Francesca’s has warned that it could go bankrupt as the coronavirus continues to batter its business.
In its year-end filing with the Securities and Exchange Commission on Friday, the Houston-based retailer indicated that the pandemic has adversely affected its cash flow, raising “substantial doubt about our ability to continue as a going concern.” The inclusion of a going concern qualification in its report, acknowledged the company, violates certain covenants in agreements with its lenders.
If it is unable to raise additional capital or secure debt or equity financing, Francesca’s warned that it “may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection” to implement a restructuring plan.
The chain’s revenues and operations have taken a significant hit from the coronavirus pandemic, which led to the temporary closures of its more than 700 boutiques starting March 25 as federal restrictions forced the closures of “nonessential” stores across the country. (Some locations have reopened this month as state and local governments begin to ease stay-at-home orders.)
The company also noted in the report that it had failed to pay rent on some of its leased locations for the month of April — again violating its loan covenants. It also plans to forgo rent payments for May and June.
As of Feb. 1, Francesca’s had 5,236 employees — 1,159 of which work full time and 4,077 part time — but it furloughed “substantially all of our corporate and boutique employees” in mid-April as part of broader efforts to improve liquidity. It has also reduced the base salaries of its senior leadership team, as well as suspended all capital expenditures and limited its investments in e-commerce.
With the rise of digital, shifting consumer preferences and increasing competition, Francesca’s had fallen on hard times in recent years: The company reported its first operating loss in 2018 — and also posted an operating loss the following year. On Friday, it logged “relatively flat” fourth-quarter revenues of $118.9 million, compared with last year’s $119.3 million, and 1% gain in same-store sales. The retailer is also on bankruptcy watch and now has a market capitalization of just under $7.5 million.