BALDWYN – Hancock Fabrics will close 70 stores – including its flagship Tupelo location – as part of its reorganization plan, having filed for Chapter 11 bankruptcy protection again Tuesday.
The company, which was founded in Tupelo in 1957, has been hampered by continual losses and a growing debt load.
Hancock also filed for Chapter 11 in 2007, emerging a year later.
But the company has been unable to sustain any momentum since, having earned an annual profit only once, during fiscal year 2009.
Hancock filed its latest voluntary bankruptcy petitions for its remaining 260 stores and its subsidiaries in the U.S. Bankruptcy Court for the District of Delaware, and said it has negotiated up to $100 million in bankruptcy financing.
In its filing, Hancock said it has experienced a “challenging retail business environment and has been burdened by significant legacy costs.”
For example, the company’s contribution to its pension and benefits programs increased by $4 million in 2014 alone, and Hancock admitted the fund was now underfunded by nearly $44 million.
It has had to rely on bank borrowing for its working capital needs, its required contribution to its pension plan, capital expenditure and its operations.
However, Hancock noted, “these expenses plus ongoing cash needs have created a leveraged situation that is unsustainable for the future.”
The company hired Great American Group of California to liquidate the 70 stores, starting Feb. 8. Great American was used by Hancock during its previous Chapter 11 reorganization.
In a press release, Hancock said it was “considering all possible options for maximizing stakeholder value, including the sale of the business as a going concern in either a single transaction or a series of transactions. It is also reviewing investment options with existing stakeholders and third parties.”
Company President and CEO SteveMorgan, who has been in those positions since October 2011, said the restructuring was a positive step for the future of Hancock Fabrics.
“We are committed to providing our customers quality fabrics and crafting essentials, both online and in stores,” he said. “We value our relationships with our vendors and appreciate their support throughout this process. We will continue to offer the same unparalleled service for which the company has been known since its founding in 1957.”
Hancock said it is “business as usual” as it will continue to fill customer orders and pay its vendors. The company expects to get approval from the bankruptcy court to continue paying its employees and vendors to ensure continued operations.
The 70 underperforming stores are being closed because they continue to lag in sales and are “a significant drain” on Hancock’s liquidity.
The closings will no doubt affect some of the company’s 4,522 full- and part-time employees, of which 4,145 are hourly workers. The remaining 377 employees are salaried workers, 14 of whom hold the title of vice president or above.
Hancock has asked the court to allow it to continue paying its employees and access its banking accounts, a standard procedure.
Hancock said it believes “the restructuring will allow it to become more competitive in today’s retail market, both in stores and online. The company intends to use the filing to reorganize its capital structure and gain access to liquidity, reduce costs and liabilities, optimize its store operations and locations to meet customer demands and create the most value for stakeholders.”
dennis.seid@journalinc.com
Twitter: @dennisseid
