Gymboree nosedives after poor numbers; RadioShack awaits results; Momentive busy but steady

By Paul Deckelman

New York, Sept 10 – Gymboree Corp.’s bonds were heard by traders to have plunged in heavy trading on Wednesday after the children’s apparel retailer reported poor fiscal second-quarter numbers.

For the period ended Aug. 2, sales slid to $264.3 million from $290.9 a year earlier, while comparable-store sales at outlets open at least one year – considered a key retailing industry performance metric – swooned by 10%.

The company’s net loss more than tripled to $31.2 million compared to $9.4 million for the second quarter of fiscal 2013.

Also on the earnings front, traders saw RadioShack Corp.’s bonds under pressure, ahead of the scheduled Thursday morning release of its second-quarter earnings.

Retailer J.C. Penney Co. Inc. meanwhile came to market with an upsized $400 million issue of five-year notes.

While the new paper initially firmed, it quickly lost momentum and headed back down to around its issue price.

Away from the retailing sector, traders saw fairly active dealings in Momentive Performance Materials Inc.’s bonds, which had eased on Tuesday after the judge overseeing the specialty performance materials maker’s bankruptcy proceedings refused to let some bondholders change their initial votes on its reorganization plan. But the paper was seen fairly steady on Wednesday.

Gymboree gyrates post-earnings

A trader declared that “Gymboree was probably the most notable name” of the day, “trading into the ‘40s post-earnings. So those bonds are down, call it 15 points.”

Another market source saw the San Francisco-based children’s apparel retailer’s 9 1/8% notes due 2018 ending at around 48 bid, which he called down some 13¼ points on the day. Volume of more than $28 million made those bonds one of the most active issues of the day in the junk bond market.

The paper plummeted after the company reported that for the fiscal second period ended Aug. 2, sales slid to $264.3 million from $290.9 million a year earlier, while comparable-store sales at outlets open at least one year – considered a key retailing industry performance metric, since it culls out both stores that have not yet established a track record as well as those that have since been closed – swooned by 10% from a year earlier.

Adjusted EBITDA shrank to $9.6 million in the latest period from $24.8 million for the second quarter of fiscal 2013.

The company’s net loss meanwhile more than tripled to $31.2 million from the $9.4 million of red ink seen a year earlier.

On the liquidity front, Gymboree burned through some $14.6 million of its cash, bringing its cash balance at the end of the quarter down to $24.9 million from $39.4 million a year earlier.

The company said that it had $64 million in borrowings outstanding under its $225 million asset-backed loan facility, which translates to about $95.5 million of undrawn availability after deducting letters of credit and outstanding borrowings.

Looking ahead, the company expects to report full-year adjusted EBITDA in the range of $90 million to $110 million. Based on this guidance, Gymboree “expects to have sufficient liquidity during fiscal 2014 to service its debt and invest in the business to drive long-term growth.”

RadioShack numbers on tap

Another underperforming retailer scheduled to report numbers on Thursday is RadioShack.

On average, Wall Street is expecting that the Fort Worth-based consumer electronics store chain operator will post a loss of about 65 to 66 cents a share on revenue of around $735 million for the 2015 fiscal second quarter ended Aug. 2.

A trader said that the company’s 6¾% notes due 2019 “aren’t trading – but I’ve heard they’ve been quoted down into the lower 30s. So they’re clearly under some pressure as well – there’s concern about whether they’re going to file [for bankruptcy] or not, or pull a rabbit out of the hat. But they’re clearly for sale as well.”

Another market source saw them going out on Wednesday around 36 bid – up around 3 points on the day, but down from higher recent levels. Trading was all odd lots, with no round-lot transactions recorded.

Those bonds had recently been trading around 40, though they had dipped as low as a 33 context on Tuesday, against a back drop of a slide in the company’s New York Stock Exchange-traded shares, which plummeted 28 cents, or 23%, to end at 94 cents per share – the biggest one-day loss in the stock in more than two years, since July 2012.

The stock was in freefall after Wedbush Securities analyst Michael Pachter cut his price target to zero, warning that a bankruptcy filing was imminent and that the value of its equity would be completely wiped out.

He said in a research note that the company’s much-ballyhooed turnaround plan, including the closing of several hundred underperforming stores, had failed to take hold.

“RadioShack's operational decisions are now being vetted by creditors, and equity investors are no longer relevant to management decisions. The creditors clearly are in control of the ship, and, in our view, the ship is sinking,” Pachter declared.

The shares gyrated around on Wednesday between a low of 76 cents and a high of $1.09. While bearish assessments from Pachter and other analysts threw a pall over the name, late in the session news reports said that investment bank UBS AG and Standard General LP were cobbling together a financing package that might rescue the company and keep it from sliding into bankruptcy. Hedge fund Standard General is RadioShack’s largest shareholder, with a 7% stake.

New Penney pops, then drops

Also in the retailing sphere, J.C. Penney – which has had its own troubles, although nowhere near the magnitude of either Gymboree’s or RadioShack’s – priced $400 million of new 8 1/8% notes due 2019 at par on Wednesday in a scheduled forward calendar deal that was upsized from the originally announced $350 million.

The Plano, Texas-based department store operator plans to use the proceeds from the offering to fund the tenders for its 6 7/8% medium-term notes due 2015, its 7.65% debentures due 2016 and its 7.95% debentures due 2017. Any remaining proceeds would be used for general corporate purposes, which may include repaying debt.

When the bonds were freed for secondary dealings, a trader saw them get as good as a 101-to-101¼ bid context.

However, a little later, another trader saw them trading between 100¼ and 101¼, with a third pegging them in a 100¼ to 100¾ range.

“They quickly traded up to 101¼ but then fell back to around par,” yet another market source said.

And another trader opined that “they began to fall, almost as soon as they hit the street.”

Momentive hangs in

Away from the retailers, traders saw fairly busy activity – but no real price changes – in Momentive Performance Materials’ bonds a day after they had eased in response to the newest wrinkle in the Waterford, N.Y.-based silicon and specialty materials manufacturer’s ongoing bankruptcy court soap opera.

A market source saw its 8 7/8% first-lien notes due 2020 at 93 3/16, which he called up 1/16 on the day, with over $15 million traded, putting Momentive high up on the Most Actives list.

Its 10% 1.5-lien notes due 2020 were trading around 91¼ bid, with about $8 million having changed hands.

A second trader – referencing the bankruptcy court’s ruling not allowing the holders of those bonds to change their initial votes on the company’s reorganization plan – said that the 8 7/8s were trading around 93 and the 10s at 91½, adding that “I would say they’re pretty much unchanged on the day. They dipped yesterday [Wednesday] as the decision was being made in the afternoon. So there was not as much follow-through as I would have thought.”

On Tuesday, U.S. Bankruptcy Court Judge Robert Drain denied a request from the Momentive secured bondholders to change their vote on a plan of reorganization.

The lenders wanted to change their vote to “yay” from “nay” in order to receive a previously proposed cash payment without any make-whole premium. They had objected to the plan, insisting that since their bonds were being redeemed early as part of the plan, they deserved the extra interest premium – an argument that the White Plains, N.Y.-based federal jurist had quashed after several days of hearings in late August.

Before making his earlier ruling, Drain had previously criticized the group for not taking the cash payment to begin with and even gave them a day to come to terms with the company.

As a settlement wasn’t reached, Drain said the lenders couldn’t now go back and change their vote – meaning they will receive new debt to replace their old debt.

Stephanie N. Rotondo and Paul A. Harris contributed to this review.

© 2015 Prospect News.
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