Joann Fabrics files for Chapter 11 bankruptcy

June 2024 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

June 2024 Issue

In a bid to reorganise its ailing finances, Joann Fabrics and Crafts has filed for Chapter 11 bankruptcy protection.

The company reported debts between $1bn and $10bn in court documents filed in the US Bankruptcy Court for the District of Delaware. In its filing the retailer blamed higher costs from shipping overseas products, as well as waning consumer demand. Joann also announced it had entered into a transaction support agreement (TSA) with the majority of its financial stakeholders and was targeting a fast-track turnaround to go private.

The financial restructuring proposed by the TSA will be implemented through a pre-packaged court-supervised process in which Joann will continue to operate in the ordinary course of business. On completion of the process, the company will be owned by a number of its lenders and industry parties and its shares will no longer be listed on the Nasdaq. The company has received around $132m in new financing and said that it expects to reduce funded debt on its balance sheet by approximately $505m.

Joann, which went public in March 2021, was founded in 1943. It was acquired by private equity firm Leonard Green & Partners in 2011. The company reported $2.2bn in profit in 2023. It employs 18,210 people with roughly 16,500 working at retail locations. Another 262 work at its distribution centre in Hudson, Ohio. The company has not had a permanent chief executive since May last year after the retirement of Wade Miquelon, its former president and chief executive.

“Over the past several months, Joann has made meaningful business improvements through the execution of our Focus, Simplify and Grow cost reduction initiative,” said Chris DiTullio, chief customer officer and co-lead of the interim office of the chief executive. “We are excited by our progress on both top and bottom-line initiatives in the past year and are confident the steps we are taking will allow Joann to drive long-term growth. We appreciate the support from our financial and industry stakeholders in this agreement, and their confidence in our ability to continue driving positive business change.”

“This agreement is a significant step forward in addressing Joann’s capital structure needs, and it will provide us with the financial resources and flexibility necessary to continue to deliver best-in-class product assortments and enhance the customer experience wherever they are shopping with us,” said Scott Sekella, chief financial officer and co-lead of the interim office of the chief executive. “This includes our more than 800 stores across the United States, 95 percent of which are cash flow positive. We remain committed to our suppliers, partners, team members and other stakeholders, and are focused on ensuring we continue to operate as usual so we can continue to best serve our millions of customers nationwide.”

Joann enjoyed significant growth during the early days of the coronavirus (COVID-19) pandemic as the shutdown spurred some consumers to take up crafts and other projects. However, since COVID-19-related restrictions were lifted, the company’s sales have plummeted. Joann also cited consumer cutbacks due to inflation and other economic challenges as contributing to its financial difficulties.

“On the revenue side, sales slowed as COVID-19 policies were repealed or reduced, demand for fabric and mask-related products abated, hobbyists spent less time crafting indoors, and the federal government terminated pandemic-related stimulus programs,” the company noted in court documents.

Joann joins an increasingly long list of brick and mortar retailers which have filed for bankruptcy protection in recent years as online competitors have begun to dominate and as consumer spending has slowed amid the recent cost of living crisis.

Richard Summerfield