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Neiman Marcus Moves Closer to Its Bankruptcy Exit

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Neiman Marcus’ bankruptcy scaled a couple of milestones Thursday, and executives are getting a raise after all, The Dallas Morning News reported. The luxury retailer is on schedule to have its business plan approved in September and emerge from chapter 11 by early December. That timetable was firmed up with the conditional approval Thursday of a lengthy set of documents that include Neiman Marcus’ business plan and a settlement in the dispute over the transfer of its Munich-based MyTheresa business. Hon. David Jones is expected to sign off on the plan next week, and he also approved big raises for CEO Geoffroy van Raemdonck, seven additional top executives and as many as 239 key employees. In approving the salaries, Judge Jones overruled the bankruptcy court’s trustee. The additional pay for the top executives is capped at $9.95 million, including $6 million for van Raemdonck. Separately, $8.7 million in additional pay was approved for 239 employees. Neiman Marcus’ creditors and lenders didn’t oppose the pay increases. The retention and performance-based compensation plan was filed several weeks ago, but Judge Jones delayed it, asking for more “context” about what he said is a complicated case.
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Can Fashion Survive a Second Wave of COVID-19?

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Even allowing stores to stay open hasn’t stopped a second wave of COVID-19 lockdowns hitting fashion sales in the U.S., Australia and across Europe, heightening fears of wide-scale bankruptcies, Vogue Business reported. Fashion and general merchandise revenues decreased an average of 7.3% across the U.S., in the week ending 19 July, aggregated debit and credit card spending data by Affinity Solutions shows. In California, Texas and Arizona, the declines were considerably higher, with California falling 19.9%, Texas down 13.2% and Arizona slumping 18%, per data from Opportunity Insights, a team of economists based at Harvard University. Fashion retailers have been among the worst hit by the COVID-19 pandemic, with many already on the verge of administration or making significant cuts to their store network and workforce. A resurgence of COVID-19 in the U.S., Australia and some European countries and further lockdowns have come as many governments have announced plans to taper off support for businesses. These trends, compounded by the stress that intermittent reopening and reclosing has on businesses, could lead many more retailers into bankruptcy by the end of the year. Retailers in the U.S. have generally been allowed to keep operating even as other measures to combat COVID-19 have been reintroduced.
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J.C. Penney Lawyer Says Company Nearing Sale, Won’t Liquidate

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J.C. Penney Co. expects to sell itself in coming months to a bidder that will keep the company’s stores operating under the current name, Penney’s lead bankruptcy lawyer said and WSJ Pro reported. Joshua Sussberg of Kirkland & Ellis LLP said that a liquidation was “simply not in the cards” after the company received strong bids from potential buyers that want to keep it in business. One of the proposals came from top lenders including H/2 Capital Partners LLC, Sixth Street Partners and Sculptor Capital Management, which have offered debt forgiveness as currency to buy the company’s real estate holdings out of bankruptcy. Three other bidders made offers for the company’s retail operations. J.C. Penney has said that it would spin off its real estate into an investment trust under the bankruptcy process. The company expects to select a lead bidder and file a proposed asset-purchase agreement with the bankruptcy court early next month, he said. Other bidders will have the opportunity to top the lead offer. The sale requires court approval to close. Sussberg also rejected speculation that Penney would be folded into another retail platform, saying that after the sale, the stores would keep operating under the Penney banner.
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California Pizza Kitchen Is Latest Chain to File for Bankruptcy

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California Pizza Kitchen Inc. filed for chapter 11 in Houston on Wednesday, becoming the latest restaurant chain to try to cut debt as it grapples with the pandemic, Bloomberg reported. The company, which operates more than 200 restaurants in the U.S. and abroad, has reached an agreement with a majority of its senior creditors on a restructuring plan. It’s looking to reduce its debt by $230 million, more than half of the total, and raise additional funding from existing lenders to buttress its balance sheet, according to court filings. Founded in 1985 in Beverly Hills, California Pizza Kitchen was acquired by private-equity firm Golden Gate Capital in 2011. The restaurant chain has been struggling in the past two years amid changing consumer behavior. The company appointed advisers in 2019 for a sale or a restructuring. The COVID-19 pandemic disrupted the chain’s business, which generated 78% of revenues from on-site dining before the crisis. The firm closed 46 of its restaurants and obtained $30 million of emergency financing from lenders already in April, but revenues were still 40% lower than 2019 levels as of the last week of June. The case is In re California Pizza Kitchen Inc., 20-33752, U.S. Bankruptcy Court, Southern District of Texas (Houston).
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Holiday Shopping Is Changing Amid COVID-19 with Best Buy, Kohl's, Walmart, Target Closed Thanksgiving

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Thanksgiving is still four months away but retailers are preparing for a different holiday shopping season amid the coronavirus pandemic, USA Today reported. For years, Thanksgiving and Black Friday have marked the official kickoff to the holiday shopping season and the time of year when shoppers get focused on holiday spending. Enter 2020 and the pandemic. Some of the nation's largest retailers, who usually share holiday plans starting in October, have announced they are breaking with recent tradition and will close on Thanksgiving. Walmart kicked off the Thanksgiving closure announcements, with Target and Dick's Sporting Goods making similar declarations. Best Buy joined the list saying the holiday season is "going to look different." Kohl's announced that its stores would be closed on the holiday, too. Neil Saunders, managing director of Global Data, said he expects more stores will soon announce holiday closings. "Under present conditions, the idea of any retailer driving crowds of people into their store is a non-starter," Saunders said. "No retailer can run the risk of overcrowding and so all will be looking to balance the need to drive sales with the need to keep people safe."
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Back-to-School Delays, Virtual Classes Could Deepen Pain for Some Retailers, and Be Windfall for Others

