Monday, January 30, 2017

Payless ShoeSource Will Close 132 Stores in Austrailia

Payless ShoeSource plans to close 132 stores in Australia in February and let go of 730 staff there, The Courier Mail of Brisbane, Australia reported.

Payless ShoeSource has struggled to stay afloat in Australia. The retailer went into voluntary administration in late November for the second time in three years. Voluntary Administration is a process where an insolvent company is placed in the hands of an independent person who can assess all the options available, and generate the best outcome for a business owner and for creditors. Payless acquired the Australia division in March of 2013.

Many retailers are struggling today for various reasons. Consumers are able to buy products online, reducing the need for brick and mortar storefronts. eBay, Amazon and other online e-tailers have taken a lot of business away from traditional retailers. The Buckle (BKE), a teen fashion retailer, has been suffering from a lack of traffic in its stores. The company had traditionally improved its same-store sales for many years, but 2016 was very hard on the company, with same-store sales falling 10% to 15%. Same-store sales in December were down 15%. The Buckle remains pretty strong financially, the company had $163 million cash, $49 million in short term investments and no debt. The Buckle has a long history of operating with a very conservative and strong balance sheet, lots of cash and no debt.

That's not the case at Payless, where the owners have bled the company of its cash and loaded up the balance sheet with debt. In 2012, an investor group, including Golden Gate Capital, Blum Capital Partners and Wolverine Worldwide, acquired Collective Brands in a $1.32 billion buyout, with the Private Equity firms taking control of Payless, and the remaining footwear brands going to Wolverine.

Since the company’s leveraged buyout in 2012, Payless's sponsors have taken out nearly $350 million in dividends, representing over 130% of the $270 million initial equity contribution, according to Moody’s reports. Payless has about $665 million in debt, plus owed $223 million on a $300 million revolver, secured by inventory and accounts receivable. Payless's $520 million senior loan is being quoted at about 52 cents on the dollar, and its $145 million junior loan is being quoted at about 16 cents on the dollar, according to Reuters

Payless is struggling to pay its vendors. Payless ShoeSource loans are considered "distressed," after the discount footwear retailer fell short of its 3Q16 EBITDA forecast, according to sources familiar with the company's debts. Payless has also been slow paying its vendors, while factoring support for new orders has been limited. 

For 3Q16 ended in October 2016, the Kansas-based borrower generated $46 million of EBITDA, up 6.5% from the $43 million booked in the prior-year period. However, the quarterly figure missed guidance that called for $62 million in EBITDA. Quarterly revenue eased to $583 million, as compared to $622 million in the prior-year period. Global comp-store sales skidded by 6.3%.

Payless announced earlier this month plans to lay off 165 employees. About 110 people in Topeka lost their jobs. Payless has about 25,000 employees. 


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