Following weeks of fertile speculation whether it will or won't file for bankruptcy, this morning Colorado-based Sports Authority, whose name graces the home stadium to the Super Bowl champion Denver Broncos, put all doubts to rest when it filed Chapter 11 in Delaware bankruptcy court (Case 16-10527) listing $500,000-$1 Bn in assets and between $1 and 10 billion in liabilities in its bankruptcy filing, adding that it will close as many as 140 of its 463 locations. As part of its bankruptcy process, the bankrupt retailer reported that it has access to a $595 million in debtor in possession financing loan.
In its summary of the company's recent, troubled and overlevered history Bloomberg writes that Sports Authority has fallen far since a $1.3 billion buyout in 2006 piled it with debt. "In 2006, the chain was even with Dick’s Sporting Goods Inc. in sales. Today, Dick’s has hundreds more locations and takes in almost twice as much per store, making it the U.S. leader in selling athletic gear, while Englewood, Colorado-based Sports Authority’s debt load has hampered its ability to expand or innovate."
"We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry,” said Michael E. Foss, chief executive officer of Sports Authority. “We intend to use the Chapter 11 process to streamline and strengthen our business both operationally and financially so that we have the financial flexibility to continue to make necessary investments in our operations."
In many ways this outcome was inevitable: in 2015, sales at U.S. retailers were the weakest since 2009, according to the U.S. Commerce Department. But as big-box giants and online merchants encroached on clothing stores and consumer electronics chains, sports were one of the few healthy areas. And, as BLoomberg adds, while companies including Target Corp. and Gap Inc. shored up sales by expanding their fitness offerings, American Apparel Inc. and Quiksilver Inc. last year all sought creditor protection.
Sports Authority has about 200 fewer stores than Dick’s. The company said that in addition to the retail store closures, distribution centers in Denver and Chicago will be shut down or sold. This also means a big victory for Dick's which will be faced with far less local competition, unless of course shoppers head straight to Amazon.
In any event, straddled with too much debt to manage after the buyout, Sports Authority hasn’t been able to make the kind of improvements seen at its larger rival.
One area where it’s lagged is presentation, according to Joe Feldman, an analyst at Telsey Advisory Group. Dick’s excels in layouts and displays and has partnered with manufacturers including Nike Inc. and Under Armour Inc., which operate in-store shops. Those improvements have helped Dick’s pull in about $10 million a year in sales from the average store, while Sports Authority collects about $5.75 million, according to Steven Ruggiero, a credit analyst at RW Pressprich & Co.
We anticipate the bankruptcy filing will further weaken those commercial real estate loans and CMBS issues for locations where SA was a tennant as its rent payments will now cease; we also expect many other retailers to follow suit as the troubled US consumer has far less discretionary cash to spend courtesy of soaring health insurance premiums and record asking rents, or as the Fed calls it, deflation.
The full bankruptcy filling is below.