It took a bankruptcy filing and a coronavirus pandemic to reveal that there’s value inside Dallas-based closeout retailer Tuesday Morning.
The retailer of gift and home merchandise has been reorganizing in bankruptcy since late May. Its business has improved enough that it filed a reorganization plan Thursday that pays creditors 100% and includes no dilution to existing shareholders.
It’s a rare outcome for shareholders to retain any value after a company exits bankruptcy. Stockholders take on the risk that a company may fail and that their shares may be worthless. Once a company seeks bankruptcy court protection, the pecking order for who is paid, and how much, rarely includes those former equity holders.
With stores closed during the pandemic and no e-commerce infrastructure, the retailer’s prospects looked dim. But as its 700 stores started to reopen, business was good. Tuesday Morning sells rugs, sheets and towels and kitchen items — all things that people were looking to buy for their new stay-at-home lifestyle.
The retailer closed about 200 stores in a couple of phases. On Thursday, it told the court it won’t have to shutter a previously planned third batch of a couple of dozen stores. Companies are able to reject leases as part of their bankruptcy under favorable terms.
Last week, U.S. Bankruptcy Court Judge Harlin DeWayne Hale approved the creation of a committee of equity holders and said there was “substantial likelihood that equity will receive a meaningful distribution.”
The reorganization plan filed Thursday includes two scenarios: The company could emerge as a standalone retailer of 490 stores or it could be sold.
In either case, equity holders will receive something. Tuesday Morning CEO Steven Becker declined to comment.
Earlier in the process, Tuesday Morning attracted 40 prospective buyers who signed nondisclosure agreements. That group probably included competitors in the closeout business, such as Big Lots and Ollie’s Bargain Outlet. But now there’s a formal process for a sale and it is not clear how many companies will bid. The process will take a while.
The bankruptcy court set Oct. 29 as the hearing date to confirm the reorganization plan.
Tuesday Morning is one of a couple of dozen national chains that filed for bankruptcy as the coronavirus spread throughout the U.S. Among them are Plano-based J.C. Penney and Dallas-based Neiman Marcus. Pier 1 Imports, which was based in Fort Worth, filed in February, but the pandemic ended the chance of a reorganization. It completed its liquidation of 950 stores this week.
Twitter: @MariaHalkias
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