Payless ShoeSource Inc. has a plan for exiting bankruptcy court.
Michael Schwindle, senior vice president and chief financial officer of Payless ShoeSource Inc., in a court document filed with the bankruptcy court in Missouri said the company intends to “move expeditiously through these cases and emerge as a stronger, better-capitalized business able to provide the ‘go to, get more, pay less’ experience for their customers for years to come.”
The cfo also said the company, in its pre-arranged bankruptcy filing, has worked out a plan framework that would reduce the retailer’s funded debt from $838 million to $469 million, inclusive of assumed revolving loans, while ensuring fair recoveries to all stakeholders, as well as a plan to enable Payless to “rationalize their store fleet and profitability.”
Schwindle has been cfo since May 2015, and said unlike other retailers that have liquidated following the filing of a Chapter 11 petition, “Payless’ business continues to be highly relevant with a deeply loyal customer base.” He also noted that the retailer has a strong seasonal cadence, and its four key selling periods are Easter, sandals, back-to-school and boots. “These peak seasons are very important to the debtors’ business, bringing in approximately 47 percent of total revenue on an annual basis,” the cfo said. He added that in the U.S., “76 percent of household disposable income and 3 out of 4 children under the age 10 live within five miles of a Payless store.”
Payless was founded in 1956 in Topeka, Kan. At the time of Tuesday’s filing of its Chapter 11 petition, the company operated nearly 4,400 stores in more than 30 countries across the world and nearly 22,000 employees. It plans to close at least 400 stores.
In fiscal-year 2016, the company posted $2.3 billion in sales worldwide and $95 million in earnings before interest, taxes, depreciation and amortization. Schwindle said Payless is the “largest specialty footwear retailer in the Western hemisphere and the second-largest footwear retailer by unit sales in the United States.” He also said North American sales were $1.8 billion. There are three business segments: North America, Latin America and franchised stores. Women’s shoes account for 50 percent of sales and children’s were 25 percent of sales.
Schwindle said challenging retail market conditions, as well as the overpurchase of inventory in early 2015 plus port strikes, contributed to pressures the company faced. Further, he said the company’s oversupply of inventory forced it to sell at steep markdowns. While that depressed margins and drained liquidity, it also resulted in customers filling their closets with deeply discounted products that reduced demand later in the year and in 2016, he said.