Over the past 12 months, the retail world was rocked by big names going under and a couple of others just barely surviving. In most cases, you can blame the financial damage done by the covid pandemic which forced many companies to burn cash while selling very little.
Bed Bath & Beyond led the list as its merchandise was non-essential during the pandemic. People were improving their homes, but that tended to be things like painting rooms or building home offices, not upgrading their bedding or getting new towels.
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Christmas Tree Shops suffered a Chapter 7 bankruptcy liquidation because it simply could not operate for months. It was a store-based business and it simply never recovered from the lockdown period when its stores were either closed or sparsely visited. That's the same fate the befell Tuesday Morning, a similar, albeit less-loved chain that also used the treasure hunt heavy discount model.
Both Party City and David's Bridal narrowly survived their bankruptcy filings which were caused because people basically did not have parties or large weddings for over a year. It's hard to sell wedding dresses and party supplies when people are hunkered down in their homes afraid to see other people, but both of those companies managed to find the money needed to continue.
Now, a company that should have been a pandemic winner stands on the brink of collapse, and its prospects are bleak, according to Creditsafe Head of Brand Ragini Bhalla.
Image source: Getty Images.
Joann faces deep financial problems
In theory, people being stuck at home should have been good for the sewing enthusiasts and other hobbyists that make up Joann's (JOAN) -) customer base. It's possible, however, that even when stores were opened, those customers opted to buy their supplies online.
That could have shifted some of Joann's regulars to Amazon and the ease of buying from the online giant may have changed customer behavior. It's also possible that some of the company's fanbase died, or changed their hobbies during the covid period.
No matter what the reason is, Bhalla thinks the situation is dire.
"Given the struggles JoAnn has had with cash flow, its inability to stay current with many of its bills, its declining sales in FY 2023, and its $1 billion debt load, our Creditsafe algorithm has classified the company as a high risk of becoming seriously delinquent on payments and could be headed for bankruptcy very soon. Without strong leadership (still no permanent CEO), it could be hard to right the ship," she told TheStreet via email.
Joann has a lot of risks
Bhalla pointed out that Joann has been late in paying its bills, something which often foreshadows a bankruptcy filing.
"Creditsafe data shows that Joann struggled to make on-time payments in the second half of 2023. For most of that time, about 20% to 31% of its bills were paid late (1-30 days), while about 1% to 8% of its bills were paid late (31-60 days)," she shared.
Sales have also been falling.
Net sales declined by 4.1% compared to the same period last year to $539.8 million with total comparable sales decreasing 4.1%, the company shared in its fourth-quarter earnings report.
Joann's interim leaders, as all executives do in this situation, tried to paint a positive picture.
"We are pleased with our third quarter results and importantly, have increased our top line full-year outlook. Our third quarter appeared to focus on operational retail fundamentals with an agile, data-driven approach helping us to win in our core categories, while over-delivering on the implementation and execution of our Focus, Simplify and Grow cost-savings initiative," Chief Customer Officer Christopher DiTullio said during the Q3 earnings call.
Despite all of that corporate speak happy talk, Bhalla sees the company's risk of bankruptcy increasing.
"Joann is rated as a high risk: Based on Creditsafe’s risk algorithm which takes into account both trade payment data and financial results, JoAnn is deemed to be a high risk (D), meaning it could be at risk of bankruptcy. Its risk score dropped from C to D in July 2023 and has stayed there since," she added.
