Dive Brief:
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Mall-based teen retailer Charlotte Russe is reportedly considering a sale or bankruptcy, people familiar with the matter told The Wall Street Journal on Friday.
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The retailer hired Guggenheim Securities recently to explore strategic alternatives, the sources told the Journal.
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A bankruptcy could be avoided if the retailer can strike a deal that allows it to scale, potentially through a sale or partnership of some kind, one of the sources said.
Dive Insight:
Despite some moves to reorganize its balance sheet and make headway with e-commerce efforts, Charlotte Russe's financial situation has remained precarious for the last several years. The company has been struggling to unload mounting debt in an increasingly difficult climate for mall-based retailers. In February 2018, the company announced a restructuring deal with lenders that allowed it to slash its debt from $214 million to $90 million.
At the time, S&P upgraded the company in light of the move, but cautioned that liquidity would be tight over the next year because of the retailer's "need to improve operating performance and free cash flow prospects." Analysts issued a negative outlook on expectations that intense competition and declining foot traffic would continue in the specialty segment.
The company is one of many specialty retailers to have been bought out by private equity; In 2009, Advent International bought Charlotte Russe and the 500 stores it had at the time for $380 million.
That doesn't bode well for its future. According to a Retail Dive analysis, more than 15% of retailers acquired by private equity firms over the past 15 years have filed for Chapter 11, including other major mall-based chains like Claire's Stores, The Limited and rue21. Those companies similarly struggled to reduce their debt amid a changing retail climate where malls are still recovering since hitting a seven year-high vacancy rate last quarter and Gen Z is increasingly shopping online.
Charlotte Russe has previously landed on several bankruptcy watch lists.
