Tailored Brands, Inc. provided a surprise business update after the market closed on Wednesday — and it wasn’t pretty. So much so that the company warned: “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.”
Like other retailers, the company closed its fleet of stores in mid-March. On May 7, it began to open stores in the U.S. and Canada and as of June 5, there were 634 stores in operation. For the week ended June 5, the average comparable-store sales performance for stores open at least one week was down 65 percent at Men’s Wearhouse, 78 percent at Jos. A. Bank and 40 percent at K&G, the company said.
For the second quarter-to-date through June 5, total e-commerce sales, including rental services, were down about 32 percent.
In the period, Tailored Brands sold one distribution center and one owned store for total net proceeds of $13.4 million.
Dinesh Lathi, president and chief executive officer, said: “The casualization, e-commerce and digital marketing trends we identified in our business have accelerated due to the COVID-19 pandemic and we are pleased to have already made progress transforming our business to address these trends. While it’s still early and the operating environment remains highly uncertain, we anticipate sales will rebuild gradually during the remainder of the year. We are planning the business conservatively and will continue to operate with discipline to preserve our liquidity as we navigate this uncertain environment.”
As of June 5, the company had cash and cash equivalents of $201.3 million, excluding $93.5 million of restricted cash.
Tailored Brands provided the business update as it requested a 45-day extension to file its Form 10-Q for the first quarter of fiscal 2020.
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.
To counteract the downturn, Tailored Brands accessed $310 million of additional borrowings from its credit facility, implemented salary reductions for officers and employees with salaries of over $100,000 and reduced the board’s cash retainer fees by 50 percent. It furloughed or laid off all store employees, most of its distribution network workers and the majority of the corporate staff.
“The impact of the COVID-19 pandemic is truly unprecedented,” Lathi said. “While many of these actions were difficult, such as furloughing/temporarily laying off more than 95 percent of our employees and implementing salary reductions, they were necessary given the impact of the disruptions from the COVID-19 pandemic on our business.”
Even before the pandemic, the men’s wear retailer was struggling. In March, it reported an operating loss of $35 million in the fourth quarter, compared to operating income of $13.3 million last year. On an adjusted basis, the loss was $12.3 million, compared to an operating loss of $4.3 million last year. Comparable-store sales fell 3 percent while net sales dropped 5.3 percent to $691 million.
Speculation has been rampant that the company would turn to a bankruptcy filing and it has reached out to find a way to rework its debt, which is $1.4 billion. Turning to Chapter 11 would allow the company to close unprofitable stores and possibly its Joseph Abboud factory in New Bedford, Mass. In January, Tailored Brands closed a $115 million deal with brand acquisition and management firm WHP Global to sell its Joseph Abboud trademark, which accounts for more than $500 million in sales at the company’s stores. Under the terms of the deal, WHP licensed Tailored Brands to be the exclusive purveyor to sell and rent Joseph Abboud branded apparel and related merchandise in the U.S. and Canada. The company declined to comment further on Wednesday.