Francesca’s Holdings Corp. warned it might not be able to continue as a going concern given the coronavirus crisis and said it had hired FTI Capital Advisors to pursue “available strategic alternatives.”
Shares of the retailer, which has 700 stores across 47 states, dropped 22.2 percent to $3.95 on Tuesday.
The Houston-based firm said losses for the second quarter ended Aug. 1 tallied $17.2 million, down from earnings of $1.8 million a year earlier. Sales fell 29 percent to $75.7 million.
Andrew Clarke, president and chief executive officer, said the company was moving to optimize its business and is encouraged by growth in new customers and new categories, such as loungewear, but also signaled some of the deep financial strain that has become so familiar in the midst of COVID-19.
“As we continue to navigate through the pandemic, we remain focused on managing costs and liquidity, including the further reduction of non-critical spending and continued negotiations with vendors and landlords on payment terms,” Clarke said.
“While we have taken important steps to advance these initiatives and control what we can control, we are operating within what continues to be an unprecedented and extremely challenging environment,” the ceo said. “As such, we believe it is in the best interest of our stockholders to explore a variety of potential strategic alternatives. During this review, we will continue to move forward operating the business while maintaining disciplined inventory and cost management.”
As of Sept. 4, the company had cash and cash equivalents of $18.2 million and outstanding borrowings of $12.2 million and the leeway to borrow another $3 million under its asset-based loan and term loan.
That leaves the company anxiously waiting on an expected $10.2 million tax refund from the IRS related to the CARES Act, which Washington initiated to support companies during the pandemic.
The options the company is evaluating with the help of FTI include raising additional capital and “restructuring its debt and liabilities through a private restructuring or a restructuring under the protection of applicable bankruptcy laws.”
If Francesca’s were to file, it would be part of a second wave of bankruptcies in fashion since some of the companies that filed early have already emerged, including J. Crew. Neiman Marcus is also expected to wrap up its court restructuring soon.