Lucky Brand Files For Bankruptcy Protection Due To Covid-19

Clothing retailer Lucky Brand Dungarees said it has filed for bankruptcy protection and has entered into a potential deal to sell its business operations.

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The U.S. retailer entered into a “stalking horse asset purchase agreement” with the SPARC Group. SPARC, an operator of lifestyle brands including Aéropostale and Nautica, is owned by Authentic Brands Group LLC and Simon Property Group (SPG), one of Lucky’s main landlords.

The stalking horse offer, which would be for the sale of all of the Lucky Brand’s operating assets, serves as a reserve bid to mark the start of a bidding process for the bankrupt retailer.

Founded in 1990, Lucky Brand, which has more than 200 North American stores, said it will continue to explore potential sale transactions with other parties to achieve the highest or otherwise best offer for the ailing retailer.

Lucky Brand said it has initiated proceedings under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware to facilitate the sale and reduce its debt burden caused by recent challenges, including the COVID-19 pandemic

“The COVID-19 pandemic has severely impacted sales across all channels. While we are optimistic about the reopening of stores and our customers’ return, the business has yet to recover fully,” said Lucky Brand’s interim CEO and executive chairman Matthew A. Kaness. “We have made many difficult decisions to preserve the company’s viability during these unprecedented times. After considering all options, Chapter 11 filing is the best course of action to optimize the operations and secure the brand’s long-term success.”

The retailer said it has received new financing commitments from some of its existing lenders that will provide sufficient liquidity to fund the business through the closing of the sale. In addition, ABG-Lucky LLC, a newly formed subsidiary of Authentic Brands Group, will buy all the intellectual property assets of Lucky Brand.

Simon Property shares rose 3.9% to $71.49 in Monday’s pre-market trading. The stock has this year been hit hard losing 54% of its value during the period.

So, it’s not surprising that overall analysts have a cautious outlook on the company. The Hold consensus shows 9 Holds versus 4 Buys. Looking ahead, the $77.69 average analyst price target implies 13% upside potential over the coming year. (See SPG stock analysis on TipRanks)

Meanwhile, Goldman Sachs analyst Caitlin Burrows this month resumed coverage of the stock with a Buy rating and $94 price target (37% upside potential) on expectations that the company’s same-site operating income growth will improve in 2021 as properties are fully operational and return to a more normalized rate in 2022.