IPO in March, Crushed Today: PE Firm Pushes another Retailer into Brick-and-Mortar Meltdown

Why is anyone still buying retailers from private equity firms?

On March 9, 2017, private equity firm TowerBrook, the owner of women’s clothing retailer J. Jill, dumped half of its stake via an IPO at a price of $13 a share into the lap of the unsuspecting public, during a time when brick-and-mortar retailers that are owned by private equity firms are heading into bankruptcy court, one after the other.

By Wednesday at close, shares of J. Jill had dropped to just over $10. And then after-hours and today during regular trading, they plunged another 51% to $4.86!

Why are investors still buying brick-and-mortar retailers – or anything – from PE firms? No one knows. But inexplicably, it’s still happening.

By 8:31 PM on Wednesday, shareholder rights law firm Johnson Fistel announced that it is “investigating potential violations of the federal securities laws by J.Jill Inc. … and certain of its officers and directors.” It added, that the investigation “seeks to determine whether certain statements regarding J.Jill’s business and prospects were false and misleading when made.” Other class-action law firms will follow.

But at the time of the IPO, Fortune gushed:

Founded in 1959, J. Jill is a women’s apparel brand that focuses on customers between the ages of 40 to 65 and relies heavily on catalog- and web-driven sales, which generate 43% of total revenue with the rest relying on brick-and-mortar retail. The company’s strong direct-to-consumer model is linked to J. Jill’s heritage as a catalog company and it circulated 57 million copies of catalogs in 2015 alone. J. Jill contends that those direct channel relationships can also fuel sales at the company’s 275 stores.

Net sales totaled $617 million for the 12-month period ended October 29, up from $432 million in 2012.

J. Jill CEO Paula Bennett told Fortune: “There is a lot of negative sentiment about the apparel sector and a lot of talk about the industry headwinds. The headwinds facing many of our peers are tailwinds to us. We see ourselves as a model that others aspire to be.”

That “model” came home to roost on late Wednesday with a hefty dose of post-IPO reality — a profit warning. CEO Bennett explains:

“We have experienced a lower than expected sales trend across both our retail and direct channels, and are updating our guidance for the quarter. We have been assessing the change in trend and have identified product and marketing calendar issues that are affecting traffic and conversion, and we are reacting quickly.”

So she blamed “product and calendar issues” for a juicy same-store sales decline of 3% to 5% in the third quarter. She also slashed the earnings outlook.

J. Jill has a colorful ownership history. It went public in 1993. In 2006, Talbots acquired it for $517 million but in 2009, during the Financial Crisis, sold the outfit for $75 million to PE firm Golden Gate Capital, which later sold a majority stake to Bahrain-based Arcapita at a price rumored to have been four times its investment. In March 2015, TowerBrook Capital Partners L.P. acquired J. Jill for an undisclosed amount that was rumored to be $400 million.

When it announced the acquisition, TowerBrook said along with the usual hype (emphasis added):

TowerBrook has deep expertise and a strong network in the consumer and retail space, working with companies such as Jimmy Choo, True Religion, Kaporal and Phase Eight….

That was in March 2015. But True Religion, a denim designer and retailer with 1,900 employees, was one that TowerBrook couldn’t dump in time into the lap of the public. In July, 2017, four years after its leveraged buyout and now saddled with $535 million in debt, True Religion filed for bankruptcy.

During the IPO in March 2017, J. Jill received no proceeds. Everything went to TowerBrook, which sold 13.416 million shares, including the overallotment. At $13, its take was $174 million.

On April 4, 2017, a related entity, Towerbrook Investors, Ltd., which owned 10% of J. Jill, sold 865,000 common shares in the open market at an average price of $12.09, for $10.46 million. The public float is now 14.15 million shares. As of September 29, the short-interest was a humongous 18.8% of that float. So some folks made some money today as this PE-firm hobbled retailer, one in so many, is getting pulled into the brick-and-mortar meltdown.

