Stage Stores’ stock plunged 59 percent to a low of 51 cents per share Wednesday amid reports that the Houston retailer is considering a financial restructuring that might include a bankruptcy filing.
Speculation about the department store chain’s future swirled amid dismal holiday sales and anonymously-sourced stories from Debtwire and The Wall Street Journal, which sent the company’ stock on a nosedive from a recent high of $9.29 in early January to 79 cents per share by the close of Wednesday trading. The company, which has more than 700 stores nationally, has a market capitalization of $22.8 million.
Debtwire, a publication specializing in distressed debt, first reported late last month that Stage Stores hired New York-based financial services firm PJ Solomon and Chicago law firm Kirkland & Ellis to explore refinancing its $365 million of debt amid liquidity concerns. The Wall Street Journal on Tuesday reported Stage Stores is likely to file for Chapter 11 bankruptcy, but added the company could instead complete an out-of-court debt restructuring process. The retailer reportedly has been late in paying its vendors recently.
Stage Stores executives did not return requests for comment. PJ Solomon declined to comment.
Anthony Campagna, an analyst who covered Stage Stores until a couple of years ago, could not confirm the reports but said it’s not surprising regional retailers are struggling as more consumers migrate to e-commerce.
“It’s a tough market out there, especially as brick-and-mortar loses traffic to online,” said Campagna, research director with Institutional Shareholder Services, a Maryland-based proxy advisory firm.
Stage Stores’ financial woes comes as the retailer is converting all of its department stores into Gordmans locations, betting the company’s future on the still-flourishing off-price segment of the retail industry.
The company is planning to invest $30 million to transform some 600 Bealls, Goody’s, Palais Royal, Peebles and Stage stores into Gordmans, its off-price brand selling brand-name apparel, accessories, footwear, home and pet goods at a fraction of the price of typical department stores.
The conversions, which cost about $40,000 per store, are starting this month, and are expected to wrap up by the third quarter of the year. After completing its off-price pivot this year, the retailer expects to operate approximately 700 Gordmans locations. The company currently has 611 department stores and 158 Gordmans locations.
Gordmans, similar to its competitors TJ Maxx, Burlington and Ross, takes advantage of close-out sales and overstocks from traditional department stores to offer brands at up to an 80 percent discount. Sales and profit margins at the purple-colored stores have been higher than traditional department stores, the company said.
“If there’s one glimmer of light in brick and mortar, it’s off-price,” Campagna said. “This segment hasn’t suffered as much.”
Stage Stores reported a net loss of $15.9 million on revenue of $399 million during its most recent quarter ended Nov. 2. The company was able to cut its losses by half year over year, and it grew its net sales by $52 million, or 15 percent, from the prior year. Same-store sales jumped 17.4 percent.
However, the company last month said its same-store sales during the holiday season grew only 1.4 percent, missing Wall Street expectations. Executives pointed to lower-than-expected sales at the company’s traditional department stores, as well as a warmer holiday season. As a result, the retailer lowered its forecast for its full-year earnings and comparable sales.
“While our positive comparable sales for the holidays did not meet expectations, we remain confident that our off-price strategy will lead to profitable growth in the future,” Chief Executive Michael Glazer said in a statement last month.
The retailer has $448 million in available liquidity, including $26 million cash on hand at the end of its most recent quarter. The company has $365 million of debt, split between a $47.5 million term loan and $317 million of borrowing under its revolving line of credit, according to Debtwire. The company’s credit facility is set to mature in December 2021.
Restructuring debt doesn’t always help retailers stave off bankruptcy, said Reshmi Basu, restructuring editor at Debtwire. Charming Charlie, Toys R Us and Payless Shoesource restructured their debt in 2017, only to later file for bankruptcy and liquidate their stores.
“Even if you have a cleaner balance sheet, you still have to drive traffic to stores,” Basu said. “With declining malls, it’s almost impossible.”