Mall retailer considers Chapter 11 bankruptcy as cash dwindles

When retail chains show slowing chains they usually blame one of two boogeymen.

First, there's Amazon. The online retailer has changed how consumers shop, but it has not disrupted brick-and-mortar sales on the level most people believe. Online sales are still a relatively small piece of the overall retail market, according to data from the U.S. Bureau of Labor Statistics (BLS). 

"Fourth quarter 2023 e-commerce estimate increased 7.5% (±1.2%) from the fourth quarter of 2022 while total retail sales increased 2.8% (±0.4%) in the same period. E-commerce sales in the fourth quarter of 2023 accounted for 15.6% of total sales," the BLS shared in its quarterly report.

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That number has been steady for years, climbing to about 20% during the lockdown period of the pandemic, but never reaching those levels again.

In addition to Amazon and the internet, failing retailers often blame falling mall traffic and that's not really a major issue either.

"Shopping mall foot traffic is nearing pre-pandemic levels, but not everything is the same — that’s a main takeaway from a new white paper by foot traffic analytics firm Placer.ai, titled 'The Comeback of the Mall in 2024.' The white paper finds that during 2023, visits at indoor malls were down 5.8% compared to 2019 — a dramatic improvement from being down more than 15% in 2021," Placer.ai shared.

Open-air shopping centers have done even better as traffic dropped only 1% last year compared to 2019.

"Visits for the shopping center industry at large were down 2.3%, and “foot traffic may yet pick up again in 2024,” according to the report.

Retail chain faces a cash crunch

Express (EXPR) has struggled and the company had a net loss of $36.8 million in the third quarter, which is a similar number to its $34.4 million net loss in the same quarter a year ago. The company has nearly $500 million in inventory, but only $34.6 million cash and cash equivalents totaled $34.6 million. That's actually an improvement of $10 million from the same period a year ago.

Rapid Ratings, a company which uses publicly-available data to track a company's financial health, has called the company a "high default risk," and has warned its customers "begin mitigating risk."

Express has been working to cut its expenses to preserve liquidity."

"The company is continuing to conduct a comprehensive review of its business model to identify actions that are expected to meaningfully reduce pre-tax costs and enable a more efficient and effective organization and has engaged external advisors to assist in this effort. The company is reiterating its stated goal to deliver over $200 million in annualized savings by 2025 versus 2022," Express shared in its third quarter earnings report.

RapidRatings data, however, does show the company remains at risk for a default, but also had some potentially encouraging remarks. 

"Express Inc is situated in our High Risk group, displays weakness in three of our seven performance categories and demonstrates significant underperformance in ROCE. If current trends persist it would be logical to expect that Express Inc will face serious default risk this coming year although prospects for sustainable efficiency and competitiveness are promising over the medium-term; thus, the outlook is mixed," the service shared.

Express explores potential Chapter 11 filing

Express, which sells mid-priced men's and women's clothing, has been meeting with its lenders about funding a potential Chapter 11 bankruptcy filing Bloomberg reported. The company operates 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, approximately 60 Bonobos Guideshop locations and the Bonobos.com online store,and 12 UpWest retail stores and the UpWest.com online store.

The retail chain has roughly $300 million in debt and expects to lose about $120 million for the full year. Express management has not made any public comment on a potential chapter 11 filing.

Express has not had an earnings call with analysts since Nov. 2023. CEO Stewart Glendinning, who joined the company in August 2023, tried to remain optimistic during that call.

"Our third quarter sales and diluted loss per share came in below the low end of our outlook ranges. The macroeconomic environment remains challenging and the consumer and competitive landscapes were highly promotional," he said.

The CEO was honest about the state of the company and its sales efforts.

"In the Express brand, unit sales were consistent with our expectations. However, moving through this inventory required more extensive discounting and led to greater gross margin erosion," he added.

Glendinning admitted that the company made some merchandise and operating mistakes.

"Across the Board, we have opportunities to improve our operating execution. This includes cycle times, in-store execution, sourcing logistics, all parts of our business which allow us to serve customers, lower our cost base and beat the competition. As part of this effort, we expect some rationalization of our store count as we close high effort, unprofitable stores," he shared.