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This school year, retailers may have only one certainty to count on: Kids are growing and that’ll drive some demand for new clothes, CNBC reported. Otherwise, retailers and industry watchers are unsure of what to expect as the pandemic delays the first day of school, leads to staggered schedules or prompts plans for virtual learning across the U.S. Some analysts predict that families will spend less as they watch their budgets or as home-schooling limits the need for a fresh wardrobe. Others say it will simply shake up the shopping list, adding more big-ticket items like laptops and tablets and shifting spending toward lower-priced casual wear like T-shirts and leggings instead of outfits intended to impress. Even retailers themselves have signaled they don’t know what’s ahead. The back-to-school season — the second largest driver for many retailers after the holidays — could deepen the pain, especially for shopping mall staples with a heavy emphasis on kids’ and teens’ clothing. If demand for apparel is weak heading into the fall, American Eagle, Abercrombie & Fitch and The Children’s Place will especially take a hit. The third quarter makes up about 30% of their annual earnings because back-to-school is such a powerful sales driver. Analysts for Bank of America already predicted negative sales trends in the third quarter for those three retailers. On average, they expected same-store sales for the quarter to fall by about 10%. Now, with headwinds during the back-to-school season, they predict same-store sales will drop by an additional 3% to 4%.
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Tailored Brands Likely to Go Bankrupt in Third Quarter

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Tailored Brands said in 10-Q “it is likely that we will pursue a reorganization under applicable bankruptcy laws, possibly as soon as during the third quarter of fiscal 2020, which begins on Aug. 2, 2020,” Bloomberg reported. In this scenario, shareholders probably will be wiped out, the company said. The owner of Men’s Wearhouse has “considered the projected impact of COVID-19 on our cash flows and analyzed our future compliance with the financial covenants under our ABL Facility, including an additional discretionary reserve imposed against our borrowing base, as described in Note 19, and based on such projections and analysis, we will not remain in compliance with the fixed charge coverage ratio covenant under the ABL Facility beginning in the fourth quarter of fiscal 2020.”
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Tailored Brands Says Bankruptcy ‘Likely’

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Tailored Brands Inc., parent to Men’s Wearhouse and Jos. A. Bank, said in a filing with the Securities and Exchange Commission late Monday: “We have determined that there is substantial doubt about our ability to continue as a going concern. Although we are evaluating several alternatives, it is likely that we will pursue a reorganization under applicable bankruptcy laws, possibly as soon as during the third quarter of fiscal 2020, which begins on Aug. 2, 2020,” WWD reported. The writing has been on the wall for a while. Not only did Tailored Brands find itself selling men’s formal wear just as the world became more casual, the trend moved forward at light speed when the coronavirus sent people home to work, causing ath-leisure looks to gain even more. Tailored Brands Inc. missed a $6.1 million interest payment on July 1, starting a 30-day grace period, which runs out this week. Missing the interest payments will cause a cascade effect with the firm’s debts, which total about $2 billion. The retailer is working with advisers and evaluating alternatives, including a private restructuring. For the quarter ended May 2, Tailored said it lost $269.9 million as sales fell 60 percent to $286.7 million.
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Sycamore Partners Offers $1.75B for JCPenney with Plan to Grow Belks

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The private-equity firm that backed out of a deal to buy Victoria’s Secret in the midst of the coronavirus pandemic appears poised to win an auction to buy JCPenney out of bankruptcy, The New York Post reported. Sycamore Partners has offered $1.75 billion to buy the 118-year-old department store chain with plans to merge it with Belks. Sycamore sees JCPenney helping to revive Belks, a struggling department store chain with 300 stores located mostly in the South. Sycamore owns Belks, as well as retailers Talbots, Staples and The Limited. Also in the running for JCPenney is Saks Fifth Avenue owner Hudson’s Bay Company, which offered $1.7 billion, and mall operators Simon Property and Brookfield Property, which have teamed up with a $1.650 billion offer. While the deal is still subject to approval from the court as well as from JCPenney’s lenders, creditors and board, Sycamore has been in the lead since bids were due on July 22.
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Lion Capital to Keep Control of John Varvatos Fashion Business

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Private-equity firm Lion Capital LLP won the right to rescue the John Varvatos menswear retail operation out of bankruptcy, after a challenge from women who won a $3.5 million Equal Pay Act judgment against the retailer, the Wall Street Journal reported. Earlier, Judge Mary Walrath held that the women failed to show Lion controlled the Varvatos policy that gave men, but not women, a clothing allowance at the rock ’n’ roll menswear seller. Friday, she approved the sale of Varvatos back to a Lion affiliate, Lion Hendrix Cayman Ltd. The acquirer has agreed to provide $2 million to unsecured creditors of John Varvatos, a group that includes the women who sued. Earlier this year, Varvatos female sales associates won a jury verdict in an Equal Pay Act class-action lawsuit that began in 2017, giving them the largest single unsecured claim against the company. Varvatos denied discrimination. The jury ruled against the retailer, awarding $1.7 million in legal fees, as well as the $3.5 million in damages. (Subscription required.)
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