(Bloomberg) -- Pier 1 Imports Inc. is planning to dismiss about 40% of its headquarters staff and shut about 450 stores in an attempt to overhaul the troubled home furnishings business.
The retailer has drafted a bankruptcy plan and last month made a presentation to creditors that envisioned a smaller company with about $900 million in annual sales, according to people with knowledge of the matter. It’s also canceling some orders and has held talks with current lenders about providing Chapter 11 financing, said the people, who asked not to be identified because the process is private.
The company’s shares plunged as much as 30% on the news, and were hovering down about 17% at $5.175 when trading was halted. Pier 1 then reported a wider quarterly loss and confirmed it would reduce staff, shut almost half its stores and close some distribution centers. The headquarters staff cuts affect about 300 employees, the people said.
A representative for Pier 1 declined to comment, but the company acknowledged in its quarterly regulatory filing that there’s substantial doubt about its ability to stay solvent. A Chapter 11 bankruptcy allows a company to keep operating while it works out a plan to turn around the business and pay its creditors.
“As Pier 1’s losses deepen, the planned large-scale store closures and cost cuts will likely be insufficient to turn around the business in time to address the company’s looming debt maturities, making restructuring or bankruptcy highly likely scenarios,” said Raya Sokolyanska, an analyst at Moody’s Investors Service, in an e-mailed statement.Pier 1 has posted multiple quarters of declining sales and losses amid a raft of new competitors. On Monday, it reported its third-quarter loss widened to $59 million from $50 million after sales declined 13% to $358.4 million.
It’s led by Robert Riesbeck, a turnaround manager named as chief executive officer in November. He’s cutting expenses by about half, including canceling some existing orders to align Pier 1’s buying with plans for a smaller store base, one person said.
Fort Worth, Texas-based Pier 1 had 942 outlets in the U.S. and Canada as of Nov. 30, with 4,000 employees as of March 2019.
Shoppers have been defecting to new e-commerce players like Wayfair Inc. and conventional giants like Walmart Inc. that have expanded in the category.
Clearing out unsold goods depressed sales last year, but the early response from customers to its new merchandise was positive, the person said. The company posted $1.55 billion of revenue in its fiscal year ended March 2, a 14% drop from the previous 12 months.
Pier 1’s term loan due 2021 was quoted around 27 cents on the dollar, a sign that creditors expect to take heavy losses if the company files for court protection.
(Updates with going-concern warning and Moody’s statement, starting in the fourth paragraph)
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