Once the world’s largest maternity apparel retailer, Destination Maternity filed a chapter 11 bankruptcy petition Monday in a Delaware court, citing $260.2 million in assets and another $244 million in debt as of Oct. 5.
“This decision is a difficult, but necessary one,” Lisa Gavales, chair of the office of the chief executive officer, interim ceo and director, said in a statement. “In a challenging retail environment, we have had to make some very tough choices, but we are confident that the steps taken today provide an opportunity to continue a marketing process that provides the most efficient means of maximizing value to our stakeholders. Throughout this process we will be focused on developing the promising interest already shown by potential bidders, and maintaining operational momentum toward a stronger business.”
According to Destination Maternity’s web site, annual revenues at the publicly-traded, Moorestown, N.J.-based company were at one point more $500 million with approximately 5,000 employees.
But the company has been struggling for some time. Sales fell roughly 12 percent last quarter to $84.9 million. For the 12 months ending Aug. 3, 2019, total revenue was just over $363 million.
Executives on last month’s conference call said the decline was a result of store closures and reduced same-store sales at the remaining locations.
“It has become clear to me that we need to take more prudent and decisive action to preserve liquidity and ensure position in this business to drive profitable growth,” Gavales said on the conference call. “Our board of directors announced that it has initiated a review of strategic alternatives focused on maximizing shareholder value.”
Gavales, who joined the company in June, added that there was no definitive timetable for the board’s review, which will be advised by Greenhill & Co., as the company continues its search for a permanent ceo.
“The board will evaluate potential outcomes from the review, including, but not limited to, a sale or a merger of the company, continuing to pursue value-enhancing initiatives as a stand-alone company, capital structure optimization that may involve potential financing, and/or the sale or other disposition of certain businesses or assets,” Gavales said in September.
In Monday’s statement, the company said it would use cash collateral from secured lenders to pay vendors, suppliers and other business partners during the chapter 11 process. The company also said it would reevaluate its retail fleet.
Destination Maternity declined to comment on just how many brick-and-mortar locations it was planning on closing. The company ended last quarter with 446 stores in the U.S., Canada and Puerto Rico, in addition to 491 leased departments in department stores and speciality shops in the U.S. and Canada. Bankruptcy is a common strategy among retailers to reorganize debt and get out of expensive store leases, but Destination Maternity said it would continue both in-store and online operations through the bankruptcy. Potential buyers have until Dec. 5 to submit a bid on the company.
Destination Maternity was founded in 1982 as Mothers Work and went public 10 years later. In 1997, the retailer began selling products online and changed its name to Destination Maternity in 2008. Today, the company includes A Pea in the Pod Maternity and Motherhood Maternity, in addition to the nameplate brand. As recently as 2016, the company embarked on an international expansion.
Even so, the company’s stock fell 46.6 percent Monday to 18 cents a share after the news of the bankruptcy broke. It is down nearly 96 percent year-over-year.
And while brick-and-mortar maternity apparel companies may have fallen out of favor with shoppers, digital maternity retailers are flourishing as consumers continue to migrate online. The global market for fashionable maternity wear is expected to grow to more than $10 billion by 2024, according to a January report by Global Industry Analysts, a market research firm. Brands like Asos, Pink Blush, Target and Old Navy are benefiting from the trend. Hatch, a popular maternity retailer among millennial moms, secured $5 million of funding earlier this year.