Gymboree Will Shut Doors After Turnaround Collapses
(Bloomberg) -- Gymboree Group Inc. will shut down after going bankrupt a second time, the victim of falling mall traffic and cheaper online sources of kids clothing. About 10,000 people could lose their jobs.
The retailer filed for protection from creditors owed about $212 million in U.S. Bankruptcy Court for the Eastern District of Virginia, according to a statement late Wednesday. The San Francisco-based company, which operates 945 stores under three brands in the U.S. and Canada, plans to close its Gymboree and Crazy 8 chains after failing to find anyone willing to buy them, court papers show. A unit of Goldman Sachs Group Inc. is leading bids for Gymboree’s higher-end Janie and Jack business.
Gymboree will join Toys R Us Inc., Shopko Stores and Bon-Ton Stores Inc. in the ranks of defunct retailers that collapsed as shoppers deserted malls and bought online. The decision came less than a year and a half after Gymboree emerged from an earlier Chapter 11 bankruptcy that cut debt, overhauled operations and enabled it to launch a rebranded clothing line.
“We are here for a re-do,” given the retailer was in bankruptcy court less than two years ago, Michael Price of Milbank, Tweed, Hadley & McCloy LLP as counsel for the debtors said at the start of the company’s first day hearing. Price expects the case and sale process to move along at a “decent clip,” given the work that was done ahead of the bankruptcy filing, he said.
Going-out-of business sales are being planned to dispose of inventory, raising about $155 million in net proceeds, Chief Restructuring Officer Stephen Coulombe said in court papers. The company expects the sales and store closings will continue through April.
“We are saddened and highly disappointed that we must move ahead with a wind-down of the Gymboree and Crazy 8 businesses,” Chief Executive Officer Shaz Kahng, appointed in November, said in the statement. An auction of company assets is expected by Feb. 25.
The bankruptcy comes at a time of weakness for the children’s apparel industry, with sales at children’s and infant wear stores falling 5.8 percent in November and 5.9 percent in December, according to First Data.
Shares of The Children’s Place Inc., a Secaucus, N.J.-based rival of Gymboree, have dropped 46 percent since early November.
“This is what happens when you take a company into bankruptcy on an accelerated timeline and just use the bankruptcy process to strip off some debt,” said Ted Gavin, a turnaround consultant at Gavin/Solmonese and president of the American Bankruptcy Institute. “If you don’t make the company more profitable, you end up right back in the same place.”
Competition after the first filing was still robust from Children’s Place, the Gap, discount stores, internet retailers and big-box retailers that sold clothing at cheaper prices to get shoppers into the store. Margins shrank, and Gymboree’s net retail sales dropped 27 percent to $573 million during the nine months ended Nov. 3, court documents show.
The staff includes 10,100 people on a full- and part-time basis, according to the filings. The vast majority, 9,600, are hourly workers. Gymboree said the $212 million in total obligations include $79.1 million under a senior secured asset-based revolving credit facility, $44.5 million of outstanding letters of credit under the ABL facility, and around $89 million under its senior secured term loan.
Special Situations Investing Group, a lending and investment affiliate of Goldman Sachs, is serving as the stalking-horse bidder in a court-supervised sale process for Janie and Jack. The company will use the procedure to gauge interest from other suitors who could emerge and express interest in the business for a higher price, counsel for the debtors said in court.
Janie and Jack continues to operate well “even in times of turbulence,” while Gymboree and Crazy 8 have struggled since the debtors last emerged from bankruptcy, Coulombe told the judge. It’s a “tale of two stores.”
Going-out-of-business sales will commence Friday, just in time to capture customers over the three-day weekend in the U.S. Customers have 30 days to use their existing gift cards until they are no longer valid, counsel for Gymboree said.
The case is Gymboree Group Inc., 19-30258, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond)
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