Pier 1 expresses confidence in its plan; disputes bankruptcy report
Pier 1 has fired back regarding credit rating agency S&P’s warning that the chain’s potential for a bankruptcy filing is increasing.
“The term loan that S&P says Pier 1 ‘could face challenges in refinancing’ is not due for two years,” the home goods retailer stated. “As of March 2, 2019 — the end of fiscal 2019 — Pier 1 had $55 million of cash and short-term investments, $191 million outstanding under its term loan, $50 million of borrowings under its FILO tranche and an undrawn revolving credit facility.”
S&P on Thursday downgraded Pier 1's credit rating from CCC+ to CCC-, reflecting concerns about the company's ability to pay back its debts. The downgrade came nearly two weeks after the retailer announced it could close up to 145 of its 975 stores if certain targets were not met.
"The negative outlook reflects that we do not see a path for Pier 1 to return to profitability in the coming six months to one year, even when factoring in the full impact of planned performance improvements," S&P stated.
In its statement, Pier 1 acknowledged "execution issues" under its prior management’s turnaround plan. But the chain said it has "since put in place a capable senior leadership team to develop and implement a new fiscal 2020 plan to reset and rebuild our business." The company said it has developed an “action plan” that will provide sufficient liquidity to implement the strategic initiatives that are part of its new fiscal 2020 plan. The action plan includes $100 million to $110 million in savings from cost cuts and other business improvements.
“Our plan takes into consideration that it will take time for a recovery of topline sales and is instead designed to drive benefits of approximately $100-$110 million from both cost reductions and gross margin improvement in the current fiscal year,” the company states. “This includes approximately $70-$80 million of selling, general and administrative expense savings opportunity for fiscal 2020, reflecting an expected annual run-rate of approximately $95-$105 million. After reinvesting in the business, the company believes it will be positioned to recapture approximately $30-$40 million of net income and $45-$55 million of EBITDA in fiscal year 2020.”