Destination Maternity Files for Bankruptcy; Looks to Shutter 210 Stores

MOORESTOWN, NJ— Locally-based specialty retailer Destination Maternity Corp. and some of its  subsidiaries, filed voluntary Chapter 11 petitions on Monday  to restructure under the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.

The firm’s 446 stores operate under three retail flags: Motherhood Maternity, A Pea in the Pod and Destination Maternity. The company currently has 491 leased departments within Macy’s, buybuy BABY and Boscov’s. The company stated in an announcement that during the bankruptcy proceedings that it plans to sell some of its stores. In its bankruptcy filing, Destination Maternity will commence to shutter no fewer than 175 locations by Oct. 28 and no fewer than 35 additional locations by Nov. 1.

A hearing on the Destination Maternity’s First Day Motions is scheduled to be held today at 1 p.m. at the United States Bankruptcy Court for the District of Delaware.

In its bankruptcy filing in connection with its ongoing store closure program, Destination Maternity revealed that it closed 11 stores in August and September, and are in the process of closing four additional stores this month.

The company stated in court documents it has identified an additional 148 locations where they will commence store closing sales this week, subject to court approval, and expect to complete such closings (and vacate from the properties by the end of this calendar year.

The company, which is headquartered in Moorestown, NJ, also operates a 460,000-square-foot distribution center in Florence, NJ The company filed with the court its plans to facilitate and continue a marketing process begun in early September that has already yielded indications of interest from several credible bidders.

To help fund and protect its operations during the chapter 11 process, Destination Maternity obtained consent to use cash collateral from all of its pr-petition secured lenders. The company states that it believes that this access to liquidity will be sufficient to pay suppliers and other business partners and vendors for authorized goods and services provided post-filing and during the chapter 11 process.

In connection with that agreement, Destination Maternity and its lenders agreed to several milestones related to the chapter 11 cases and marketing process, which call for, among other things, binding bids to be submitted by Dec. 5, 2019, an auction to be held on Dec. 9, and entry of an order by the Bankruptcy Court approving the sale by Dec. 12.

Destination Maternity is expected to continue to operate and serve its customers, vendors, and partners, and pay its employees in the ordinary course.

“This decision is a difficult, but necessary one,” says Lisa Gavales, chair of the office of the CEO of Destination Maternity. “In a challenging retail environment, we have had to make some very tough choices, but we are confident that the steps taken today provide an opportunity to continue a marketing process that provides the most efficient means of maximizing value to our stakeholders. Throughout this process we will be focused on developing the promising interest already shown by potential bidders, and maintaining operational momentum toward a stronger business.”

Gavales, who has served as a director since March 18 and as chair of the office of the CEO since June 13, states in a bankruptcy court filing, “Despite its ownership position in this niche market, over the past five years, Destination Maternity has struggled, with revenue declining by almost one-third. The significant disruption to the brick-and-mortar retail industry generally and a downward trend in birth rates have compounded difficulties caused by the overly complex structure of the debtors’ businesses, above-market rent across their store fleet and high leadership turnover.”

In fiscal year 2015, Destination Maternity completed the relocation of its corporate headquarters and distribution operations from Philadelphia to Southern New Jersey. To help offset the costs of these relocations, the Board of the New Jersey Economic Development Authority, through its Grow New Jersey Assistance Program, approved an incentive package of $40 million in benefits to Destination Maternity.

Kirkland & Ellis LLP is acting as the company’s legal counsel, Greenhill & Co., LLC is acting as investment banker and Berkeley Research Group, LLC is serving as Destination Maternity’s restructuring advisor while BRG’s Robert J. Duffy has been appointed as the company’s chief restructuring officer.