Two More Retail Bankruptcy Filings: Will Bon-Ton Stores Be Next?
Ready for a break from bad news about the retail sector? Unfortunately, the financial woes for this industry continue.
Regional department store chain Gordmans Stores filed for bankruptcy today, succumbing to changing consumer shopping habits, dropping sales and staggering debt. And last week, electronics retailer hhgregg bit the dust.
Following these recent bankruptcies, we have to ask: Will The Bon-Ton Stores, Inc. be next? Like Gordmans, our analysis of regional retailer Bon-Ton also shows a high bankruptcy risk in 2017.
Check out our newest bankruptcy High Risk Report for an analysis of Bon-Ton’s growing financial distress.
Retail woes: Declining sales, store closings, debt
Retail bankruptcy filings doubled in 2016, and in 2017, it’s expected to get even worse. In fact, it seems every day brings us new reports of a retailer in trouble
The FRISK® Stress Index shows the collective probability of failure in retail has grown a staggering 538% since before the great recession. And according to a recent S&P report on retail defaults, "We expect pressure on many U.S. retail companies to increase this year, leading to at least as many defaults as in 2016."
Many storied retailers are closing stores and selling assets, in a bid to reduce costs, improve liquidity and stave off bankruptcy:
- Macy’s and prospective buyers have reportedly reached an impasse regarding price and financing issues. In the meantime, Macy’s has announced 68 more store closings in the wake of disappointing 2016 results.
- JCPenney is feeling the pinch of an extremely low sales growth in 2016, as turnaround initiatives have fallen short. They’ll be closing 140 of their 1,100 retail locations.
- Sears Holdings is engaged in a battle against time, as they sell of assets in an attempt to manage their liabilities and ongoing debt problem.
- Staples, as well as specialty retailers Zales, and Kay Jewelers and Jared (under the Signet parent company umbrella) have all announced major store closings in the last week, as sales decline.
Will Bon-Ton Stores Survive?
In our most recent bankruptcy High Risk Report, we show the ongoing and long-term financial issues facing Bon-Ton Stores, Inc.* — all of which point to a regional department store chain that is struggling to make it through 2017.
*NOTE: The Bon-Ton Stores, Inc. operates 263 stores in 25 states, under the Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's and Younkers nameplates.
Here are some of the financial red flags:
- Bon-Ton showed a net and operating loss in 4 of the last 5 sequential quarters
- Short-term debt jumped 10-fold in Q1 of 2017; an increasing reliance on short term debt indicates that funding options are becoming more limited
- Bon-Ton has consistently been in the bottom quartile compared to the broader index of retail industry peers, for key performance indicators like operating margin, liquidity, and debt ratios
- Market valuation has plummeted by two-thirds over the past year. In addition, sequential quarters of financial data shows negative free cash flow, poor interest coverage, poor cash ratio, and more.
- The FRISK® Score — which is 96% accurate in predicting bankruptcy — has been at at ‘1’ for the past year — the reddest of the Red Zone scores, with a bankruptcy probability of up to 50% over a 12-month time horizon.
Read the latest Bon-Ton Stores bankruptcy High Risk Report, for an in-depth analysis of their cascading problems -- and subscribe to the to entire High Risk Report series, for timely updates.
Get the Bankruptcy High Risk Report for Bon-Ton Stores
A Classic Head Fake: Payment Behavior
As you do your credit analysis, it’s important to note that Bon-Ton has stayed current in paying trade counterparties, even as many other metrics have gotten worse. This payment behavior stands in stark contrast to the pattern of snowballing financial distress described above.
Why would one set of financial metrics indicate financial distress, even as payment data signals business health? Research shows that this paradox isn’t unusual. Payments often give a false signal of financial stability for public companies. To learn more, read: “One Way Credit Portfolios Get Blindsided: The Wrong Credit Risk Metric.”
If you’ve been relying on a payment-based risk score like a DBT Index to assess financial health for public companies, don’t be mislead by this classic head fake -- check the FRISK® score, and take immediate action when this leading indicator drops into the Red Zone.
Pinpointing Public Company Risk: Spotting red flags in your portfolio
We hope this helps to clarify the financial risks for Bon-Ton Stores, as well as current risks in the retail sector. To learn more, get the Bon-Ton Stores High Risk Report here.
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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 $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.