Children’s apparel retailer Gymboree is expected to file for bankruptcy in the coming weeks after missing a $171 million interest payment due June 1. As of June 2, Gymboree has a 30-day grace period to make a belated payment, according to an SEC filing.
The retailer has been in talks with investment banks and advisors on ways to repair its balance sheet since January 2017. With the missed payment, valued at a 9.125% rate through 2018, S&P Global Ratings lowered the company’s debt rating to “D” for default. Roughly $872 million of the company’s roughly $1.1 billion total debt is due within 12 months, with S&P noting that “operating trends continue to deteriorate.”
“We do not expect [Gymboree] to make this payment or any other payments on its debt obligations, and expect a general default given ongoing lender negotiations,” S&P Global Ratings wrote in a note to clients Friday.
The combination of massive debt and weak financial results has made Gymboree a prime candidate for bankruptcy. In February 2017, Moody’s Investors Service named Gymboree as one of 19 retailers with a very high credit risk. Recently bankrupt Rue21 made the list, as well as troubled brands such as Sears Holdings, Bon-Ton Stores, J.Crew and Claire’s Stores.
If it is unable to make the payment, Gymboree would join a long list of other retailers that have filed for bankruptcy in 2017, including Payless ShoeSource, Rue21, BCBG Max Azria, hhgregg, The Limited, RadioShack, Wet Seal, Eastern Outfitters, Gordmans, Gander Mountain and MC Sports.
Gymboree operates approximately 1,300 stores under three brands: Gymboree, Janie & Jack and Crazy 8. The retailer has posted losses for the last several years amid increased competition from online retailers and discount/off-price brands. In Q2, the company posted a 5% decline in same-store sales. Net sales declined 6.4% to $356.8 million, while the brand took a $368.1 million goodwill and intangible asset impairment charge and an $11.6 million charge related to excess inventories.
In May, Gymboree appointed a new CEO, Daniel Griesemer, who had run teen apparel retailer Tilly’s for approximately five years until 2015. Griesemer will have the difficult position of restructuring the retailer out of its debt, which may or may not include a decision to file for bankruptcy protection.