Tandy Brands Accessories Inc. has hired Deloitte Financial Advisory Services LLP as it seeks a way out of a financing bind that has seen its stock shed about two-thirds of its value in less than a month.
John Little, a Dallas-based principal of Deloitte’s corporate restructuring group, has been brought in as chief restructuring officer as the firm seeks “outside capital…in the near term to solidify our balance sheet,” according to Rod McGeachy, president and chief executive officer of the men’s accessories and gifts marketer.
Dallas-based Tandy, which has yet to file its financial results for the second quarter ended Dec. 31, fell out of compliance with the fixed-charge coverage covenant of its credit agreement with its senior lender, Wells Fargo, due to a weak performance in its gifts segment during the holiday season. Fixed-charge coverage is essentially the ratio of earnings before interest and taxes to interest expense.
“Although total gross sales targets were met,” McGeachy said, “the profit miss was driven by a highly promotional retail environment, which drove higher-than-expected sales allowances and higher returns of unsold inventories, both of which reduced our gift net sales in the [second] quarter.”
Tandy, which recorded a net loss of $1.3 million on sales of $25.9 million in the first quarter, alerted the Securities and Exchange Commission on Feb. 14 that it was in negotiations with Wells Fargo to address the violation but could provide no assurance these negotiations would be successful, making the company vulnerable to the possibility that its “business and financial position could be materially adversely affected.”
That news sent its stock down 31.1 percent, to $1.04 from $1.51. Shares have since dropped by more than half, hitting a 52-week low of 43 cents on March 6. On Friday they added 3 cents, or 6.5 percent, to close at 49 cents. Market capitalization is currently $3.5 million.
Tandy’s $35 million credit facility with Wells Fargo was initiated in August 2011 and has been amended five times since. It is secured by “substantially all of our assets and those of our subsidiaries,” according to the company’s annual report filed in September 2012.
Among Little’s responsibilities as chief restructuring officer will be “evaluating the company’s capital structure alternatives and identifying additional sources of financing” and working to improve liquidity and profitability.
The company said Friday that it would file financial results for the second quarter “on or before April 22.” Tandy was warned on Feb. 22 that it was at risk of losing the listing on the Nasdaq Global Market because the firm had failed to file quarterly results in a timely manner and, in accordance with Nasdaq’s usual practice, given 60 days to submit a plan to regain compliance.