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Ann Taylor and Lane Bryant owner files for Chapter 11 bankruptcy

Retail stores face uphill battle during pandemic
Retail stores face uphill battle during pande... 01:57

Ann Taylor and Lane Bryant's corporate owner filed for Chapter 11 bankruptcy Thursday, the latest retailer to do so during the coronavirus pandemic.

Ascena Retail Group of Mahway, New Jersey, which operates nearly 3,000 stores mostly at malls, had been dragged down by debt and weak sales for years. As part of its bankruptcy plan, the company said that it would close all of its Catherines stores, a "significant number" of Justice stores and a select number of Ann Taylor, Loft, Lane Bryant and Lou & Grey stores.

The company said it has reached an agreement with its creditors to reduce its debt by $1 billion. It received $150 million in new financing to continue operating during its restructuring.

Ascena joins a growing list of mostly clothing retailers that have filed for Chapter 11, including Brooks Brothers, Neiman Marcus, J.C. Penney, J.Crew and Stage Stores. These retailers were already struggling with weak sales, but the forced closure of non-essential stores in March to reduce the spread of COVID-19 put them further in peril.

The coronavirus has caused thousands of corporate bankruptcies, with U.S. retailers, energy companies and other businesses succumbing to the recession caused by the pandemic. Through June 30, there were more than 3,600 Chapter 11 filings — a 26% jump from the year-ago period. 

Analysts and financial experts say the worst is yet to come. Mary Ann Domuracki, managing director of MMG Advisors, an investment bank that advises companies on restructuring, said she expects a second wave of bankruptcies in the fall. 

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"This [next] round is going to be people who would have survived under normal circumstances," said Domuracki, who is working on the Chapter 11 restructuring of fashion brands John Varvatos and J. Hilburn. "But they can't. They are business models that don't meet the consumer needs in the next two years."

Analysts expect more business failures to come as healthy retailers buckle under the financial toll from the relentless pandemic. New COVID-19 cases across the nation have kept potential customers shoppers away. Meanwhile, shoppers are dramatically changing their shopping habits, shifting away from work clothes and more toward athletic wear. 

Shoppers, worried about their finances, could pull back even more heading into the critical fall and holiday shopping season.

Ascena furloughed 90% of its workers when it temporarily shuttered its stores while also canceling merchandising orders where possible to preserve cash. It started to reopen locations in mid-May and now has about 95% of its stores open.

Prior to the pandemic, Ascena's stores accounted for about 60% of total revenue. Consequently, the pandemic "has significantly reduced our earnings and cash flow," according to a May statement from Carrie Teffner, Ascena's interim executive chair. 

Total revenue in the third quarter of fiscal 2020, which covered February through April, was down 45% compared with the same period a year ago.

The company had revenue of $5.5 billion during its latest fiscal year ended Aug. 3, 2019.

Ascena said in late May that it ended the fiscal third quarter with outstanding debt of $1.3 billion with interest payments due in the fourth quarter of fiscal 2020 of $20.9 million and its next quarterly loan payment of $22.5 million due in November.

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