NEW YORK (AP) - Eddie Bauer Holdings Inc. shares lost more than 40 percent of their value Thursday after the outdoorsy clothing retailer warned the recession had put it in jeopardy of violating some loan requirements.
The company, which also posted a wider fourth-quarter loss late Wednesday, said it needed an amendment to its borrowing agreements quickly needed to help sidestep doubts about whether the business could keep running.
That hammered the company’s stock, which fell 36 cents Thursday, or 46.2 percent, to end the day at 42 cents. The stock has traded as low as 30 cents and as high as $8.72 over the past year.
Like many retailers, Eddie Bauer has been squeezed as consumers keep discretionary spending low due to economic and job concerns. Increased promotions, to lure shoppers to spend, also hurt Eddie Bauer’s quarterly performance, said Chief Executive Neil Fiske.
The Bellevue, Wash.-based company said it is at risk of violating the terms of a $225 million term loan and wants to amend its terms to prevent its accountants from officially declaring their doubt that it can continue as a “going concern.”
That qualification refers to a company’s ability to keep operating indefinitely. Several businesses have recently dealt with “going concern” worries, including hotel company Lodgian Inc. and American Axle & Manufacturing Holdings Inc.
“The most important thing a company can have these days is cash,” Walter Loeb, president of retail consulting firm Loeb Associates, said in an interview. “Lenders get very nervous and want assurances that they will get paid back.”
The retailer is facing an uphill battle because its merchandise doesn’t stand out among competitors such as outdoor retailer Recreational Equipment Inc., according to Janet Hoffman, managing partner of the North American retail practice of Accenture.
“They don’t have a brand that resonates,” said Hoffman. “I’m not sure if they know who their customer is.”
The new loan terms Eddie Bauer is proposing would include higher interest rates, warrants for common stock and the payment of “substantial” cash and fees up front. Two prior proposals were rejected, the company said.
“While the amendment we are seeking is expensive, it will give us a new level of covenants with considerably more room on the downside through the first quarter of 2010,” Fiske said in a statement.
Due to the potential amendment, Eddie Bauer requested a 15-day extension to file its annual report. The retailer was in compliance with all loan covenants at the end of the quarter.
For the three months ended Jan. 3, Eddie Bauer lost $127.5 million, or $4.13 per share, compared with a loss of $18.2 million, or 59 cents per share, a year earlier. The fourth quarter was also stung by $144.6 million in impairment charges.
Revenue fell 6 percent to $369.9 million from $392.4 million, as same-store sales fell 5.7 percent. The same-store sales results exclude the impact of the stronger dollar and take into account an extra week in the period.
Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance because it measures growth at existing stores and doesn’t mix in than newly opened stores.
Eddie Bauer’s full-year loss widened to $165.5 million, or $5.38 per share, from a loss of $101.7 million, or $3.33 per share, in the previous year. Annual sales dipped 2 percent to $1.02 billion from $1.04 billion.
In January, Eddie Bauer said it planned to cut 193 jobs, or 15 percent of its non-retail staff. That same month the company said it would trim the size of its board and “significantly reduce” compensation for board members.
AP Retail Writer Anne D’Innocenzio contributed reporting.