Analyst: Beloved mall retailer facing Chapter 11 bankruptcy

Stores pay high mall rents to benefit from the foot traffic that putting a bunch of stores and restaurants all in the same place. You may not leave your house to go to Great American Cookie or Cinnabon, but you may buy a cookie or a cinnamon roll if you happen to be walking by. 

The same logic applies to non-destination clothing stores. Typically, the anchor stores at a mall — chains like Macy's, Dillard, J.C. Penney, and similar stores — might attract customers not looking to visit the entire mall. The stores on the interior, however, work better as a collective whole.

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People tend to walk the mall and pop in and out of various stores. You might visit because you want to go to Gap or Bath & Body Shop, but, in many cases, people simply visit the mall (perhaps knowing they need something) and peruse the different stores. 

It's a collective agreement that benefits all the secondary stores at the mall. The problem is that when people don't go the mall, all the stores get hurt. Traffic has long been suffering at lower-tier malls, but higher-end shopping centers have struggled as well.

Placer.ai tracks foot-traffic data from 100 top-tier indoor malls, 100 open-air shopping centers (not including outlet malls), and 100 outlet malls across the country, The trends it's seeing aren't great for mall retailers.

Although consumer confidence dropped in October for the third straight month in a row, foot traffic data indicates that the tide may be turning. In September, weekly year-over-year (YoY) visit gaps to indoor malls, open-air shopping centers, and outlet malls hit a low of 11.6%, 7.8%, and 14.2%, respectively. But those YoY visit gap lows narrowed to 9% for indoor malls, 6.5% for open-air shopping centers, and 12.4% for outlet malls in October .

The malls being tracked by Placer.ai have traditionally been more resilient. If they're struggling (albeit improving over their lows) then the overall picture for mall-based retailers remains bleak.

Beloved mall brand stares down bankruptcy

Clothing retailers constantly have to reinvent themselves. Tastes change and it's very difficult to keep a brand relevant as trends tend to move very quickly.

Express, which was founded in 1980, operates approximately 530 Express retail and Express Factory Outlet stores in the United States and Puerto Rico, the Express.com online store, and the Express mobile app. The company has struggled to pay its bills recently amid slumping sales.

Creditsafe's Brand Head Ragini Bhalla shared some data on the company's financial situation with TheStreet with an email.

"Late payments have increased drastically since June: Mounting debt, cash flow problems, and rumors of bankruptcy are currently swirling around Express Inc. These concerns appear to be valid as Creditsafe data shows that the number of on-time payments made by Express Inc. plummeted from 91.8% in May to 65.99% in June," she shared.

That's part of a growing trend for the retailer.

"If this was an anomaly and improved after that month, it wouldn’t be so worrisome. But that doesn’t seem to be the case. Our data shows that the retailer had a high number of late payments (1-30 days) in the second half of 2023 — with 29.12% in June, 26.82% in July, 33.61% in August, 37.58% in September, 35.67% in October,27.5% in November, 28.21% in December, and then 27.7% in January 2024," she added.

Bhalla also expressed concerns over Express's (EXPR) late payments (61-90 days) climbing from .1% in November to 15.2% in December. 

"That’s a massive jump in a single month and signals severe pressure on the company’s cash flow," she added.

Express has a cash problem

The company's Days Beyond Term (DBT) has been rising for the last six months, according to Creditsafe data.

The company’s DBT was very low (1) in March 2023. But it then steadily increased for the next six months until it reached 11 in August. Although its DBT dropped to between 6 and 8 from September to November, it spiked back up to 13 in December. 

"While its DBT isn’t necessarily that high, it’s more worrying that it hasn’t been stable and has spiked in short periods of time. This signals instability in the company’s finances, which is probably being amplified by the pressures of its mounting debt and revenue declines," Bhalla shared.

Rising debt has hurt the company’s liquidity: Express reported $274.7 million in debt in the third quarter of 2023, which included a $65 million loan it took out in 2023 at a 15% interest rate. Express CFO Jason Judd described the loan as a “short-term measure to strengthen our liquidity position” during a Q2 analyst call. 

"To put this into perspective, that was an increase from $235.4 million in debt in the third quarter of 2022," Bhalla added.

Express, which has hired debt restructuring adviser M3 and law firm Kirkland & Ellis, did share that it expects a $52 million payment from the U.S. government under the CARES act. 

Net sales for the company fell by 5% in Q3. Sales in its brick-and-mortar stores declined by 16% in the quarter while the company lost $36.8 million in the quarter. Express had a 20-for-1 reverse stock split in August in order to remain compliant with the New York Stock Exchange.

Its stock closed on Feb. 16 at $2.90, up 7 cents on the day but down 65% since Dec. 29. 

Cash and cash equivalents totaled $34.6 million at the end of the third quarter of 2023 versus $24.6 million at the end of the third quarter of 2022, and the company had another $21 million in available credit.