A home improvement retailer is now planning an unexpected bankruptcy due to a plummet in sales as well as a loss in customers.
LL Flooring is considering to file a Chapter 11 bankruptcy in order to reorganize and restructure its business, sources have told Bloomberg.
The home improvement businesses have been facing many economic problems such as price inflation, rising interest rates, and lack of demand/loss in sales.
The real estate market has wrestled with rising interest rates since the 30-year fixed-rate mortgage hit a record low of 2.65% in January 2021 before rising to as high as 7.22% in November 2023.
It was 7.02% on July 3.
Inflation began spiking in mid 2021, which has affected many of these home improvement businesses including LL Flooring, and peaked at 9.1% in June 2022.
The Federal Reserve raised interest rates in March 2022 to fight inflation and rates would rise 11 times through July 2023.
These higher interest rates and price inflation will discourage consumers from buying business products.
LL Flooring’s shares on July 3 declined by about 22.5% at closing after the report of the home improvement chain planning a bankruptcy was revealed.
Discussions about a bankruptcy filing are not final yet and the company’s plans could change, sources said.
LL Flooring, which in April 2024 was ranked as the top U.S. hardwood flooring retailer by U.S. News and World Report, operates over 400 locations in 47 states, reports The Street.
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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy
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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: This Massive Mall Retailer Is Now Closing In California
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