Ascena Retail Group is reportedly preparing to file for Chapter 11 bankruptcy and shutter at least 1,200 of its 2,800 locations, people familiar with the matter told Bloomberg. The filing could come as early as this week, along with a creditor agreement that would eliminate approximately $700 million of the retailer’s $1.1 billion debt load. Lenders including Eaton Vance Corp. would gain control of the company under the terms of the agreement.
Ascena, which operates the Ann Taylor, LOFT, Lane Bryant, Catherines and Justice brands, was hit hard by the COVID-19 pandemic. The company closed all stores and furloughed all store associates in March at the height of the shutdown.
The retailer began reopening in May, with 450 locations operational as of May 27, but traffic was lower than normal and Q3 2020 revenues fell 45% year-over-year. Brick-and-mortar accounts for 60% of Ascena’s sales across its banners, and April’s 9% year-over-year increase in e-Commerce sales wasn’t nearly enough to offset that loss.
“COVID-19 has significantly disrupted our business,” said Carrie Teffner, Interim Executive Chair of Ascena in a statement. “Despite aggressive actions to preserve liquidity, the pandemic has significantly reduced our earnings and cash flow, resulting in increased levels of debt and deferred liabilities. With retail stores making up the majority of our revenue and cash flow, the uncertainty created by COVID-19 requires us to evaluate all options available to protect the business and its stakeholders.”
Ascena was in a weak position even before the pandemic hit. The retailer entered fiscal 2020 following an inventory refresh that was blamed for causing a poor Q4 2019. The move was expected to ensure a product selection that was “relevant and compelling for every season,” but the pandemic didn’t give the retailer a chance to test its effort.