May 7, 2020
My Dear Reader,
Much has been made of some of the higher profile companies that have filed for bankruptcies. In the past week, JCrew formally filed for bankruptcy and they have been pinned as a casualty of the forced lock down. Writing for MarketWatch, Nicole Lyn Pesce details the downfall of the fashion brand.
“The company barely avoided bankruptcy in 2017 when creative director Jenna Lyons and CEO Mickey Drexler stepped down, even as sales plummeted and debt mounted. J.Crew missed the “athleisure” trend entirely. From the MarketWatch archives (June 2017): J.Crew has a new CEO, but that won’t fix its debt problem In fact, as Eric Snyder, a partner at Wilk Auslander and chairman of the firm’s bankruptcy department, told MarketWatch on Monday: “Even if there were no pandemic, it wouldn’t have changed anything.”
While the failure of JCrew and as we detailed last week, Infinity, could be seen as a potential issue in the market as a whole and for over-leveraged companies, there is hope for the largest corporations. On the 5th of May, Bloomberg published an article detailing the black hole of Disney’s first quarter.
“The crisis cost Disney as much as $1.4 billion in lost profit last quarter, the company said Tuesday, with $1 billion coming from shuttered theme parks alone, and nearly every part of its business taking a hit. Earnings plunged by more than half to 60 cents a share in Disney’s second quarter, excluding some items. That trailed the 86-cent average of analysts’ estimates. Revenue rose 21% to $18 billion, but that was driven by the acquisition of 21st Century Fox’s entertainment assets last year. Disney has taken a variety of steps to cut costs, including reductions in executive pay and furloughs for workers. The company on Tuesday also said it will forgo its July dividend payment, saving about $1.6 billion, and cut capital spending by $900 million. Losses in the quarter were mitigated somewhat by a $150 million employee tax credit that was part of the federal coronavirus relief legislation.”
While we can debate endlessly about the civics and ethics behind the economic corporatism in the modern era, I don’t believe that we are going to see any unsurprising casualties. Obviously the retail sector will be hit harder than in the past and the acceleration of online shopping will severely hurt the remaining malls. Keep an eye on commercial real estate, I’d be eager to know your thoughts on the COVID impact on that real estate.
To your creation and potential,