Is Macy's Headed Towards Bankruptcy?

Is Macy's headed towards bankruptcy? The folks at Audit Integrity think so.

In a recent report, the independent financial research and risk modeling firm listed 20 large-cap companies ($1B or more in market capitalization) "that have the highest probability of declaring bankruptcy among publicly traded firms" in the next 12 months, with Macy's making the list. The Business Insider went a step further, whittling the list to the 10 worst of the worst using the following formula:

"Which companies appear the worst off? We took the list and removed any company with a market cap under $3 billion. We then ranked the remaining names by a simple measure of the market's perceived bankruptcy risk - Market Cap (MC) divided by Enterprise Value (EV). The less MC vs. EV, the less residual shareholders' value (above what debt holders can claim) the market is pricing-in for the company. Thus a lower MC/EV means the market thinks the company is more likely to go bankrupt."

Macy's comes in at #4:

4. Macy's

Does anyone even shop at department stores anymore?

Same store sales will likely keep falling at Macy’s right through 2009. With $2.4 billion of maturing debt over the next five years, the company is trying to cut costs, and has already reduced its dividend.

Hopefully the US consumer will bounce back soon, and actually want to shop at Macy's.

MC/EV=47%

I'm not ready to write off Macy's just yet. Their My Macy's initiative has made significant gains , with same-store sales of the program's 20 test market regions outperforming the rest of the company. These gains prompted Citigroup analyst, Deborah Weinswig to upgrade the stock to "Buy" from "Hold" on Tuesday, and double the price target to $30 from $15.

"We are encouraged by the consistent, positive early results that Macy's has reported from its 20 pilot My Macy's markets since spring 2008," the analyst wrote in her note to clients. "My Macy's initiative will be a key driver of same-store sales upside for the company ahead."

The program allows the company to reduce discounts. It also shows signs of improving relationships with vendors, leading to the development of more exclusive lines and unique sizes, Weinswig says. (SOURCE: Martketwatch.com)

Escada Files For Bankruptcy

Escada Files for Court Protection in Germany
By THE ASSOCIATED PRESS
August 14, 2009

FRANKFURT (AP) — The German fashion company Escada has filed for bankruptcy after being unable to obtain financing, a Munich district court said Thursday.

The filing was expected after the company, famous for women’s fashion and accessories, failed to get the necessary support for an earlier bond swap.

Escada was once one of the biggest fashion brands in the world, but its popularity, sales and earnings have declined.

The company said a number of restructuring measures had been contingent on the bond swap working, but it did not get enough support from the bondholders.

For example, a plan to raise 30 million euros, or $42 million, through the company’s bigger investors had been contingent on the bond exchange going through, as was a credit extension of more than 13 million euros. A successful swap would have also given the company some immediate liquidity to help it eliminate some of its debt.

The company said earlier this week that the situation was “regrettable,” but that it still hoped for a turnaround in its finances and business.

The company had sales of 528 million euros in fiscal year 2008, but reported a net loss of 70 million euros. In the first half of the fiscal year ending in April, it lost 92 million euros.

Escada operates 182 of its own shops and 225 franchise shops in more than 60 countries, employing about 2,300, 600 of those in Germany.

(SOURCE: NYTimes.com)

Christian LaCroix Files For Bankruptcy

Christian Lacroix, one of the biggest names in Parisian haute couture, is the latest victim of the slumping global ecomony. The company has announced that it has filed for protection from creditors, the equivalent of Chapter 11 bankruptcy protection.

The filing comes after the failed attempt of Falic Group, the U.S. based duty-free company that owns Lacroix, to sell the company. Lacroix's Chief Executive, Nicolas Topiol is blaming the lack of interested parties on the financial crisis.

This particular quote stood out to me:

In an attempt to boost revenue, Falic Group has tried to play up Lacroix's reputation for haute couture -- the highest-end of the fashion scale. This long-term strategy was "dramatically hindered by the current and ongoing world financial and economic crisis," the company said in a statement.

In this particular case, Lacroix can't solely blame it on the e-e-e-e-economy this time. Fashion houses cannot live on haute couture alone. It's very expensive to make and very few people in the world can afford to purchase it, therefore couturiers don't sell enough to offset costs and make a profit. Instead, they rely on licensing aspirational, affordable luxury merchandise such as ready-to-wear clothing, fragrances and accessories. This is why luxury conglomerates like Lacroix's former owner, Moet Hennessy Louis Vuitton (LVMH) and The Gucci Group have been able to thrive, posting sales increases of 11% and 5% respectively.

Unfortunately for Lacroix, the interest has never been there for the brand as they have yet to turn a profit in its 22 year existence. Sure, the fashion house received critical acclaim, but the public never embraced Lacroix aesthetic.

Paris Couture Week is five weeks away, so will Christian Lacroix make a showing? Mr. Topiol tells WWD that there may be a more scaled-back presentation.

(Photo: Dominique Maitre/WWD.com)

Bill Blass Couture Files For Bankruptcy

The economy is beginning to take it's toll on the high-end fashion industry. The first victim -- Bill Blass Ltd:

The company filed a Chapter 7 bankruptcy petition Wednesday with the U.S. Bankruptcy Court in Manhattan, listing assets of $192,000 and debts of $829,000, court papers show.

The company halted operations last week because it "did not have the financial wherewithal to continue," according to its bankruptcy attorney, Harold S. Berzow of Ruskin Moscou Faltischek P.C. ......

The bankruptcy petition shows the company has $11,250 in miscellaneous assets, including office equipment, $25,000 in inventory, about $90,000 in its bank account and $155,361 in accounts receivable..... (Source: WSJ.com)

This shouldn't come as a surprise. Just before Christmas, NexCen Brands Inc., the parent company, sold its Bill Blass licensing business to Peacock International Holdings LLC for $10 million to pay off debt, and laid off 60+ workers without severance pay.

The question is, Can Bill Blass recover? Here's some advice from former Blass head designer, Michael Vollbracht:

“You need the Blass DNA – it’s crucial,” says Mr. Vollbracht, who also was a personal friend of Mr. Blass’s. “You need to make good, classic clothes for women who don’t like fads. Bill Blass was not faddish.” (Source: WSJ)

I believe they had that with Peter Som, but NexCen couldn't afford him thanks to a $30 million debt they acquired to purchase Great American Cookie. Who knew a lil' ol' chocolate chip cookie would help bring down a fashion empire?

But there's hope. Peacock, with annual sales of $70 million, has plans on reviving the brand "within 9-12 months".

The new owners of the Blass trademark and its nearly 20 licenses plans to focus first on getting its licenses “on the same page – the brand identity is a little uneven,” Scott Patti says. “We’re very intrigued by the international business opportunities of the Bill Blass brand – we believe NexCen hasn’t even scratched the surface of that worldwide.” When asked about the potential for the brand, he notes that the Blass brand once did sales of $500 million annually. (Source: WSJ.com)

Stay tuned........