A key ratings service has warned of a ‘high default risk’ and has warned customers to mitigate their exposure.
The post-pandemic era has been brutal for retailers that sell furniture.
People spent a lot of money on their homes during covid lockdowns because they had nowhere else to spend it.
This created unprecedented demand for furniture and home goods. So even struggling companies like Wayfair, a digital retailer with significant financial questions about its survival, had a boom period.
All the rules changed. People bought items for their homes without testing them or seeing them in person. The problem for companies in that space is that new demand wasn’t created. Demand was simply pulled forward.
Basically, furniture retailers now face the same problem as Peloton: Their period of high sales did not create a huge new audience for their products, Instead, people bought new couches, beds and office furniture before they normally would replace them.
That in turn meant that for the next couple of years demand would be lower. In addition, after the world was somewhat shut down for more than a year, consumers simply wanted to spend their money on experiences, not stuff.
Taken together these factors created the market that caused Z Galleries and Mitchell Gold & Bob Williams to go bankrupt. Now, another home-furnishings retailer has found itself in a fight for survival.
Struggling retailer borrows more money
Kirkland’s Home, (KIRK) a specialty retailer of home décor and furnishings operating 338 stores in 35 U.S. states, has found itself in a fight for survival.
The retailer ended the third quarter with $62 million in debt under its senior secured revolving credit facility. The company also had $35 million under its senior secured revolving credit line, Retail Dive reported.
Kirkland’s increased its credit availability after the quarter ended.
“To support its strategic repositioning efforts, Kirkland’s Home secured additional debt financing through a new first-in last-out, asset-based, delayed-draw term loan facility. The new facility is in addition to the company’s existing $90 million asset-based revolving credit facility,” the retailer shared in a press release.
Even with the new loan, Kirkland’s has very little available money.
“Proceeds from the new facility, when drawn, will be used to provide additional liquidity for ongoing working capital needs,” according to Kirkland’s. “As of closing, the company’s combined credit availability under both credit agreements was approximately $21.5 million.”
The retailer lost $6.7 million in Q3.
Kirkland’s faces bankruptcy risk
In addition to appearing on Retail Dive’s bankruptcy watch list, Kirkland’s also has a ‘high default risk,” according to Rapid Ratings.
‘Kirkland’s Inc. is situated in our High-Risk group, displays weakness in five of our seven performance categories, demonstrates significant underperformance in [return on capital employed], and was downgraded in the most recent period,” the site, which uses financial metrics to predict default risk, reported.
“If current trends persist it would be logical to expect that Kirkland’s Inc. will face serious default risk this coming year and will struggle with efficiency and competitiveness problems over the medium term; thus, the outlook is negative.”
The company says it’s on the right path toward returning to profitability.
“The third quarter demonstrated execution of our strategic repositioning as we experienced sequential improvements in traffic and comparable sales each month of the quarter, along with expanded gross margins,” interim Chief Executive Ann Joyce said in the chain’s third-quarter earnings release.
Her successor, Amy Sullivan, was named the permanent CEO on Jan. 19. She took a similarly optimistic tone.
“This is a dynamic time to step into the role of CEO at Kirkland’s Home as we start to see our strategic initiatives pay off, with almost a full year of valuable insights and data from our initial repositioning efforts,” said Sullivan.
“We have a fantastic team in place and great momentum coming off the 2023 holiday season. I look forward to leading the company through this next chapter and unlocking the long-term growth potential we see for Kirkland’s Home.”
Source: thestreet.com
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