TSL Express Daily News

Joann’s Fabrics is now part of the Chapter 22 club.

The fabrics and crafts retailer on Wednesday filed a Chapter 11 petition for bankruptcy court protection in Delaware. The company said in a statement that the filing would help it facilitate a sale process of the company “to maximize the value of its business.”

The retailer said its stores under the Joann banner and the website remain open for business and will continue to serve customers.

It inked a deal to sell “substantially all of its assets” with Gordon Brothers Retail Partners LLC, which will serve as the “stalking horse bidder” for the bankruptcy. As the stalking horse, Gordon Brothers’ bid will set the base price for all subsequent potential bidders for the assets. Terms of the agreement have not yet been filed with the bankruptcy court. The court-approve auction allows other qualified bidders to enter into the bidding process, with the hope that there may be other better offers forthcoming, or at least possibly spur a bidding war.

Joann filed its first Chapter 11 petition in March. The pre-packaged deal with lenders allowed the retailer to exit bankruptcy proceedings one month later, with all 815 stores at the time remaining open and keeping 18,00 staff members employed. The retailer currently operates 800 locations.

“Since becoming a private company in April, the Board and management team have continued to execute on top- and bottom-line initiatives to manage costs and drive value,” Joann’s interim CEO Michael Prendergast said. “However, the last several years have presented significant and lasting challenges in the retail environment, which, coupled with our current financial position and constrained inventory levels, forced us to take this step.”

Prendergast said that after reviewing all available strategic paths, it was determined that a court-supervised sale process would be the best way to maximize assets. “We hope that this process enables us to find a path that would allow JOANN to continue operating as a going concern,” he added.

In a statement filed with the court, Prendergast said that Joann “has been forced to adjust to a post-COVID economy that saw a general withdrawal from the spending highs experienced during COVID.” He explained that the pullback meant the specialty chain faced a common problem among retailers, which was “an otherwise healthy post-COVID business burdened by an outsized capital structure and operational cost center.” That combination created liquidity constraints that “impaired” the retailer’s ability to service its debt.

He said the funded debt in the first bankruptcy was $1 billion. One of the problems post exit involved “unanticipated inventory challenges post-emergence, coupled with the prolonged impact of an excessively sluggish retail economy.” That combination put the retailer “back into an untenable debt position,” he said.

According to the CEO, Joann’s posted $2 billion in net sales during the 2024 calendar year.

The Chapter 11 petition filed on Wednesday list assets and liabilities each between $1 billion and $10 billion. Twelve affiliates of Joann’s also filed respective Chapter 11 petitions.

Prendergast said that the retailer works with domestic and international supply sources. About 65 percent of its purchases last year were from domestic suppliers, with the balance sourced from Pakistan, India, Vietnam, and China, to name a few. More than one-third of the foreign-sourced products were from China. And he noted that while the merchandise assortment is available online and in brick-and-mortar stores, 86 percent of last year’s sales revenue were generated in-store.

Joann’s is the most recent of big-name retailers that have been hard hit by shifts in how consumers spend their hard-earned cash. Big Lots, Party City, and The Container Store are among the more recent distressed retailer banners. Of the three, Party City was also a second-timer filer. It first filed in January 2023 and exited Chapter 11 nine months later, only to call it quits last month when it utilized the second filing to conduct an orderly winding-down of operations.

Bloomberg first reported on Joann’s possible financial issues last November, when it said the retailer was seeking rebates and discounts from vendors.