An Essential Company Now Files A Surprising Bankruptcy

May 24, 2024

An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.

Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.

Supply Source brands include The Safety Zone and Impact Products.

The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.

Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.

Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products

The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.

However, the company’s financial performance deteriorated in subsequent years.

Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.

The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.

In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.

Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.

The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.

The excess inventory forced the debtor to secure additional storage space, which increased storage costs.

These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.

The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.

The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.

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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy

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Another unexpected fashion company now files for bankruptcy citing “extremely high costs due to inflation”, and other troubles.

Fashion brand Esprit has filed for insolvency in Europe citing “extremely high costs due to inflation, interest rates and energy prices, the after-effects of the coronavirus pandemic and the consequences of international conflicts.”

The insolvency filing, which was submitted to a court in Germany, applies only to the company’s European businesses.

All stores and online operations will continue as normal throughout the proceedings, during which the company said it will undergo a “transformation program” to reorganize its finances and business in Europe.

However, the company did note that high rents and an “overly bloated workforce” were some of factors contributing to its financial woes, foreshadowing potential cuts in both areas.

Founded in the U.S. in 1968, the company is now headquartered in Germany and Hong Kong and is listed on the Hong Kong stock exchange.

This is the second time Esprit has entered bankruptcy in the past four years.

Esprit currently has a presence in 40 countries around the globe, with the company’s Asia-Pacific and North and South America divisions unaffected by the European proceedings.

Each group within Esprit’s European business will be tasked with proposing and executing its own restructuring plan tailored to its region “allowing for more creative solutions and potentially better outcomes,” said the company in a statement.

The group also said it is exploring new funding opportunities and that a number of “potential investors have expressed their interest for a strategic partnership.”

“The self-administration proceedings have been initiated with the primary objective of not only restoring the economic stability of the company but also retaining the strength of the Esprit brand name,” said the statement.

“By taking proactive steps to address the disproportionate operating costs and streamline the business, the company demonstrates its commitment to maintaining a strong and competitive brand presence in the market.”

This second European bankruptcy comes as the Esprit works to reestablish its presence in North America, an effort that kicked off last year with a series of pop-ups across the U.S.

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Also Read: This Massive Mall Retailer Is Now Closing In California

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