Financials

Francesca’s Weighs Possible Bankruptcy

FinancialsJun 18, 2020

Francesca’s Weighs Possible Bankruptcy

The COVID-19 pandemic exacerbated existing problems for the clothing and accessories chain, including declining sales and store traffic.

20200618_Francescas.jpg
Francesca’s is considering bankruptcy as the COVID-19 pandemic takes a toll on its business. (Image courtesy of Flickr/Phillip Pessar)

Houston—Clothing and accessories chain Francesca's Holding Corp warned a bankruptcy may be in its future in a filing with the U.S. Securities and Exchange Commission Tuesday.

The retailer reiterated its “going concern” warning, an alert to shareholders that it may not be able to meet its financial obligations.

The warning was first issued in May following the closure of its stores and the disruptions to its supply chain amid the COVID-19 pandemic.

Francesca’s warned if it is financially unable to sustain its operations, it “may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection."

The retailer, like so many others, was hit hard by the pandemic.

In a press release, CEO Andrew Clarke described its recent fourth-quarter results as “disappointing,” posting flat year-over-year net sales of $118.9 million.

Francesca’s said it has been grappling with a decrease in comparable sales, net sales, and gross profit as well as a decline in store traffic and conversion rates.

The temporary closure of its 703 locations from late March to late April, leading to the furloughing of many of its employees, only exacerbated these issues, said the company.

As lockdown orders are lifted state by state, it has begun to reopen its locations but that has brought its own problems.

The stores operate with reduced staffing as part of a phase-in period, but the company noted it could face a shortage of employees willing to work in reopened stores.

The delay in the shipment of merchandise to its stores coupled with a drop in store traffic due to a decline in consumers’ willingness to visit malls and shopping centers, where many of its stores are located, were also listed as concerns.

The retailer’s leases for its stores, corporate headquarters, and distribution facilities are also hanging in the balance.

It stopped lease payments in April and while it intends to resume payments in July, including back rent for the missed months, it may not have the funds.

If the retailer can’t secure rent relief, its leases may be cancelled.

Francesca’s first “going concern” warning last month and its failure to pay rent violated terms of its credit agreements, but the company said lenders have granted it a waiver regarding its rent agreement.

If the retailer can’t regain compliance with the terms of its agreements, it could default on them and be unable to borrow under the credit agreements.

The company is still assessing the overall impact of COVID-19 and told the SEC it needs more time to file its first-quarter results.

“The extent to which the COVID-19 pandemic continues to impact our results will depend on future developments that are highly uncertain and cannot be predicted at this time, including new information that may emerge concerning the severity of the virus and the actions to contain its impact,” said Francesca’s.

Signet Jewelers Ltd. also requested more time to file its quarterly report from the SEC last week for similar reasons.

Francesca’s is expected to file its quarterly report no later than 45 days after June 16. 

Lenore Fedowis the senior editor, news at National Jeweler, covering the retail beat and the business side of jewelry.

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