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Tailored Brands went bankrupt and quickly broke up. And after?

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George Zimmer opened the first Men’s Wearhouse with $ 7,000 of his own money and $ 30,000 borrowed from his father, a raincoat manufacturer.

From there, Zimmer worked to build a business based on a solid corporate reputation, donating a portion of pre-tax profits, keeping suppliers in good stead, and anchoring marketing to the famous word of guarantee. by Zimmer.

The Zimmer company started and left years ago, which eventually became Tailored Brands, still borrows money, and for much larger amounts., now just to stay alive as the pandemic continues to drive down spending on clothing.

Tailored Brands emerged from bankruptcy in early December and, many believed, immediately ran into liquidity and financial problems. Faced with a cash flow crunch and another potential bankruptcy, the company negotiated $ 75 million in emergency financing just months after the bankruptcy, and was immediately criticized by former bondholders who feared losing their investment. .

Since then, customer traffic to the retailer has increased, but remains well below pre-pandemic levels, as does spending with Tailored Brands’ larger banners. At the same time, there has been a turnover in the C-suite. All of this adds turns and speed bumps to the company’s route.

Not suitable for a pandemic

Amid physical declines and precarious workplaces, Tailored Brands’ sales have been falling constantly in the years leading up to the COVID-19 crisis, but the company had also been in the dark since 2015, posting steady but fluctuating profits.

The pandemic has taken a disproportionate impact on clothing vendors in general, with spending and foot traffic plummeting in parallel. Not only did shoppers avoid stores, but they avoided occasions that called for new clothes, especially white collar work.

In the first quarter of 2020, which provided for the temporary closure of its stores, Tailored Brands accumulated a $ 258.7 million in operating losses sales having fallen by almost 60%.

Holly Etlin, Managing Director of AlixPartners working with Tailored Brands as Head of Restructuring, said in court documents as the company said Tailored Brands had suffered deeply during the pandemic.

This included supply chain disruptions, reduced store traffic, temporary store closures, employee disruptions and, on the demand side of his business, cancellations of events like weddings and the balls. Well into the pandemic, the company has launched online shopping, in-store and curbside collection systems for its biggest banners, Men’s Wearhouse and Jos. A. Bank.

The retailer went bankrupt in August, though, as Fitch analysts noted in a report this year, it had no impending deadline and might have survived the pandemic without needing a chapter. 11.

Fears of a second bankruptcy

Tailored Brands announced its exit from bankruptcy December 1. At the time, then CEO Dinesh Lathi said his company was “confident that we are well positioned for the future and look forward to continuing that momentum as we move into the next one. chapter”.

About two weeks later, Lathi told the company’s interim board that Tailored Brands was having liquidity issues. This was noted during a hearing last week by a lawyer for beneficiaries of a trust holding a minority stake in Tailored Brands, and who fought against the retailer’s emergency loan that came in in the following months.

In this group were bondholders who received through a trust representing them a stake in the reorganized cut marks as part of its ultimate reorganization plan. Representing their interests was a trustee, Mohsin Meghji, managing partner of the M3 Partners consulting firm.

Meghji discovered weeks later the company’s financial woes, triggered by below-forecast sales, which threatened to trigger debt covenants defaults. These faults could have precipitated another bankruptcy and even, Meghji told the beneficiaries of the trust later in a memo, liquidation of the company.

With Tailored already in serious financial difficulties, the company began to look for a lifeline. He came in the form of $ 75 million in new debt financing of Silver Point Capital, the reorganized Tailored Brands’ largest shareholder and also a secured lender. Funding closed the first week of March.

After the beneficiaries of the trust found out about the loan, some of them sounded the alarm. Silver Point’s new debt investment turns into equity, diluting the value of the minority bondholder stake in the reorganization to almost nothing.

The settlement the company reached with Meghji on behalf of the beneficiaries of the shareholder trust, offering $ 3.3 million for the group’s stake, did not offer much more. But Meghji determined after doing due diligence on the company’s financial situation that the settlement was better than the alternative: a bankruptcy scenario where the beneficiaries would get nothing, Meghji said in his testimony.

Opposing beneficiaries also raised issues about the composition of the board of directors with a disinterested board member who approved the Silver Point loans that were previously on the list of directors chosen by Silver Point to represent its interests and the fact Meghji was not originally invited to board meetings on the company’s financing needs, although the trustee is required to observe. (Representatives from Tailored Brands said they told Meghji that its board is meeting on an interim basis in the weeks following the emergence of Chapter 11 and have no plans to exclude it.)

The settlement between Tailored Brands and the Trustee was defended by the company and Meghji. It was finally approved last week by a federal bankruptcy court judge, who said “no evidence” had been presented to show that the beneficiaries and former bondholders had been ousted by any Silver Point or Silver Point intrigue. the society.

Can customers come back quickly enough?

Even after securing new funding, Tailored Brands faces many uncertainties. Not the least is the turnover of the C-suite.

The company separated from Lathi in March. Lathi joined the board of directors in 2016 when the company asked him for his financial expertise and experience in the digital space. He only held the position of Managing Director for about two years.

Tailored Brands said upon announcing Lathi’s departure that “now is the right time to reassess the skills and experiences needed in the role of CEO as the company prepares for its next chapter of growth and success. “. Board members Bob Hull and Peter Sachse have taken over as interim co-CEOs while the company seeks a permanent leader.

Chief Customer Officer Carrie Ask, who also served as Chief Merchant, followed Lathi out of the door, Women’s Wear Daily reported.

While analysts have predicted a potential recovery in apparel and fashion sales this year, the company still has some way to go.

The good news: pedestrian traffic to the Men’s Wearhouse and Jos banners. A. Bank increased in March compared to previous months.

Foot traffic had remained down 30% or more year-over-year since last July (which was an improvement over the rough months of spring 2020), according to analytics firm Placer.ai. As late as February, traffic was down almost 40%. But in March, foot traffic skyrocketed, increasing 61% year over year.

The bad news: Traffic for both banners remained well below 2019 levels, with traffic down almost 25% from 2019 at Jos. A. Bank and 28% at Men’s Wearhouse, according to Placer.ai.

According to Earnest Research, Men’s Wearhouse and Jos. A. Bank have regained in-store market share since the first impact of COVID-19 in 2020. But banners still have a lower share of in-store spending compared to early 2020.

In February, Men’s Wearhouse lost 3% year-over-year market share and Jos. A. Bank lost 6% against some competitors. At the start of this year, retailers’ in-store spending slowed.

At the same time, the banners increased their online spending on work wear and dress in February, taking part in competitors such as Bonobos, Brooks Brothers, Indochino and Charles Tyrwhitt, according to Earnest Research.

With the rollout of COVID-19 vaccines, suit vendors are hoping for a return to offices, weddings, proms, funerals and all other events canceled and postponed during the pandemic. The question for Tailored Brands, which has already been through an emergency since the release of Chapter 11, is whether the comeback will be quick enough and big enough to stabilize its business before another financial crisis hits.

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