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August 12, 2020 – Stein Mart, Inc. and two affiliated Debtors (NASDAQ: SMRT; “Stein Mart” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Middle District of Florida, lead case number 20-02387. The Debtors, an omni off-price retailer with 281 stores across 30 states, are represented by Gardner F. Davis of Foley & Lardner LLP. Further board-authorized engagements include (i) Clear Thinking Group LLC as restructuring advisors, (ii) PJ SOLOMON as investment banker and (iii) Stretto as claims agent.
The Debtors’ lead petition notes between 5,000 and 10,000 creditors, estimated assets of $757,539,000 and estimated liabilities of $791,248,000. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) CIT Commercial Services ($16.4mn trade debt), (ii) Rosenthal & Rosenthal ($10.7mn trade debt) and (iii) Harvest Small Business Finance LLC ($10.0mn).
Court filings indicate that the Debtors’ total annual revenue for the year ended February 1, 2020 was $1.236bn with total revenue during the 13 weeks ending May 2, 2020 at $138.2mn. In comparison, the Debtors’ total revenue during the 13 weeks ending May 4, 2019, was $319.4mn.
Its been a rough couple of months for off-price retailers. On May 10th, Stage Stores, Inc. (NYSE: SSI) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-32564, also with PJ SOLOMON as investment banker; and on May 27th Tuesday Morning Corporation (Nasdaq: TUES) did likewise in in the Northern District of Texas, lead case number 20-31476.
In a press release announcing the filing, the Debtors advised that: “The Company expects to close a significant portion, if not all, of its brick-and-mortar stores and, in connection therewith, the Company has launched a store closing and liquidation process. The Company, however, will continue to operate its business in the ordinary course in the near term; and The Company is evaluating any and all strategic alternatives, including the potential sale of its eCommerce business and related intellectual property."
The Debtors have also entered into an agreement with Hilco Merchant Resources, LLC, Gordon Brothers Retail Partners, LLC, Great American Group, LLC, Tiger Capital Group, LLC and SB360 Capital Partners, LLC for purposes of conducting liquidation sales at substantially all of the Company’s stores. [Did anyone not make the list?]
Goals of the Chapter 11 Filings
"The Company believes the immediate liquidation of the Company’s assets by a professional liquidation advisor under the supervision of the Bankruptcy Court is the best strategy to maximize value for the benefit of creditors. The Company’s current best estimate is that the liquidation of inventory, equipment, fixtures, leases, intellectual property and similar assets will produce a gross recovery in the range of approximately $250 million, which is likely to be sufficient to pay the cost of the liquidation process and Chapter 11 administrative expenses and repay the secured creditors but unlikely to produce any meaningful funds for other creditors. Accurate financial projections are very difficult in the current COVID retail environment. If Kingswood or another potential buyer steps forward with an offer to buy all or part of the Company as a going concern, the Debtors will pursue a sale to maximize value and preserve the jobs of employees, as well as a potential future tenant for landlords and a potential future customer for vendors. PJS has been actively marketing the Company for over two and one-half years and has a full data room available for potential qualified buyers.
Events Leading to the Chapter 11 Filing
In a Court filing [Docket No. 3], the Debtors provide the following as to the events leading to their Chapter 11 filings: “The retail industry has generally experienced difficult business conditions during the past several years. In general, retailers have experience decreased store traffic and have lost market share to fast-growing e-commerce retailers. The declines in store traffic have been especially pertinent for apparel and accessories retailers, such as the Company, which have also experienced lower operating margins as a result. From 2016 through the present, the Company’s sales generally declined and the Company faced the difficult task of growing sales while significantly reducing expenses in a difficult retail environment.
The on-set of the COVID-19 pandemic, including the store closures and declined store traffic exacerbated the difficult retail environment. The Company’s initial shut-down in March 2020 in response to the COVID-19 pandemic materially, adversely impacted the Company’s revenues, liquidity, results of operations and cash lows, and its ability to pay vendors and landlords according to standard terms. The Company may have been able to survive following the initial reopening of the stores with the support of its vendors, landlords and lenders. However, the July 2020 resurgence of COVID-19 caused a second major decline in revenues and store traffic.
Other large retail bankruptcies, including Brooks Brothers, Lord & Taylor, Ascena (Ann Taylor), Tailored Brands (Men’s Wearhouse and Jos. A. Bank), Sur La Table, Lucky Brand, JC Penney, J Crew, Neiman Marcus, GNC, Stage Stores, Aldo, Pier 1, Tuesday Morning and RTW Retailwinds (New York & Co), caused vendors to become nervous and reluctant to sell new merchandise without payment in advance. The Company’s sales decline in July 2020 made it impossible for the Company to propose a realistic repayment plan for the outstanding accounts payable owed to vendors from the initial COVID-19 shut-down. The Company’s updated financial projections, following the July resurgence of COVID-19, indicated that the Company would not have sufficient liquidity to continue operating the business in the ordinary course consistent with pastpractice. The Company’s efforts to find a buyer or additional sources of financing, with the assistance of PJ Solomon Securities, LLC ('PJS'), a leading investment bank serving the retail industry, were unsuccessful following the termination of the prior merger agreement with Kingswood in April 2020."
About the Debtors
According to the Debtors: "Stein Mart, Inc. is a national specialty omni off-price retailer offering designer and name-brand fashion apparel, home décor, accessories and shoes at everyday discount prices. Stein Mart provides real value that customers love every day. The company operates 281 stores across 30 states.
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