The past year has seen several well-known retailers struggle, with some filing for bankruptcy and others barely surviving. The financial strain caused by the COVID-19 pandemic is often to blame, as many companies faced prolonged periods of low sales while continuing to incur costs.
Among the most notable casualties was Bed Bath & Beyond, which suffered as its products were deemed non-essential during the pandemic. While home improvement projects surged, they often focused on tasks like painting or creating home offices rather than upgrading bedding or towels.
Christmas Tree Shops couldn’t weather the storm, resulting in a Chapter 7 bankruptcy liquidation. With its store-based business model, the company was severely impacted by lockdowns and never fully recovered. Tuesday Morning, another discount chain with a similar business model, met the same fate.
Meanwhile, Party City and David’s Bridal narrowly avoided collapse. Both companies suffered because large gatherings and weddings were put on hold, decimating the demand for their products. However, they managed to secure the funds needed to continue operations.
Now, another retailer, Joann (JOAN), which seemed well-positioned to thrive during the pandemic, is teetering on the edge of bankruptcy. According to Ragini Bhalla, Head of Brand at Creditsafe, the company’s outlook is grim.
Joann’s Financial Woes Deepen
In theory, the pandemic should have benefited Joann, as its customer base of sewing enthusiasts and hobbyists might have sought solace in their crafts while stuck at home. However, it appears that many of Joann’s customers turned to online shopping, possibly through Amazon, changing their purchasing habits permanently. Additionally, some of Joann’s loyal customers may have moved on to different hobbies or passed away during the pandemic.
Regardless of the reasons, Bhalla believes Joann’s financial troubles are severe.
“Joann has struggled with cash flow, failed to stay current with many of its bills, and seen declining sales in FY 2023. With a $1 billion debt load and no permanent CEO, our Creditsafe algorithm classifies Joann as high risk for becoming seriously delinquent on payments and potentially facing bankruptcy soon,” Bhalla told TheStreet via email.
Signs of Trouble
Bhalla also highlighted that Joann has been consistently late in paying its bills, a common indicator of looming bankruptcy.
“Creditsafe data shows that in the second half of 2023, Joann struggled to make on-time payments. During this period, about 20% to 31% of its bills were paid late (1-30 days), while 1% to 8% were paid late (31-60 days),” she explained.
The company’s sales have been declining as well. In its fourth-quarter earnings report, Joann reported that net sales had decreased by 4.1% compared to the previous year, down to $539.8 million. Total comparable sales also dropped by 4.1%.
Despite the challenging numbers, Joann’s interim leadership tried to present a positive outlook. Chief Customer Officer Christopher DiTullio emphasized the company’s focus on “operational retail fundamentals” and its “Focus, Simplify and Grow” cost-savings initiative during the Q3 earnings call.
However, Bhalla remains pessimistic about the company’s future.
“Joann is rated as high risk. Based on Creditsafe’s risk algorithm, which considers both trade payment data and financial results, Joann is deemed to be a high risk (D), meaning it could be at risk of bankruptcy. Its risk score dropped from C to D in July 2023 and has remained there since,” she added.
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