Tailored Brands Inc. is making some dramatic moves to right the ship.
On Tuesday, the parent of Men’s Wearhouse and Jos. A. Bank said it will close up to 500 stores and slash 20 percent of its workforce due to the coronavirus.
As a result, the company expects to record a pre-tax charge of about $6 million in the second quarter of fiscal 2020 for severance payments and other termination costs, all of which are cash costs, it said. The stock closed at 72 cents on the New York Stock Exchange, up 3.4 percent.
Dinesh Lathi, president and chief executive officer, said, “We have safely reopened almost all of our retail stores and look forward to helping our customers look and feel their best for their moments that matter. Unfortunately, due to the COVID-19 pandemic and its significant impact on our business, further actions are needed to help us strengthen our financial position so we can navigate our current realities. It is always difficult to eliminate jobs and say farewell to our friends and colleagues. I want to thank our teammates affected by these changes as well as those who continue to help us meet the challenges currently facing our industry and who remain dedicated to serving our customers.”
Lathi added, “While today’s announcement is a difficult one, we are confident these are the right next steps to protect our business and position us to more effectively compete in today’s environment.”
At the same time, the company said Jack Calandra, executive vice president, chief financial officer and treasurer, will leave Tailored Brands as of July 31. In the near term, his responsibilities will be divided between Lathi and Holly Etlin, a managing director of AlixPartners who has been appointed to the newly created role of chief restructuring officer. She has more than 30 years of restructuring experience and has been working closely with the company as an adviser since late March. She will report to Lathi.
Lathi said, “Jack and I have been discussing a transition and, with a full appreciation of both the challenges to be solved and the opportunities to be realized in the next phase of the company’s journey, we both agree this is the right time for a change. I want to thank Jack for his numerous, varied and significant contributions over the past three years. He leaves behind a strong finance team that, with Holly’s support and leadership, will help us continue to build a strong future for our company.”
The company did not say which stores would be closed or over what time frame, only that they would be “identified over time.” Tailored Brands operates more than 1,400 stores under the Men’s Wearhouse, Jos. A. Bank, K&G and Moores nameplates in the U.S. and Canada.
Like most other retailers, Tailored Brands has been hard hit by the pandemic, and as a merchant with a strong dependence on tailored clothing, it has also been impacted by the trend toward more casual attire by many men, especially in the past few months as most have been working from home.
At the beginning of July, the company missed a roughly $6.1 million interest payment, starting a 30-day grace period on the debt — 7 percent senior bonds due 2022 and tied the firm’s The Men’s Wearhouse Inc. subsidiary.
“Men’s Wearhouse has elected to enter into the 30-day grace period with respect to the interest payment,” Tailored Brands said in a filing with the Securities and Exchange Commission on July 1. “During the grace period, Men’s Wearhouse may elect to pay the interest payment and thereby remain in compliance with the indenture.”
But if the company does not make the interest payment, it would throw its loan facility and asset-based revolving credit facilities into default. Tailored Brands has stayed current on those credit facilities, making its scheduled payments even while skipping the bond payment.
The missed interest payment is a sign of extreme stress that has become increasingly more common among U.S. retailers since the pandemic began. Both J.C. Penney Co. Inc. and Neiman Marcus Group skipped interest payments and used their grace periods to explore alternative paths forward, but ultimately filed for bankruptcy protection from creditors.
As of the end of the first quarter on May 2, the company had cash and cash equivalents of $244.2 million, an increase of $231.2 million from a year earlier due to a $310 million draw down on the company’s asset-backed loan. Total debt stood at $1.4 billion.
In the first quarter, total sales plummeted 60.4 percent to $286.7 million, and e-commerce sales were down 31.9 percent versus the first quarter of last year, the company said. It did not provide figures on operating profits or losses for the period. But it did warn in early June that the situation was dire, saying: “If the effects of the COVID-19 pandemic are protracted and we are unable to increase liquidity and/or effectively address our debt position, we may be forced to scale back or terminate operations and/or seek protection under applicable bankruptcy laws.”