Dive Brief:

• J. Crew is once again working with restructuring lawyers as it grapples with its debt amid falling sales and ebbing cash reserves, Reuters reports, citing unnamed sources.

• The struggling apparel retailer has Weil, Gotshal & Manges LLP on the line, according to the report. That's the same law firm J. Crew hired during last year's debt-driven drama and the practice is known for its bankruptcy expertise.

• The retailer has also tapped the firm's experts in mergers and acquisitions as well as capital markets, sources told Reuters. J. Crew didn't immediately return Retail Dive's request for comment, but told Reuters that it is evaluating means to strengthen the company's balance sheet and that it's focused on its strategy to turn around its flagship and grow its Madewell brand.

Dive Insight:

J. Crew's financial situation threatens to imperil its efforts to revive its namesake brand and grow its smaller, but better-performing, denim banner. The apparel company remains saddled with $1.7 billion in debt even after prevailing in a debt swap scheme last year. It is down to a meager $25 million or so in cash, according to a press release.  

Calling on outside experts to aid in debt reduction isn't necessarily a sign of imminent bankruptcy, but it's almost always more dire when a retailer is back at it within such a short amount of time, according to Pat Collins, a partner at Farrell Fritz with expertise in bankruptcy, restructuring and distressed retail.

"You've got to make your debt service payments and the amount you have to make capital improvements is gone," he told Retail Dive in an interview. "Even scaling down is not easy — scaling down costs money. A lot of one-time expenditures would be necessary and without the free cash it's very difficult."

Collins also said that suppliers are likely to tighten their terms, and that too complicates a turnaround because, in addition to having to more readily put up cash, a retailer can't so easily access the merchandise it plans to improve its assortments. A retailer in distress may seek to sell its better-performing brands or operations to ease its cash deprivation, he also said. 

In J. Crew's case, its Madewell brand, though growing faster and performing better than the flagship, is much smaller, possibly making it less valuable to potential suitors. J. Crew sales in the most recent quarter fell 4% to $527.9 million as Madewell sales rose 16% to $157.9 million. Overall comps rose 9% in the quarter, following a 3% decrease in the year-ago quarter; J. Crew comps rose 6%, following a decrease of 7% in the year-ago period, while Madewell comps rose 22% following last year's 19% fourth quarter increase.

Spinning off Madewell could also further imperil the struggling namesake banner, Collins said. Plus, there's no guarantee that Madewell maintains its trajectory. "Consumers are so fickle these days — these smaller brands, an up-and-coming brand — they may not get optimal value for it if they try to sell it," he said.

The situation doesn't necessarily signal the last of J. Crew, however, according to Mark Cohen, director of retail studies at Columbia University's Graduate School of Business. "I don't think they are ready for last rites — at least not yet," he told Retail Dive in an email. "They have too much short term debt on their balance sheet that they likely can't deal with without some sort of financial recapitalization. (New longer term debt to replace what they now have hanging over their heads.) They don't yet have a go forward merchandising  strategy for all of their various brands and formats, and, unless I've missed something, they don't have a CEO."

Chief executive James Brett left in November after just over a year, and Mickey Drexler, who served as CEO for 16 years, had remained as chairman of the board, but left that position in January.