And there’s no end in sight. The latest casualty is Sears Canada. It’s going to liquidate, close all stores, and lay off 12,000 people. Read…  It’s Over for Sears Canada.

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  58 comments for “IPO in March, Crushed Today: PE Firm Pushes another Retailer into Brick-and-Mortar Meltdown

  1. Bobber says:

    That’s 57 million catalogs that won’t have to be printed, after this goes belly up. Score one for the environment.

    • MC says:

      Speak for yourself: now my shares into the Wing-Kong Paper Mill Co are worth as much as toilet paper and definetely far less useful.

  2. truth always says:

    Why is anyone still buying retailers from private equity firms?

    Executive summary – Because they are morons.

    Detailed answer:

    Because we have left Newtonian Physics and entered into Quantum Mechanics in the realm of the economy. So are old paradigms need to be adjusted. And no one knows what they are in the context of NIRP, ZIRP, QE, Central bank using Ctrl+P for printing money.

    The market is desperate for yield so much so that:
    1. If there is some good news – the stock indices go up – good economy
    2. If there is bad news, indices slightly dip then go back up – because Fed won’t raise the rates.

    Crazy right? Maybe, maybe not.

    I believe the stock market has gotten addicted to the opium of free money and the feeling of happiness that comes with asset inflation. Who would want to rain on the parade? N. Korea – No, Catexit – no, Brexit -no.

    OTOH, which so much liquidity floating around – what would people do with their cash? Woe be to the uninformed who buy anything from PE firms.

    • TJ Martin says:

      Thaler said it best thereby earning himself a Nobel prize . In summation when it comes to economics and investment most if not the majority of individuals are irrational casting common sense aside preferring pie in the sky delusion over the obvious facts staring them in the face .

      • alex in san jose AKA digital Detroit says:

        You mean they might think of themselves as …. temporarily embarrassed millionaires?

  3. akiddy111 says:

    There is a new PE firm on the retail block by the name of Sycamore Partners, founded by an ex Golden Gate guy. And boy can he raise capital to cobble together toxic retail deals.

    The ironic thing is that his firm has grown to be a big player by acquiring dead beat retailers like Talbots, Hot Topic, Nine West, etc. in the last several years.

    I was floored when i recently read that these very same guys had raised $2.5b to take Staples private.

    The trick is for these PE folks to raise capital faster than people can figure out how worthless their previous deals are.

    Eddie Lampert, please step aside !

    • Kourosh says:

      What is wrong with Staples going private?

      • Beard681 says:

        Back in the day “going private” used to mean the a division or market segment of some conglomerate split off so that the managers ( who usually put up a lot o their own money) could concentrate on growing their business free of the bureaucratic central management. Now its all about some wall street hotshots with connections borrowing to take over a company to load it up with debt to pay themselves dividends as they drive the company into the ground. (No different than making the Mafia your business partner.)

        As far as who would lend these slime balls the money to do this, most people don’t even know that they do. It comes from funds, insurance companies, public employee pensions accounts – any place where money can be had while nobody is looking.

    • walter map says:

      “Eddie Lampert, please step aside !”

      You see the pattern, don’t you? One could call it Financial Engineering for Fun and Profit Through Retailer Liquidation.

      These companies were viable until the financial predators hunted them down. Naturally they blame shifts in consumer spending and competition from online sellers. ‘Fast Eddie’ Lampert has even blamed the weather and the news media. But the fact is that these retailers were targeted and deliberately run into the ground so as to defraud them out of existence.

      Sears is the example I’m most familiar with:

      Lampert “had a perspective that the retail industry as a whole was too sales-oriented and not enough profit-oriented,” one former high-level Sears executive told Business Insider . . .

      “The retail industry is predicated on serving the customer, valuing the customer, listening to the customer, and ultimately giving the customer what she wants — and it’s the employees who deliver this. Anything less is a recipe for terminal illness, if not suicide,” says Robin Lewis, a 40-year retail consultant and CEO of industry publication The Robin Report. “Clearly, in the case of Sears, Eddie Lampert has turned a completely blind eye to this truism, and has been bleeding the company to a long and slow but well-managed death for the sole benefit of major investors and himself.”


