FINANCE

American Apparel gains court approval of bankruptcy loan

BY Deena M. Amato-McCoy

American Apparel witnessed a bright light in its ongoing financial saga.

The beleaguered specialty retailer has court approval to use the remainder of its $30 million bankruptcy loan. American Apparel filed Chapter 11 in November, its second filing in 15 months.

Judge Brendan Shannon of the U.S. Bankruptcy Court in Wilmington, Del., approved the financing package the chain received from post-bankruptcy lender Encina Business Credit, on Monday, Dec. 12. The approval stemmed from the retailer’s efforts to resolve issues with unsecured creditors, according to the Wall Street Journal.

While a final hearing approving American Apparel’s usage of the lender’s cash is pending for Jan. 12, the retailer will still have access to the funds on an interim basis. The loan was initially secured to fund the cost of its Chapter 11 case, the Wall Street Journal said.

Attorneys for unsecured creditors and pre bankruptcy lenders credit constructive negotiations for the decision, and the parties hope to reach a timely global settlement to avoid additional fees, the Journal reported.

The news comes on the heels of the retailer’s announcement to close up to nine under-performing stores by the end of December.

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FINANCE

Lidl’s U.S. launch gains momentum

BY Deena M. Amato-McCoy

Lidl has made bold moves this week in preparation of its upcoming United States launch.

The company has acquired the site of an industrial building in Philadelphia’s Port Richmond neighborhood, which could be the chain’s first location in Philadelphia, according to philly.com.

This investment follows the German discounter’s recent $2.88 million purchase for two parcels of an Arlington, Va.-based U.S. unit that covers nearly four acres of land, according to city property records.

Building further momentum, Lidl is starting its talent search in earnest.

In addition to inviting potential store managers to a job fair in North Carolina on Monday, Dec. 12, the German retailer will hold another event for store supervisors in Fairfax, Virginia on Wednesday, Dec. 14, according to the company’s website.

These potential candidates will be placed in stores anticipated to open across the eastern seaboard in 2017— a move that will give new competition to a number of price-sensitive retailers, including Walmart, Dollar Tree, Food Lion and Stop & Shop, according to Kantar Retail.

“We have landed in America and we are searching for talented, friendly and dynamic people to grow with us,” the site said. “We are one of the top four largest grocery retailers in the world and we are bringing a brand new fresh shopping experience to our American shoppers.”

Lidl, which operates nearly 10,000 stores in 27 countries, plans to open between 120 and150 stores by the end of 2017, according to Reuters.

The chain will steadily continue its store and distribution center expansion throughout the United States in the years thereafter, the site said.

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FINANCE

Analysis: Neiman Marcus’ debt burden ‘completely unsustainable’ for firm of its scale

BY CSA STAFF

Neil Saunders, CEO of Conlumino, comments on Neiman Marcus’ first quarter results below:

"After ending its prior fiscal on a low note, Neiman Marcus has opened its new year with an even worse set of figures. Total revenue declined by 7.4%, while comparable sales slipped by 8.0%. Both figures are sequentially worse than the prior quarter and come off the back of a very weak set of numbers in the previous year – particularly so for comparable sales which fell by 5.6% in first quarter of last fiscal year.

The serious weakness on the topline did nothing to help the bottom line numbers where operating profit was compressed by almost 54%, and net losses more than doubled to $23.5 million from $10.5 million in the prior year. This is a highly unsatisfactory position for a company with $4.4 billion of long term debt, and almost $5 billion of debt when short term credit facilities are included.

In our view, such a debt burden is completely unsustainable for a company of Neiman Marcus’ scale. Indeed, even if all interest was frozen and the entirety of operating profit was to be directed to the purpose of paying down the debt, it would take well over 40 years to remove it from the balance sheet.

Such a position underlines the fragile nature of the company’s finances, something that hits home when the $72 million quarterly interest payments are appreciated. This acts as a major barrier to the company being sold and makes an IPO far less attractive. It also guarantees that without a significant rise in sales, the company will remain loss making.

Generating that increase in sales will be extremely challenging given that there are host of pressures acting as a brake on retail growth. Weaker traffic in malls and weaker tourist spending are foremost among these, and both are likely to persist well into next year. The rise of direct selling by luxury brands is also a negative trend for Neiman Marcus and, longer term, has the potential to undermine its reason for existence as a destination for high-end product.

A dip in customer traffic and spend from affluent, but not highly affluent, shoppers is also a factor in diluting sales. While not core customers, these consumers form an important part of Neiman Marcus’ shopper base and are now much more reluctant to spend. Against this trend Neiman Marcus has become a rather expensive niche player; in our view if it does not remedy this it will become an increasingly irrelevant player as well.

In many ways, all of this is a shame. Neiman Marcus invests a lot in its stores, in customer service, and in its omnichannel offer. However, these things amount to very little if consumers are not willing to bear the prices charged, or can find the product elsewhere. In short the company now needs to rebuild its relevance."

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