Eddie Bauer

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The sportswear retailer filed for bankruptcy Wednesday in hopes of wiping out an unmanageable debt load. More retailers may follow.

By Catherine Holahan
MSN Money

Eddie Bauer (EBHI, news, msgs) may spend less time in bankruptcy court than even Chrysler. The sportswear retailer filed for Chapter 11 protection Wednesday in Delaware with a buyer waiting in the wings.

Bauer, which operated 370 retail and outlet stores, plans to sell nearly all its assets for $202 million in cash to CCMP Capital Advisors, a private-equity firm that was once part of JPMorgan Chase (JPM, news, msgs). The Bellevue, Wash., company has about $476.12 million in assets and $426.71 million in debts, according to its bankruptcy filing, provided by BankruptcyData.com.

"The story of Eddie Bauer today can be summarized in one phrase: good company, great brand, bad balance sheet," said Neil Fiske, the president and CEO of Eddie Bauer, in a statement.

Like many retailers, Eddie Bauer had struggled to keep up with its debt payments in the face of drastic cuts in consumer spending. Company sales declined nearly 14% for the quarter ending in May, prompting the company to post a $44.5 million loss. Meanwhile, the company's debts continue to come due. Earlier this year, Eddie Bauer tried unsuccessfully to persuade creditors to trade a $300 million loan for equity.

"Eddie Bauer, like all other businesses, and especially retail businesses, is suffering as a result of the worst global economic downturn since the Great Depression," wrote Fiske in an affidavit accompanying the company's bankruptcy filing. "Adverse economic conditions in general and increased levels of unemployment have led to a decrease in consumer confidence and a decline in consumer spending." American consumers are too strapped to shop. A record 14.5 million people are collecting unemployment, and that number is expected to continue to rise. Incomes have dropped 2.7% since June 2008. And other sources of income, such as home equity and stock holdings, have dried up.

"The consumer is tapped out," says Diane Shand, a director at Standard & Poor's who covers Eddie Bauer. "The fourth quarter was sort of like a train wreck . . . and the fourth quarter this year will be better because of weak comparisons. It is going to be a slow climb back for retailers."

As a result of the economic conditions, many retailers face bankruptcy. Including Eddie Bauer, 16 of the 146 retailers and restaurants tracked by Standard & Poor's have CCC or CC credit ratings.

S&P senior director Jerry Hirschberg cautions that a low rating does not mean a company is an imminent bankruptcy risk. But it is an indication that lenders will be wary of refinancing retailers' debts at attractive rates. Among the companies burdened by low ratings are Internet catalog retailer Oriental Trading, Barney's New York, Loehmann's, electronics and gift retailer Brookstone and convenience store Duane Reade.

Eddie Bauer was perhaps worse equipped than other retailers to weather such rough economic conditions. Since it was spun off from Spiegel in 2003, Eddie Bauer has tried to restore its brand name and recapture its former glory.

"Heritage brands always have comeback potential -- and few have a heritage as rich and compelling as Eddie Bauer's," said Fiske. "We are already fixing this business. We are restoring a great American brand. We have made progress and know what remains to be done. But we need some help."

Eddie Bauer has 8,600 employees, according to Fiske's statement. The company fired 123 people last year and 193 more people in January. CCMP plans to keep "the majority" of employees, according to a statement. That means that more layoffs are likely on the way. CCMP has promised to honor gift cards from consumers and loyalty reward programs.

The company believes that with a leaner balance sheet it will survive the recession and once again thrive.

"We bleed Eddie Bauer green," said Fiske. "We know we can do it if given a fair chance and a better balance sheet."

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Eddie Bauer declares bankruptcy

http://www.bizjournals.com/portland/stories/2009/06/15/daily42.html

Overwhelmed by debt payments and a steep drop in customer spending, Eddie Bauer filed Wednesday for bankruptcy protection, becoming another high-profile Northwest corporate casualty of the recession.

Eddie Bauer Holdings Inc. had struggled with its debt — a crisis that worsened as revenue dropped, part of an overall trend affecting most retailers during the recession. The company has lost nearly a half billion dollars in the past three years.

Those losses, coupled with the impact of the recession and debt payments apparently pushed the company into bankruptcy court — a move that was rumored for months.

Eddie Bauer became the latest major retailer to suc[Censored]b to filing in bankruptcy court this recession. The list also includes Linens 'n Things, Circuit City and Northwest retailer Joe's Sports & Outdoor, which sold its assets to a liquidator in April and closed 31 stores.

In many ways, Eddie Bauer's crisis is not different from what most retailers are facing during this prolonged and deep recession, said Greg Charleston, an Atlanta-based consultant for Conway MacKenzie who works with financially stressed retailers looking to restructure.

Most retailers — except discount stores like Wal-Mart — have seen a fast drop-off in retail revenue across the board, Charleston said. Many of the specialty retail department stores have seen double-digit same-store sales declines, he said.

"When revenue drops and same-store sales drop, companies with less debt can weather a downturn much longer," Charleston said. "It becomes an issue much sooner if you are into liquidity issues."

As of May 11, Eddie Bauer reported having $289.5 million in outstanding debt, including $187.8 million in term loans and $75 million in convertible notes, which company executives have been trying to persuade debt-holders to convert into shares of the company.

According to a filing with the Securities and Exchange Commission, Eddie Bauer had total assets of $525.22 million in April. The company listed total liabilities of $448.9 million.

Eddie Bauer reported net losses of $165.5 million in fiscal year 2008, part of a total of $478.7 million in losses during the past three fiscal years. In the first quarter that ended in April, the company reported net losses of 44.5 million.

For the first quarter of fiscal year 2009, which ended April 4, Eddie Bauer reported a loss of $44.5 million. That was a greater loss than the first quarter of 2008, when the company reported a $19.3 million loss.

Net sales for the first quarter of 2009 were $179.8 million, compared with net sales of $213.2 million in the first quarter of 2008.

The company said that combined comparable store sales — a barometer of success at the store level — fell 11.3 percent for the first quarter, a decline the company blamed on the recession and reduced retail spending.

Sales were down nearly 15 percent in Eddie Bauer's retail stores and sales through its direct channel were down nearly 11 percent. The outlet stores saw sales decline by nearly 76 percent.

"The first quarter was a difficult one, as the sharp downturn in the economy took its toll on our sales. We continued to focus on cost cutting and cash flow management, which helped mitigate the impact of lower sales," said CEO Neil Fiske, in a statement with the first-quarter results filed with the SEC.

Eddie Bauer has 370 stores, including 251 retail stores and 119 outlet stores in the United States and Canada. Eddie Bauer has 17 stores in Washington and 11 stores in Oregon.

But by filing for reorganization under Chapter 11 of the federal bankruptcy code, Eddie Bauer hopes to avoid the fate of Joe's Sports & Outdoor, which filed for bankruptcy protect March 4.

The Wilsonville, Ore.-based company had hoped to find a buyer. But In April, a bankruptcy judge approved the liquidation of the Joe's stores after the company could not find a buyer.

Joe's had 31 Northwest stores — 10 of them in Snohomish, King and Pierce counties — that held going-out-of-business sales after the company's assets were snapped up at bargain basement prices by Gordon Brothers Group, a liquidator that also sold off merchandise for Circuit City.

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The Eddie Bauer store in the Burlington Mall. This is one of the two entrances into the store, here you can see the men's department to the left in this photo is a duplicate entrance into the womens department.
*note* this is one of the last remaining retail stores for Eddie Bauer in this area.

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A view from inside the men's department of the window display wall with the decal of the Eddie Bauer logo.