Francesca’s Files for Bankruptcy With Pandemic Toll Growing
(Bloomberg) -- Boutique women’s clothing chain Francesca’s Holdings Corp. filed for bankruptcy after the pandemic eroded the company’s already flagging sales.
The Houston-based company sought Chapter 11 protection in U.S. Bankruptcy Court in Delaware late Thursday with plans to sell the business, according to a statement. TerraMar Capital LLC or an affiliate has agreed to become the stalking-horse bidder in a court-supervised auction, and Francesca’s existing lender, Tiger Finance LLC, has committed to provide a $25 million bankruptcy loan, the retailer said.
“Implementing this process allows Francesca’s to address our lease obligations and seek a new investor that can see Francesca’s into the future,” Andrew Clarke, chief executive officer, said in the statement. Other potential bidders are studying the company, the chain added, with a target of Jan. 20 for completing a sale.
Francesca’s markets itself as a destination for ever-changing fashion. It replenishes its merchandise daily, with the capacity to ship more than 100,000 units each day. About half of the company’s 1,500-square-foot boutiques are in malls.
The chain joins a growing list of more than three dozen clothing retailers seeking to reorganize amid the pandemic. Francesca’s temporarily shut down in March and began reopening in April, leading to a 50% drop in first-quarter net sales that raised doubt about its ability to survive. Bloomberg reported Francesca’s pending court filing last week.
But Francesca’s was already struggling well before the pandemic hit. The previous management reported two years of losses and scrapped a strategic review last year after top executives departed.
Clarke, who took over as CEO early this year, previously headed the Loft chain of Ascena Retail Group Inc., which has also filed for bankruptcy. He inherited a turnaround program begun last year that aimed to cut costs, boost online sales and refocus on its 18-to-35-year-old customers, according to court filings. In a sign of how far behind Francesca’s had fallen, the company launched its first mobile app only last month.
“Without these initiatives, Francesca’s likelihood of continuing as a going concern would have been greatly diminished,” Clarke said in court papers Friday.
The impact of the pandemic was simply too great to avoid Chapter 11, Clarke said. While online sales were growing, most of the revenue was coming from the stores. To cut expenses, Francesca’s deferred about $36.8 million in rent as foot traffic plunged by 47%.
The bankruptcy is another blow for retail landlords, whose struggling tenants have been withholding rent or filing for Chapter 11 protection. Shopping center owners listed as creditors in Francesca’s court case include Simon Property Group Inc. and Tanger Properties LP, according to court records.
Francesca’s last month said it planned to shutter about 140 of its 700 stores and added late Thursday that more closings might be necessary. Some 558 stores remain open and the company employs 4,540 people, most of whom work at the boutiques, court papers show.
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The case is Francesca’s Holdings Corp., 20-13076, U.S. Bankruptcy Court in the District of Delaware. To see the docket on Bloomberg Law, click here.
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