Fabrics retailer Joann’s Inc. could be running out of options, and time is not in its favor.
The yarn and fabrics retailer has been on the radar of credit analysts since 2023. It filed its first Chapter 11 petition in March 2024, exiting the bankruptcy process one month later. The retailer cut a deal with lenders that allowed it to keep open 815 stores, with no closures.
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But now a second Chapter 11 filing could come before the end of January. Sales over the holiday season were expected to be lackluster. Moreover, if the fabrics retailer can’t reach a deal with lenders to ease liquidity pressures, it would have a difficult time getting the confidence of vendors to ship new inventory. And lack of inventory or newness is a nightmare for retailers.
A second Chapter 11 filing would give Joann’s entry into the so-called Chapter 22 club, bankruptcy parlance for companies in their second tour of bankruptcy proceedings.
Wedding and special occasion retailer David’s Bridal and off-price home goods retailer Tuesday Morning are two recent examples from the Chapter 11 club, each with different final results.
David’s filed its first petition in November 2018, and wrapped up that tour two months later. It cut $450 million from its $1.05 billion debt load, but the concern was that it didn’t fix its operational problems. Credit experts said they worried that the quick exit was due to concerns from secured creditors and vendors that a lengthy stay would raise the cost factor. The second Chapter 11 was filed in April 2023. David’s found a buyer in Cion Investment Corp. But any economic downturn could put it at risk for a rare third filing, the dreaded Chapter 33. That would put it in the company that includes Filene’s Basement.
In the case of Tuesday Morning, the retailer filed its second Chapter 11 in February 2023, less than three years following its first tour of bankruptcy in May 2020 and exit in January 2021. While the initial plan was to restructure operations and close low-traffic stores. Tuesday Morning found a buyer, but that deal collapsed in March, and the retailer ended up converting the Chapter 11 to a Chapter 7 liquidation, which shuttered all stores. Hilco Merchant Resources acquired intellectual property (IP) and other assets for $32 million in a bankruptcy court-approved transaction. Tuesday Morning now operates as an e-tailer.
So, what would happen if Joann’s were to file for bankruptcy again?