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Department store retailer Goody’s LLC might be headed back to the courthouse for a second tour of bankruptcy less than two months after its exit, but this time sources said it might not even try to restructure.
This story first appeared in the December 12, 2008 issue of WWD. Subscribe Today.
Goody’s, which filed for bankruptcy court protection in June as Goody’s Family Clothing Inc., has run out of cash, credit and restructuring resources, sources said Thursday. The Knoxville, Tenn.-based chain emerged from bankruptcy on Oct. 20, having closed on a $175 million revolving exit credit facility provided by GE Corporate Lending and Bank of America. It also secured $10 million and $35 million exit term loans from GB Merchant Partners and PGDYS Lending, respectively. PGDYS Lending, which owns Goody’s, is managed by private equity firm Prentice Capital Management Inc.
Sources said Goody’s, which stopped paying its bills and invoices last week, is trying to line up a cash infusion. They also said some vendors have demanded cash up front before they would ship goods to the retailer, a practice that some required even during Goody’s tour of bankruptcy.
The problem this time around is that the consumer has pulled back even further on spending, those sources said. One credit contact said Goody’s had planned for a 20 percent same-store sales gain. What materialized was just a 12 percent same-store sales increase.
Executives at Goody’s could not be reached for comment Thursday.
When Goody’s exited Chapter 11, its store count was 287 sites in 20 states with annual revenues of more than $800 million and approximately 9,800 employees. It became a privately held company on Jan. 27, 2006, after it was acquired by GMM Capital and Prentice Capital.
Should Goody’s hear the distress call and file again, it wouldn’t be the first retailer to head back to bankruptcy court soon after an initial filing in the same year.
Last month, liquidation sales began at Steve & Barry’s, which on Nov. 19 filed its second voluntary bankruptcy less than five months after its initial Chapter 11 petition. The chain was bought out of bankruptcy in September for $168 million by Bay Harbour Management and York Capital Management. In the second tour, there was no bailout or white knight for the retailer, and its exit strategy was to liquidate and shutter all 173 stores.
While there’s a chance Goody’s could get a cash infusion, credit sources were not optimistic.
If Goody’s needs to file again, the firm’s inability to corral additional financing may lead it to the same liquidation fate as the one suffered by Steve & Barry’s, credit sources said on Thursday. They pointed to another Prentice holding, KB Toys, which filed a Chapter 11 petition Thursday, the second in four years, and its plans to completely shut down its 420 units. KB Toys exited bankruptcy in 2005, following its sale to Prentice Capital Management.
Another Prentice Capital property soured earlier this year. Whitehall Jewelers, of which Prentice owned at least a 5 percent stake, along with Holtzman Opportunity Fund and Millennium Partners, filed for Chapter 11 in June and is expected to complete the liquidation of all stores by yearend.
Founded in 1953, Goody’s, in a recent company fact sheet, said its customers are value-conscious consumers with an average household income of $55,000. Like many retailers combating soft sales this holiday, the company recently has promoted heavily. Its Web site is currently offering a 25 percent off coupon, another offering an extra 15 percent off for customers 55 and over, a 30-day layaway plan and 90 days of no payment and no interest for customers spending $100 or more on their Goody’s credit cards.