The next clothing retailer that stands a good chance of going to Chapter 11 (to restructure what are fairly onerous amounts of outstanding store leases) is Tailored Brands (NYSE: TLRD).
They filed Form 8-K today and the salient highlights are this:
Cash and cash equivalents at the end of the first quarter of 2020 (this would be May 2, 2020) were $244.2 million;
…
As of June 5, 2020, cash and cash equivalents were $201.3 million, excluding $93.5 million of restricted cash.
That’s a burn rate of about $43 million per month, which should be disturbing to most investors, especially since they have a minimum cash maintenance requirement with their lender.
In order to reduce the cash burn, they need to sell inventory and get their stores up and sell product. However, initial data does not look good:
The Company noted that it is too early to determine steady-state comparable store sales for the second quarter but wanted to provide an update on recent performance. For the week ended June 5th, for stores open at least one week, the average comparable sales performance was:
o Men’s Wearhouse down about 65%,
o Jos. A. Bank down about 78%, and
o K&G down about 40%.
Clearly buying suits hasn’t been a priority of the consumer public post-Covid-19.
Ignoring the common stock, which has been exceptionally volatile over the past week (it spiked up to US$2.40 two days ago, and is now closed at $1.24), the corporate debt tells the real story:
This is the July 1, 2022 unsecured debt, with US$173.4 million outstanding. It is structurally behind the majority of the company’s asset-backed loan facility which does not bode well for recovery for the unsecured debt. If you have any inkling that the company will make some sort of financial recovery, however, these bonds are trading at roughly a 100% YTM at present.
A sure sign of Chapter 11 will be if the company decides to withhold interest payments on this debt (we will find out by the end of June), or they could be pulling the plug earlier than that. Who knows, with how Hertz (NYSE: HTZ) has traded after its Chapter 11 filing, it might result in an improvement in the stock price!
A side note – famed “big short” investor Michael Burry took his lumps on the stock last month. At one point he had a 4 million share position (8.3% of the company), with his last shares purchased in March 24, 2020.
I have no positions in TLRD or its debt, and not intending on taking one – they need to chop off half their debt, shed half their leases and this can only come in the form of a restructure within Chapter 11. I made my trade for a few cheap suits after they cut their dividend to zero, and closed it out late last year for a mild gain.