Brookstone Files for Bankruptcy for 2nd Time

IndraStra Global

Brookstone Files for Bankruptcy for 2nd Time

By IndraStra Global News Team

Image Attribute: Brookstone Outlet Store, Kittery Maine, Photo by John Phelan / Source: Wikipedia

Image Attribute: Brookstone Outlet Store, Kittery Maine, Photo by John Phelan / Source: Wikipedia

On August 2, 2018, Brookstone — the specialty-gift retailer known for selling the ubiquitously cool but largely unneeded products, filed for bankruptcy protection because of declining foot traffic and sales at its mall-based stores. Along with the petition, the company has submitted a plan to rid the company of burdensome leases and inventory by getting out of malls.

The latest Chapter 11 petition lists assets of US$ 50 million to US$ 100 million and liabilities of US$ 100 million to US$ 500 million, according to court documents filed Thursday in Wilmington, Delaware. In 2014 it filed for Chapter 11 bankruptcy protection and sold its assets to the China-based conglomerate Sanpower Group.

"Today we have taken several important steps to restructure the business and ensure that Brookstone will be well-positioned to succeed for years to come," said Sanpower CEO Piau Phang Foo. "The decision to close our mall stores was difficult, but ultimately provides an opportunity to maintain our well-respected brand and award-winning products while operating with a smaller physical footprint."

To help pay vendors "on a priority basis for goods and services ordered and received from this point forward," Brookstone said it's secured roughly US$ 30 million under Debtor-in-possession (DIP) financing option through Wells Fargo Bank and Gordon Brother Finance Company. It hired Gibson, Dunn & Crutcher and Young Conaway Stargatt & Taylor as legal advisors, Berkeley Research Group as a financial advisor, and GLC Advisors & Co. as its investment banker. The Brookstone's management believes that the DIP Facility will provide the necessary flexibility to allow them to run a successful store closing and sale process, as well as to engage in an appropriate dialogue with their creditor constituencies.

Twitter Attribute: Official Twitter handle of Brookstone - Brookstone/status/1024997639476129792, Dated: August 2, 2018

Currently, under Sanpower, the company operates a total of 137 retail stores. Of the 137 retail stores, 102 stores are located in malls and 35 stores are located at airports. Certain airport stores are operated as a joint venture between the group companies (owned by Brookstone) and one or more third parties. These joint ventures are organized as limited liability companies. In addition, the company operates one liquidation center in North Conway, New Hampshire.

Chart Attribute: Brookstone's Organization Chart / Source: Chapter 11 petition document Case 18-11780-BLS Doc 2 Filed 08/02/18 Page 46 of 47

Chart Attribute: Brookstone's Organization Chart / Source: Chapter 11 petition document Case 18-11780-BLS Doc 2 Filed 08/02/18 Page 46 of 47

Chart Attribute: Brookstone's Organization Chart / Source: Chapter 11 petition document Case 18-11780-BLS Doc 2 Filed 08/02/18 Page 47 of 47

Chart Attribute: Brookstone's Organization Chart / Source: Chapter 11 petition document Case 18-11780-BLS Doc 2 Filed 08/02/18 Page 47 of 47

Since 1996, the company has operated an interactive website at www.brookstone.com. In addition to offering products available in retail stores, the website contains thousands of additional items that are designed to broaden and deepen Brookstone's presence in key product categories. The "web-only" assortment of products available on the e-commerce site accounted for approximately 30% of Brookstone’s e-commerce sales for the fiscal year 2017.

For the fiscal year ended 2017, the Brookstone's e-commerce operations accounted for net sales of US$ 55.2 million and had a negative adjusted Earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$ 1 million. As with the airport retail segment, the net sales and adjusted EBITDA associated with the e-commerce segment is not reflective of its true potential due to supply chain difficulties. In addition, and as described further below, technology issues and a turnover of senior level management at the e-commerce segment led to underperformance at a segment that should be performing at a significantly higher level.

For the fiscal year ended 2017, net sales for the company were US$ 264 million and adjusted EBITDA was booked at negative US$ 60 million. For the first half of 2018, net sales were US$ 74 million and adjusted EBITDA was booked at negative US$ 29 million.

The company's filing for bankruptcy adds to a number of mall-based retailers that have done so within the past few months, many of them are apparel brands, including The Limited, Wet Seal, Rue21 and department store chain Bon-Ton. As online shopping continues to increase - the "shift" has threatened many businesses that rely primarily on their brick-and-mortar locations to drive sales.