Dive Brief:

• Arts and craft retailer Joann filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware as it struggles with slumping sales and liquidity challenges amid a pullback in consumer spending, the company said in a press release Monday.
• The Hudson, Ohio-based company entered into a transaction support agreement with the majority of its financial stakeholders and “additional financing parties,” securing commitments for approximately $132 million in new financing to help cut down its ballooning debt, according to the Monday release.
• “This agreement is a significant step forward in addressing JOANN’s capital structure needs, and it will provide us with the financial resources and flexibility necessary to continue to deliver best-in-class product assortments and enhance the customer experience wherever they are shopping with us,” Scott Sekella, Joann’s CFO and co-lead of its interim office of the CEO, said in a statement.

Dive Insight:

Speculation of a coming bankruptcy on the part of the retailer has been rife in recent months, with Joann struggling to bolster flagging sales and to rein in its debt; the retailer, which sells craft and art supplies, saw a surge in growth during the COVID-19 pandemic that soon petered out, leaving it facing supply chain as well as liquidity snags.

The craft retailer listed debt of about $2.4 billion in bankruptcy filings Sunday, with assets of approximately $2.2 billion.

The $132 million in new financing, together with “related financial accommodations,” will help the retailer to reduce that debt, with Joann expecting to slash funded debt on its balance sheet by about $505 million, according to the Monday release. The retailer’s more than 800 stores as well as its website will remain open and continue to operate normally, Joann said, with Sekella noting that 95% of Joann’s retail stores are cash flow positive.

In addition to its cash and supply chain challenges, the craft retailer has also seen rapid change in its executive leadership, with Wade Miquelon, its CEO and president, retiring from the firm in May after a seven-year term in its top executive seat, Industry Dive sister publication Retail Dive previously reported. Sekella, alongside the company’s Chief Customer Officer Chris DiTullio, was appointed to lead the interim office of the CEO last May while the company hunts for a permanent replacement.

News of the craft retailer’s bankruptcy also comes just days after Joann approved a $400,000 bonus for CFO Scott Sekella, CFO Dive previously reported. Sekella joined Joann as its CFO in September 2022; the cash retention bonus is subject to repayment if the finance chief voluntarily departs or if his employment is terminated for cause within six months of its payment, according to a company filing with the Securities and Exchange Commission.

Executive compensation can come under fire during bankruptcy proceedings; while retaining talented leadership is critical for companies during such a process, compensation such as severance or retention bonuses can face scrutiny from the bankruptcy court, according to a 2020 write up by executive compensation consulting firm Pearl Meyer.

Bonuses or other pay agreed upon prior to bankruptcy filings could be met with “heavy skepticism by creditors and the general public and could be clawed back into the bankruptcy estate,” according to the consulting firm, while compensation shifts after filing will be put under a spotlight as well as subject to court oversight.

Joann declined to comment beyond the details included on a website dedicated to the bankruptcy proceedings.