These 12 Popular Retailers Are At Risk Of Bankruptcy In 2018

Amazon and e-commerce are taking over, consumers are spending less on things and more on experiences, billions of dollars in debt are coming due soon. This leaves less money to invest in retail businesses, and off-price stores and discounters are pushing middle-tier names to the limit. And while 2017 set record numbers for retail bankruptcies, executives expect 2018 to keep pace or increase.

While six retailers have already filed for bankruptcy in 2018, including Bon-Ton Stores,  other struggling companies are also susceptible. CreditRiskMonitor, a service which predicts the risks of companies with publicly traded stock or bonds going bankrupt, uses data to come up with which companies could go bankrupt within 12 months. They use a “FRISK” score to weigh the probability of bankruptcy, with a score of one meaning a 9.99%-50% chance, and a score of two indicating a 4%-9.99% chance.

Below are CreditRiskMonitor’s FRISK scores of one or two in the first quarter of 2018:

J. Crew

FRISK score: 1 

As the company expanded and tried to go upscale, consumers changed both tastes and spending habit. Sales declined, and the long-time CEO departed, leaving a $2 billion debt. Net losses for 2017 increased from $23.5 million to $125 million.

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Neiman Marcus

FRISK score: 1 

Neiman Marcus has $4.8 billion in debt, but has performed better in recent quarters. Job cuts and a “Digital First” strategy to attract customers are paying off. However, their IPO never happened, acquisition talks with Hudson’s Bay ended, and there’s been changes at the CEO and CFO levels. Their next major debt payment is due in 2020, but they still have a total liquidity of $843 million as of January 2018.

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Sears Holdings

FRISK score: 1

Sales have been declining for 10 years, and there have been store closures, asset sales, layoffs, and cost cuts. have been declining for nearly a decade. Years of cost cutsstore closuresasset sales and layoffs have, in most prior quarters, done little beyond slowing the loss of money. Ties were cut off with Whirlpool. Loans from CEO Eddie Lampert’s hedge fund has helped avoid bankruptcy, but comparable sales dropped 15%. However, 4th quarter had a profit, and the company got turnaround time and cash with a distressed debt exchange.

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99 Cents Only

FRISK score: 1

With other low-margin stores competing, such as Dollar General and Walmart, 99 Cents Only Stores is in an ongoing battle for market share. Ares Management, the Canadian pension fund, and a private family bought the 35 year old chain in 2012. With a new CEO, the company has had positive same-store sales for a few quarters, though it is still losing money, about $72 million. Last December, it completed a distressed debt exchange that somewhat improved their liquidity.

GNC

FRISK score: 1

A leader in the growing and competitive supplements business, it has faced financial and operational issues. Revenues fell 3.4% in 2017 from 2016 to about $2.5 billion. $2.5 billion. At the end of 2016, they briefly closed all its stores to rebrand, and the CEO has been replaced twice. Loyalty programs and extended debt agreements are positive factors, and in February, a Chinese pharma offered to buy 40% of GNC and sell and manufacture the products in China. The deal will close before the end of 2018.

Fred’s

FRISK score: 1

Fred’s Pharmacy, with 600 stores, is 70 years old. Plans to expand failed and the CFO resigned, as the company thinks about selling its specialty pharmacy business. Sales fell 4.5% from 2016 to 2017, and net loss expanded to $51.8 million.

Destination Maternity

FRISK score: 2

With more than 1,000 locations, Destination Maternity claims to be the largest designer and retailer of maternity apparel. Last year sales fell more than 7%, and sales declined 6.3% in 2017, but had a smaller net loss of $21.6 million than in 2016.  E-commerce is helping to improve sales.

Ascena Retail

FRISK score: 2

With a net loss of $1 billion in 2017, Ascena will close 250 stores, or 25% of its stores, by the end of 2019, and hired a new chief for Dress Barn. Sales fell 8% at Ann Taylor and 1% at Loft. 

Stein Mart

FRISK score: 2

Stein Mart is making progress by improving merchandise, getting rid of inventory, cutting costs and testing new services. Sales have stabilized and digital sales grew by 47% in October. Losses fell about 10% over the previous year, but still had a $23.4 million net loss, and comparable sales fell 6.2% in 2017. Starting with one store in 1902, it now has 300 stores. The company has hired advisors to improve performance, and paid off a $50 million term loan in March.

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J.C. Penney

FRISK score: 2

Along with other department stores, J. C. Penney has been under pressure for a long time. The company got rid of most of its women’s inventory, fired more than 1,000 people, closed a distribution center, and ended with $116 in net income. It still has a total debt of $4.2 billion, a huge financial risk, which also prevents adapting to changes in retail.

Office Depot

FRISK score: 2

2018 is a big year of transition. Emphasis will shift from retail sales to business services after a merger with Staples was blocked. So far, results have been favourable. It is investing in B2B operations and acquired IT services firm CompuCom last fall. However, sales decreased 7% in 2017 to $10.2 billion, and the company has $1.3 billion in long-term debit and almost $4 billion in total obligations.

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Vitamin Shoppe

FRISK score: 2

With its new subscription service, the company has increased its e-commerce penetration. However, like GNC, it is suffering from decreases in mall traffic and fierce competition in the supplement industry. Sales fell 8.5% last year, with a net loss of about $252 million. The company is trying to turn around its business with products to appeal to in-store “health enthusiasts” and “grass roots” events, delivery service, and its loyalty program.

Would you be sad to see these retailers go? Let us know in the comments.

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