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Law360 (May 11, 2020, 11:14 AM EDT) -- Stage Stores Inc., the parent company of discount retailers Peebles, Palais Royal, Bealls and Goody's, hit Chapter 11 on Sunday in Texas planning to auction its more than 700 stores and blaming the COVID-19 outbreak for the reversal of its fortunes.
In court filings, Stage Stores said it had been successfully implementing an operational reorganization through the last quarter of 2019 that saw positive results, moving to an off-price discount sales model. According to Chief Restructuring Officer Elaine D. Crowley, an initial conversion of 82 stores to this model resulted in increased revenue and prompted the company to expand its plan to an additional 220 stores.
"And then COVID-19 happened," Crowley said in a first-day declaration. "In this new reality and complete uncertainty, absent a third-party investor or purchaser, Stage Stores does not have the liquidity to implement its plan and continue operations."
Even as it prepares for a rapid sale process, Stage Stores will begin to wind down its operations in a process that will continue unless and until the debtor receives a viable going-concern bid for specific stores, according to a statement issued by the company Sunday.
In March, the company shuttered its 734 locations and furloughed more than 14,000 employees as business restrictions were implemented in many states to stem the spread of the coronavirus.
In the statement, Stage Stores said it would begin reopening its locations later this week, with more than 550 becoming operational by May 15, another 67 by May 28 and the balance by June 4.
The reopenings will allow the debtor to commence liquidation sales of inventory at its stores as part of its wind-down efforts. President and CEO Michael Glazer said in the statement the stores would comply with health authorities' recommendations to ensure employees and customers feel safe in the midst of the pandemic.
Stage Stores comes to court owing $178.6 million to a group of lenders led by Wells Fargo Bank NA under an asset-based lending facility and $47.4 million to lenders, also led by Wells Fargo, under a term loan. Both facilities are secured by liens on the debtor's assets. The company also owes $173 million to trade creditors, per the declaration.
Crowley said in the declaration that the debtor hasn't paid rent since March and has more than $30 million in lease obligations currently outstanding. Many landlords have begun exercising remedies under the leases, she said.
The Chapter 11 case will be funded by the cash collateral of Stage Stores' secured lenders, according to court filings.
The petition comes amid a flurry of retail bankruptcies that has seen industry giants Neiman Marcus and J. Crew seek bankruptcy protection in the past week, citing ongoing financial distress that has been exacerbated by the global outbreak of COVID-19 and the resulting business restrictions.
Stage Stores was founded in 1988 to complete the acquisition of the Palais Royal and Bealls chains of retailers, according to Crowley's declaration. In 1999, the company filed for Chapter 11 protection in Texas after a period of rapid expansion and an initial public offering. Post-bankruptcy, the company continued its expansion strategy and acquired the Peebles and Goody's names.
In 2017, the company began its pivot into the off-price retail market when it acquired the Gordmans brand and a number of its stores, the declaration said.
As of its petition date, the debtor operates in 42 states with 437 department stores under the Bealls, Goody's, Palais Royal, Peebles and Stages brands, in addition to 289 off-price stores under the Gordmans flag.
Stage Stores is represented by Matthew D. Cavenaugh, Jennifer F. Wertz, Kristhy M. Peguero and Veronica A. Polnick of Jackson Walker LLP and Joshua A. Sussberg, Neil E. Herman and Joshua M. Altman of Kirkland & Ellis LLP.
The case is In re: Stage Stores Inc. et al., case number 20-32564, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.
--Editing by Marygrace Murphy.
Update: This story has been updated with additional information.
For a reprint of this article, please contact reprints@law360.com.
