Gordmans Stores: Anatomy of a Bankruptcy on the Brink

The Frisk® score predicted bankruptcy more than a year before it arrived

Gordmans Stores, a department store chain in the Midwest, is on life support.

With dropping sales, unsustainable debt levels, and many other financial red flags, Gordmans’ bankruptcy risk has been extremely high risk for some time. And this week, Bloomberg reports that the regional department store’s bankruptcy filing could come as soon as this month. 

Read our newest free feature to learn why Gordmans is in deep distress, and to see the financial fact pattern that make a bankruptcy filing likely.

Read the Gordmans Bankruptcy Risk Report

Will Gordmans Stores File for Bankruptcy?

Based on Gordmans financial performance over the past few quarters, it looks increasingly likely that this regional department store chain will file for bankruptcy:

Here are some of the risk factors that we have found troubling for Gordmans over the past five quarters: 

  • Gordmans had net losses and negative cash flow in four of the last five quarters
  • Debt ratio and liabilities are increasing, and increasing reliance on short term debt indicates that funding options are becoming more limited
  • Gordmans is consistently in the bottom quartile compared to the broader index of retail industry peers for key performance indicators like liquidity and debt ratios
  • Market valuation has plummeted 80% in the first nine months of 2016
  • The FRISK® Score was in the red all year, dropping from a ‘4’ to ‘1’ over the course of 2016; this risk score compares to an average peer rating of ‘7’.

To see all the warning signs for Gordmans -- plummeting negative free cash flow, poor interest coverage, and more -- read the entire in-depth bankruptcy risk report.

A Deep Dive Into Financial Distress: The FRISK® score saw trouble coming long before it arrived

Gordmans FRISK® score has been signaling caution for more then two years, and has been a ‘1’ -- the lowest of the Red Zone scores, with a bankruptcy probability of up to 50% over a 12 month time horizon -- since September of 2016. This is the worst possible score on CreditRiskMonitor's proprietary 1 to 10 bankruptcy risk scale.

But as of February 2017, two thirds of Gordmans trade payments were still current, even as a bankruptcy filing appears to be imminent.

Why would the FRISK® score flag growing financial risk, even when metrics like the DBT Index and other payment-based financial risk scores still gave a thumbs up?  This mixed signal is quite common, as payment-based metrics often give a green light for public companies right up until they file for bankruptcy, when more predictive financial metrics are sounding the alarm.  

To learn more about the right financial risk metrics to use for public companies, and how to avoid being blindsided, read “One Way Credit Portfolios Get Blindsided: The Wrong Credit Risk Metric”. It highlights why risk managers need different risk metrics for public and private companies.

The Frisk® score predicted bankruptcy more than a year before it arrived

How to detect credit risk in your portfolio?

One goal of our bankruptcy risk report is to explain the reasons for a Gordmans Stores bankruptcy, and we hope you find this timely update helpful.

But the broader goal of the bankruptcy risk report series is to help you detect other 'at risk' companies in your portfolio.  We hope that a timeline of the warning signs of financial distress is helpful for your risk management process, and that you will subscribe to future analysis of other troubled companies.

And, as always, if you need a hand pinpointing the biggest public company financial risks in your credit portfolio, please get in touch.

Download the bankruptcy risk report: See why Gordmans is on the verge of a Chapter 11 filing

About CreditRiskMonitor

CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.

At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.