      That’s what happens when the traditional systems of accountability are corrupted to legalise piracy.

      • Mike G says:

        Slash the quality of the product/service to make a quick buck, then the PE clowns act mock-bewildered that the customers aren’t showing up anymore. It must be the weather, Groundhog Day, or sunspots, it couldn’t possibly be their deliberate short-sighted greed.

        • Kaleberg says:

          There’s also the matter of the debt the company takes on. PE often gets its returns by acquiring a company, exhausting its credit line, using the borrowed money to pay back the PE firm. One stumble, and the debt becomes a serious problem. Two stumbles and its liquidation, but PE isn’t concerned. They’ve got their ROI.

          This isn’t new. This is how conglomerates were made back in the 1960s, leveraged buy outs in the 1980s and so on.

    • MC says:

      The Sycamore tree has long been associated with unpleasant traditions. A few samples.

      The majority of the sarcophagi from Ancient Egypt are made of Sycamore wood.
      The Ancient Greeks believed Sycamore to burn with “the foulest smell among firewood”.
      One of the several traditions concerning the fate Judas Iscariot has him hanging himself from a Sycamore tree.

      I’d say the naming of this outfit is very apt.

      • Cynic says:

        Just been reading a history of forest management: the author regards the sycamore tree as ‘an invasive pest, destructive to the healthy functioning of a wood, to be eliminated whenever possible’. Sounds about right. :)

  4. Kreditanstalt says:

    I liked “Howling about Business and Finance”…it had character!

    Can’t you go back? :(

    • Wolf Richter says:

      I should take a survey. I was never that fond of the “howling” line. And some readers told me that the site was great but that line had to go :-]

      • TJ Martin says:

        I’ll cast my vote for ” howling ” to make a comeback . Suffice it to say a little character never hurt anyone and it does lend an element ( much needed ) of Hunter S. Thompson to what is an overall serious and at present disturbing and potentially confusing subject .

      • Wilbur58 says:

        My vote is to stick with the change. I never mentioned this in comments or to Wolf, but I think the “howling” pun didn’t reflect well on the site’s good content. I also think a logo upgrade would be good. You can source out an auction contest for a new logo for fairly cheap.

        • Wilbur58 says:

          Sorry, one other thing. And this is only from a good place, wanting to help. I think the new byline should read ‘stories’ plural. When I see “The Story Behind Business, Money, Finance”, it sounds like there’s only one story.

        • Wolf Richter says:

          It’s supposed to be play on the phrase “the story behind the story.” Not sure if it’s working.

      • Nick Kelly says:

        Hi WR: you might find it interesting to look into Goldman and Morgans offering (again) credit default swaps. This was in the Globe’s biz section titled something like: Betting on a Crash

        • Wolf Richter says:

          Yes, I saw that a couple of days ago and was tempted by it. They’re actually just market makers on these deals, with speculators (or those who want to hedge) either betting on a crash or on a continued boom, depending on which side of the transaction they’re on. My understanding is that the investment banks are doing this to get the fees. The risks are taken by their clients.

      • Arizona Slim says:

        Count me as another howler who misses that tagline.

      • rex says:

        Re: Your survey. I think your new header is both business like and very professional. An improvement!

      • kato says:

        I think the plural ‘Stories’ is more descriptive of what you are producing on this site.

        So many plots, so many characters ;]

  5. raxadian says:

    Because as David Hannum maybe said, NOT P. T. Barnum once said “There’s a sucker born every minute”?

    Basically people is ignorant of the companies being sold being companies that have been hollowed out.

  6. walter map says:

    The fact that these retailers are ‘brick and mortar’ has less to do with their demise than the fact that they were robbed and murdered by self-dealing financial engineers. They may be easier and juicier targets than online retailers, but this is not to say online retailers cannot be targeted and juiced themselves.

