Less than two years after it was acquired by Joel Weinshanker, Hastings Entertainment has filed for Chapter 11 bankruptcy protection.
In filings made June 13 with the U.S. Bankruptcy Court in Delaware, Hastings’ executives said they hope to be able to find a buyer for its stores within 30 days, but that if no buyer can be found the company will likely be forced to liquidate. The retailer said that it “simply lacks the access to capital to sustain operations beyond the middle of July 2016.”
The filings show that, since early May, Hastings has contacted 22 potential buyers and received expressions of interest from 10 parties. While several of those parties have conducted due diligence toward a potential purchase, no deal has been reached. This has forced the company to file for bankruptcy.
Hastings has been on a downward trajectory since the Marmaduke family sold the chain to Weinshanker in July 2014. Following the completion of the purchase, Hastings became part of Draw Another Circle Inc., and Weinshanker later merged Hastings with MovieStop.
Earlier this month, Draw Another Circle announced its plans to liquidate the 39 MovieStop stores while also continuing to find ways to improve the prospects of Hastings. In 2014, Hastings had a loss of $10.9 million on sales of $420 million. Last year, the company's loss rose to $16.6 million, while revenue dropped to $401.1 million. MotiveStop, meanwhile, lost $4.7 million on revenue of $32 million in 2015. First quarter sales at Hastings fell another 14%, compared to the first period of 2015.
In an attempt to turnaround the company, Jim Litwak was named president last December. He began a number of new efforts which included instituting a plan to cut store payroll by $7.8 million; reducing the employee headcount at Hastings' headquarters and warehouse by 15% and getting rent concessions of $2 million.
Hastings, under Litwak, also embarked on a “refresh” program through which 20 outlets shifted their merchandising strategy to focus more on children’s, comics, electronics, consumables, recreation and hobbies businesses. (When Hastings was sold to Weinshanker, books was the company's largest department with annual sales of about $100 million.) While Hastings executives said they were encouraged by the reaction to the new store focus, they were stymied by the fact that they did not have enough capital to roll out the new approach to more locations.
In addition to declining sales, Hastings's cash-flow problems were exacerbated this spring when Bank of America imposed new terms that made it difficult for the company to pay rent to many of its landlords n May and June or to pay vendors "in accordance with applicable terms."
To keep the chain's stores operating for the next month, and ideally give the company enough time to find a new buyer, Bank of America has provided debtor-in-possession financing of $90 million. "We are hopeful that we are on the right path but need an additional cash infusion to complete our re-merchandising strategy,” Litwak said in a prepared statement. “An asset sale to a well-capitalized purchaser would give us this financial stability and allow the buyer to pick and choose the assets it wants to acquire.”
Hastings is currently operating 123 stores, and has 3,500 employees. It owes $59 million to its trade vendors (among publishers, HarperCollins is owed just over $1 million followed by S&S, owed 726,000), landlords, service providers and other unsecured creditors.