Francesca’s has issued another warning that it could go bankrupt.
In a filing on Monday with the Securities and Exchange Commission, the already-struggling retailer announced that the coronavirus-induced shutdown of its more than 700 boutiques from late March through the end of April had led to significant declines in its comparable sales, net revenues and gross profits. It expressed a need to obtain additional financing to keep its business up and running or enter into Chapter 11 protection.
“If we are unable to generate or obtain the requisite amount of financing needed to fund our business operations or execute our growth strategy, our liquidity and ability to continue operations could be materially adversely affected,” it wrote. “As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.”
The warning comes a month after Francesca’s said it had substantial doubt about its ability to continue as a going concern. It has also failed to pay rent on its leased locations for the months of April, May and June, which it said violates certain covenants under its asset-based credit and term loan agreements.
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If it’s unable to regain compliance with those covenants, the company could enter default and thus be prevented from making future borrowings under those credit agreements. Without the funds, it faces challenges repaying currently suspended accounts payable as well as abated rent to its landlords for its outposts, corporate headquarters and distribution center.
“We cannot provide any assurance that we will be able to secure sufficient liquidity to fund our business operations, including through additional financings [or] re-financings, or that we will be able achieve positive results through our growth strategy,” the chain added.
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. Last month, 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.
In this week’s SEC filing, the retailer requested an extension to submit its quarterly report “no later than 45 days after June 16,” when it was scheduled to post its Q1 financial results.