Fitness might be the new status symbol and athleisure clothing might be all the rage, but for one storied brand, the health and wellness boom hasn’t translated into a bottom-line boon. In fact, quite the opposite: citing a challenging retail environment, Sports Authority announced Wednesday that it has filed for bankruptcy protection and will be closing 30% of its store count.
Sports Authority was once the largest sporting goods chain in the country, but Wednesday’s Chapter 11 filing was a long time coming. In 2006, it was loaded up with debt thanks to a $1.3 billion leveraged buyout by Leonard Green & Partners; more recently, competition from big-box sports retailers (like Dick’s Sporting Goods) and boutique fitness chains (like lululemon and even The Gap’s Athleta brand) alike have eaten into the company’s market share. By July of 2015, Moody’s Investor Services warned that despite the company’s $2.7 billion in revenue, “[M]argin pressures stemming from a highly promotional retail environment and increased shipping costs related to higher e-commerce sales [have] exacerbated EBITDA declines. We expect EBITDA and debt leverage to modestly improve, but remain weak, over the next 12 months… Should these initiatives not bear fruit over the next 12-18 months, refinancing its capital structure could be challenging.”
These words proved prescient: on January 15 of this year, Sports Authority missed an interest payment on its senior subordinated notes. On February 23, Moody’s downgraded the chain to Ca-PD/LD, effectively declaring it to be in default on $300 million worth of rated debt. Eight days after this proclamation, Sports Authority filed for Chapter 11.
“Due to the changing retail environment, we have a long-term plan to streamline and strengthen our business so we can continue to make necessary investments in our operations, including upgrading our in store experience and enhancing our website,” Sports Authority CEO Michael Foss said in aletter to customers posted on the Sports Authority website. Foss went on to explain that part of this plan involves closing or selling approximately 140 stores, roughly 30% of its current store count. The closings, he said, will occur over the next three months.
In a separate press release, the company also said that in conjunction with the Chapter 11 filing, it expects to have access to up to $595 million in debtor-in-possession (DIP) financing.
According to court papers, Sports Authority owes more than $300 million in unsecured mezzanine debt to creditors including TCW, New York Life and Northwestern Mutual. On the supplier side, the retailer owes more than $47 million to Nike, $23 million apiece to Asics and Under Armour and $1.6 million to New Balance.