for four months, and already its ability to pay off its debt and stabilize its sales is being called into question. The retailer's relatively quick trip through Chapter 11 — which turned over ownership to a group of lenders, including Oaktree Capital Management — took $450 million of debt off its books. But even so, the company's diminished business might not be able to sustain its capital structure, according to S&P.

Since emerging from bankruptcy, the company has turned over its CEO and chief financial officer. Scott Key, the departing CEO, had been on the job for just a year before departing in March and being replaced by interim CEO Tom Lynch. Also in March, David's Bridal brought in Jeffrey Zelenko as a strategic advisor to position the retailer "for the next phase of its growth and development," David's Bridal said then.

The S&P downgrade highlights the uncertainty for many specialty retailers, even those that have tried to downsize their debt and expenses through Chapter 11. This year saw Gymboree and Payless shut down entirely, after both had shed stores and debt in bankruptcy less than two years ago in attempts to bring their retail businesses back to health.

Both of those retailers had large debt piles from leveraged buyouts — as did David's Bridal — that did not go completely away after their first Chapter 11. But both also faced a tough retail market where financially healthier competitors can take advantage of digital and price investments. This was vividly the case with Gymboree and The Children's Place, as the latter developed sophisticated tools to target rival Gymboree's customers as it shuttered stores and tried to find its way in the category.

The financial woes of David's Bridal have been magnified by a shifting market. As with other apparel and specialty categories, wedding apparel shoppers have been polarizing, migrating to luxury on one end of the price spectrum and value on the other, while the middle hollows out. And the brand has been slow to adapt to a changing market shaped by online pure-play providers, more customizable offerings, and casualization that popularized gowns beyond the traditional white wedding dress.

S&P analysts said their rating for David's Bridal could tick up if the retailer is able to bring customers back to its stores — enough to raise its comps into the mid-single digits — and reduce discounting.