hhgregg is filing for Chapter 11 protection today with plans to restructure.
The petitions were filed in the U.S. Bankruptcy Court for the Southern District of Indiana.
The company last week said it would close 40 percent of its stores, as well as three distributions centers, by mid-April. That announcement came days after hhgregg was delisted by the New York Stock Exchange.
Under CEO Robert Riesbeck, who took over in February 2016, the chain turned its focus to the major appliances category, particularly the high end, and appliance sales have soared. But the chain saw consumer electronic sales sink by 38.6 percent in its most recent quarter and same-store sales dropped by 22.2 percent. Losses in the quarter were $58.3 million.
“We’ve given it a valiant effort over the past 12 months,” said CEO Robert J. Riesbeck. “We have conducted an extensive review of alternatives and believe pursuing a restructuring through Chapter 11 is the best path forward to ensure hhgregg’s long-term success. We are thankful for the continued support of our dedicated employees, valued customers, vendors and business partners as we navigate this process, and look forward to becoming a stronger company in the coming months.”
The company has signed a term sheet with an anonymous party to purchase the assets of the company, intended to allow the company to exit Chapter 11 debt-free with better liquidity.
“We have streamlined our store footprint and remain fully committed to the 132 remaining stores, and the associates supporting those locations. We have solidified our senior management team and everyone is dedicated to restructuring our business model for future profitability and growth,” Riesbeck said. “Through these strategic steps, we plan to come out of this debt free and more agile as we serve our valued customers and vendor partners, and continue to be a dominant force in appliances, electronics and home furnishings.”
The chain will close stores in 15 states: Alabama, Delaware, Florida, Georgia, Illinois, Louisiana, Maryland, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. The company is also closing distribution centers in Brandywine, Md.; Miami; and Philadelphia.
The company said its 132 store locations will operate "in the ordinary course of business throughout the restructuring process." The 88 stores affected by the company’s announcement, on March 3, will continue to operate as previously disclosed in the coming weeks.
Wells Fargo has underwritten a debtor-in-possession financing facility to provide sufficient liquidity and support the chain's continuing normal business operations and minimize disruption.
The announcement was not a surprise to the rest of the industry, but the size of hhgregg’s void would be significant. Best Buy CEO Hubert Joly addressed the subject in an earnings call last month. "We're not going to mention the name of this particular retailer," Joly said, [but] "If they do file and close their stores, which we have no information about, then you can assume that the $1 billion [of market share] would be shared across a variety of players.
"Nobody wants to see another dealer go out of the market; it's not good for anyone," commented Dave Workman, president/CEO, of ProSource."You wish them the best but there aren't really any examples of a chain that size restructuring it's operations and returning to profitability."
Asked why he though hhgregg ultimately failed, Workman said, "It's the classic reason, they grew too quickly" and stretched their resources too thin. "To some extent the vendors funded the expansion to help replace the business they lost when Circuit City went under." — Additional reporting by Alan Wolf