Dive Brief:
- Off-price retailer Tuesday Morning filed for Chapter 11 citing the "immense impact" and "insurmountable financial hurdle" from closures related to the COVID-19 crisis.
- It entered bankruptcy with commitments for $100 million in special financing, known as debtor-in-possession (DIP), to fund it through the process. As part of its DIP agreement, it must raise an additional $25 million in financing elsewhere as well.
- Tuesday Morning said it planned to close about 230 of its 687 stores over the summer, according to an announcement released Wednesday. It has already asked for court permission to close at least 132 locations as part of an initial phase. The retailer intends to reorganize in bankruptcy and reduce its liabilities but did not indicate that it had a pre-negotiated plan with lenders or other parties to do so.
Dive Insight:
While Tuesday Morning pointed to the pandemic — which has landed a direct blow on retail sales with stay-at-home orders in most states over much of the last three months — the company had financial troubles well before COVID-19 arrived in the U.S.
"The prolonged and unexpected closures of our stores in response to COVID-19 has had severe consequences on our business," CEO Steve Becker said. "Prior to the pandemic, we were gaining momentum in our merchant organization, growing our vendor base and improving brands, assortment and value for our customers, while investing in our technology and corporate leadership team."
Becker added that the prolonged closures "put the Company in a financial position that can be effectively addressed only through a reorganization in Chapter 11."
The company may well have managed outside of Chapter 11 if not for COVID-19, but it has posted operating and net losses for the past three years while adding only middling top-line growth. Last year, the retailer managed only a 0.4% comparable sales increase. By comparison, off-price giant TJX Cos saw comp sales growth of 10 times that figure in 2019.
Tuesday Morning tried to correct for tepid sales with a strategy based around improving store locations and the in-store experience. That entailed closing and relocating low-traffic, unproductive stores, as well as expanding the square footage of some existing stores.
Life for smaller off-price retailers is not necessarily easy. Stage Stores, which runs the off-price Gordmans banner that was supposed to be the future of the company, filed for Chapter 11 this month as well. It is now preparing to wind down unless a buyer emerges. Another smaller regional off-pricer, 99 Cents Only, has restructured its debt twice out of court in as many years to stave off bankruptcy.
The COVID-19 crisis has dealt a financial blow to retailers across the board, falling particularly hard on retailers already in distress. After temporarily closing all of its stores, Tuesday Morning has reopened 80% and expects to open more in the coming weeks.
"We plan to emerge from Chapter 11 in a stronger position as a leading home goods off-price retailer, providing unmatched value to our customers," Becker said. He added that "we've been encouraged by very positive performance of the business as we continue to re-open our doors."
