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Destination Maternity Goes Bankrupt, Adding to Retail Apocalypse

Jeremy Hill
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Destination Maternity Goes Bankrupt, Adding to Retail Apocalypse

(Bloomberg) -- Destination Maternity Corp., billed as the world’s largest retailer of maternity clothes, sought court protection from its creditors after warning investors it might not be able to survive as an independent merchant.

The chain, which hasn’t posted an annual profit since 2014, listed assets and liabilities of as much as $500 million in its Chapter 11 petition, filed Monday in Delaware. Destination Maternity said last month that it faced a significant cash crunch that could tip it into bankruptcy. It’s been exploring solutions with the help of Greenhill & Co. LLC that could include sale of the company, according to a regulatory filing.

Destination Maternity counted more than 1,100 retail locations in the U.S, Canada and Puerto Rico as of last November, according to its website. The company also sells its merchandise online, mostly through Motherhood.com, APeaInThePod.com and DestinationMaternity.com, company filings show.

Chapter 11 allows a company to stay in business while it crafts a turnaround plan. Like other retailers, it’s under pressure from changing consumer habits as fewer shoppers go to malls, according to its annual report, and it’s being hurt by the declining U.S. birth rate, which it said dropped about 9.2% from 2008 to 2017.

The company will continue trying to sell itself, a process it started in early September that has “already yielded indications of interest from several credible bidders,” Destination Maternity said in a statement. Interim Chief Executive Officer Lisa Gavales called the decision to file for bankruptcy “a difficult, but necessary one.”

The shares, which have traded at penny-stock levels as the financial woes mounted, lost almost half their value after the bankruptcy filing, hovering at 18 cents at 2:24 p.m. in New York. The stock sold for almost $33 in December 2013.

Money-Loser

The company posted a $3.5 million loss for the three months ended Aug. 3, compared with a $4 million loss in the same period last year. More than $56 million was outstanding under a term loan and credit line as of Aug. 3, with operating lease liabilities of more than $240 million.

With results deteriorating, the chain made frequent changes in its top ranks. It’s been led since June by Gavales, a board member who took over the role from Marla Ryan, who had held the job only since May 2018, when she replaced another interim CEO.

Destination Maternity started in 1982 as a mail-order catalog and opened its first brick-and-mortar store three years later. The company completed an initial public offering in 1993, before buying Motherhood Maternity and A Pea in the Pod two years later.

A representative for the company declined to comment. Renaissance Technologies LLC owned about 5% of Destination Maternity’s stock as of Oct. 5, court papers show.

Kirkland & Ellis LLP is the company’s legal counsel, Greenhill & Co. is its investment banker and Berkeley Research Group LLC is restructuring adviser.

The case is Destination Maternity Corp., 19-12256, U.S. Bankruptcy Court, District of Delaware (Wilmington).

(Updates with sale process details and comment from company in fifth paragraph)

--With assistance from Leslie Patton.

To contact the reporter on this story: Jeremy Hill in New York at jhill273@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dawn McCarty, Nicole Bullock

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