Sears Hometown Stores files Chapter 11 bankruptcy after sales drop

By Sarah Lizee

Olympia, Wash., Dec. 12 – Sears Hometown Stores, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Monday.

Sears Hometown Stores was spun off from Sears Holdings Corp. in 2012 and as such wasn’t part of the latter’s bankruptcy process, which began in 2018. Sears Holdings was later purchased by Transform Holdco LLC. Transform then acquired Sears Hometown Stores in 2019.

The debtors rely on Transform to provide key products and services.

Sears Hometown Stores’ performance has suffered over the last few years from a number of things, including declining sales, rising costs and the “hangover” from the Covid-19 pandemic, the company said in court documents.

For the year ended Jan. 29, 2022, the company incurred recurring operating and net losses from continuing operations of $16.2 million and $18.3 million, respectively.

The debtors took several steps since that time to try to improve performance, including closing unprofitable stores and implementing strategies to increase sales.

The company also reached out to several potential strategic buyers in January 2022 to assess interest.

In mid-October, the debtors were in breach of a covenant under their $27.5 million revolving credit agreement with PNC Bank, NA. After the breach, the debtors were placed in cash dominion and started discussions with the lender and Transform regarding strategic alternatives.

Transform is unable and unwilling to provide further services or inventory without assurances of payment, and PNC is unwilling to lend further funds to buy new product given the debtors’ financial challenges.

The debtors said this lack of inventory has caused a rapid downward spiral that contributed to the Chapter 11 filing.

In its petition, the company reported $10 million to $50 million in assets and $50 million to $100 million in liabilities.

Its largest unsecured creditor is Costco Innovel Solutions, based in Issaquah, Wash., with a $1.12 million trade claim. No other creditors were listed with unsecured claims of $1 million or more.

Saul Ewing LLP is bankruptcy counsel for the company. Gray & Co., LLC is financial adviser.

The retailer is based in Hoffman Estates, Ill. The Chapter 11 case number is 22-11303.

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