Destination Maternity Corp. on Oct. 21 filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware and plans to shut down 213 underperforming stores as it works to continue the sale process for its remaining assets, causing its shares to sink 47%.
The New Jersey-based maternity apparel retailer said it launched a sale process in September after declining sales due to consumers' shift to digital channels, industry-specific challenges, and internal issues, but it ran out of liquidity before it could sign up a stalking-horse bidder to set a baseline bidding bar for the company.
The company is seeking protection from its creditors as it proceeds with its planned sale process. Destination Maternity said it already attracted interest from "several credible bidders."
"This decision is a difficult but necessary one ... we have had to make some very tough choices, but we are confident that the steps taken today provide an opportunity to continue a marketing process that provides the most efficient means of maximizing value to our stakeholders," Destination Maternity's Chair of the Office of the CEO Lisa Gavales said.
Destination Maternity said it was granted consent to use cash collateral from all of its pre-petition secured lenders to help fund and protect its operations during the bankruptcy process. It intends to use the funds to pay suppliers and other business partners and vendors for the goods and services provided during and after the Chapter 11 process.
In its voluntary Chapter 11 filing, the company estimated $100 million to $500 million in liabilities and around the same amount of assets. The retailer estimated the number of its creditors at about 10,000 to 25,000. The company listed $260.2 million in total assets and $244 million in total debt.
The company will close 12 stores with ordinary-course lease expiration dates by Dec. 31 as well as an additional 201 stores that are "unlikely to be acquired by a going-concern buyer in all reasonably likely transaction scenarios."
The remaining stores under brands Destination Maternity, A Pea in the Pod and Motherhood will be evaluated and should remain open through the sale marketing process. As of Aug. 3, the company operated 446 stores throughout the U.S., Canada and Puerto Rico.
An auction is expected to be held Dec. 9, and the bankruptcy court is expected to hand down its decision regarding the sale by Dec. 12, the company said.
Following the bankruptcy protection process, the company said it is looking forward to optimizing its operations, including right-sizing its physical store network.
Berkeley Research Group LLC is acting as restructuring adviser to the company, with BRG's Robert Duffy appointed as the company's chief restructuring officer.
Kirkland & Ellis LLP is acting as the company's legal counsel, while Greenhill & Co. LLC is serving as the investment banker.
The Nasdaq-listed company's stock plunged 46.59% at market close to 18 cents.