Dive Brief:
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The Children’s Place, which days ago said it was scrambling to shore up its finances and may pursue “strategic alternatives,” may get a reprieve. The retailer has accepted new majority-investor Mithaq Capital’s offer to assist with its liquidity needs.
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The Saudia Arabia-based investment firm and various entities related to it have taken a 54% share in The Children’s Place and intend to nominate 11 people to the board at the specialty retailer’s annual shareholders meeting, the retailer told its shareholders on Thursday.
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The move carries some complications, as Mithaq’s unsolicited acquisition of shares has triggered a change-of-control clause, which caused The Children’s Place to be in default under its amended and restated credit agreement. However, The Children’s Place said it is working with the lenders on a waiver.
Dive Insight:
With signs that its Q4 would miss expectations, The Children’s Place last week said that it’s working with Centerview Partners and other advisors, lenders and potential lenders on new financing and may consider strategic alternatives. Total liquidity as of Feb. 3 is expected to come out to about $45 million (some $13 million in cash and cash equivalents plus $32 million in excess availability under a credit facility).
That is a tough spot to be in, considering that The Children’s Place faces continued declines. A falling U.S. birth rate, challenges to discretionary spending and a rise in e-commerce are all undermining its sales, profit and market share, UBS analyst led by Jay Sole warned last year. Children’s apparel sales in North America are expected to rise just 1%, down from the average 2.3% annual growth of the last decade, according to UBS research.
The retailer had already accelerated its store closure plans in the past couple of years, shuttering more than 250 locations. The company now runs more than 500 stores in North America, down from 613 a year ago. Last year the retailer also cut its salaried workforce by 17%.
On Thursday, the company reiterated that its board and leadership “are committed to acting in the best interests of all shareholders,” and that for now shareholders themselves are not required to take any action.