    Wall St. loves the ‘maximizing shareholder value’ paradigm because it is easily twisted into rationalizations for financial extraction through the liquidation a company’s operational business assets, in whole or in part. With a set of the right techniques of severe malinvestment, like debt and share buybacks, virtually any company can be victimized. Most, if not all, of the biggest have been so victimized to a greater or lesser extent, even if they have not yet been bled to death.

    • How Now says:

      Excellent book and articles on the subject of financialization by Rana Foroohar. It seems the inevitable outcome of an economic system governed by an invisible hand. It’s ironic that the moralist Adam Smith’s ideas could have been cherry-picked to the point that only the notion of a “free market” for price discovery becomes the central idea of his book.

      Additionally, there’s this article from the Baltimore Sun: http://www.baltimoresun.com/news/opinion/oped/bs-ed-horsey-finance-20160531-story.html

      • walter map says:

        Excellent. There’s a lot of this sort of analysis going around. For example:

        By touting public shareholders as a corporation’s value creators, agency theorists lay the groundwork for some very harmful activities. They legitimize “hedge fund activists,” for example. These are aggressive corporate predators who buy shares of a company on the stock market and then use the power bestowed upon them by the ill-conceived U.S. proxy voting system, endorsed by the Securities and Exchange Commission (SEC), to demand that the corporation inflate profits by cutting costs.


        It’s a malevolent model which enables profiteering from economic destruction. It doesn’t need to be this way and shouldn’t be this way. And since the predators have corrupted governments to enable these practices, they are not going to be reversed.

        The financial predator class is fully incentivized and disencumbered to continue accelerating these processes and exploit them to their logical conclusion: the destruction of the ecological foundations of production, unrecoverable failure of national economies, and collapse of civilization.

        And no one will stop them.

        • Michael Fiorillo says:

          The only shareholders who capitalize companies are those buying shares during an IPO. After that, it’s all third-party trading and speculation, adding nothing to the capitalization of the company.

          Shareholders add no more value to their companies than I do to the Ford Motor Company when I buy a used pick-up.

        • Michael Fiorillo says:

          I should have added, however, that it’s the insidious, snake-eating-its-own-tail genius of PE buccaneers that they can double-dip, extracting all the wealth from a company, then coming to the well again to sell IPO shares to a credulous public.

      • raxadian says:

        There is no such “invisible hand” there are several visible hands that claim for less and less regulations then cry for subsides when a crash happens because “they are too big to fall.”

        The reasons these companies are not being rescued? Because they have already been hollowed out and this is legal because there is no regulations against this.

        These guys make Gordon Gekko from Wall Street look like an amateur.

    • Michael Fiorillo says:

      It’s indicative of how degraded political and economics language has become that these parasites and predators are called financial “engineers.”

      Engineers build things; these people extract the wealth from once-viable businesses built by others, destroying them, and then move on to their next victim.

      • Thunderstruck says:

        “Engineers build things; these people extract the wealth from once-viable businesses built by others, destroying them, and then move on to their next victim.”

        Maybe they mean “engineer” in the context of one who operates a train. In that case, the name could be very accurate – seeing how many are describing the impending financial doom as a “train wreck”.

  7. mvojy says:

    A PE firm wouldn’t hesitate to put up an IPO for an obsolete business model since they get paid despite its future success or failure. As long as there is money, there is a sucker willing to part with it.

    • walter map says:

      Indeed. It is easier and more profitable to strip a company and cheat investors than it is to run a successful business, and they’ve rigged the system to make sure they can get away with it. So that’s what they do.

      • TheDona says:

        J Jill ceased to be a successful business once Talbots bought it. It morphed from vibrant colored, high quality cotton, great detailed clothing to dull, frumpy, poor quality fabric….like Talbots had become. Looking at the current seasons offerings, one would be better off shopping at Walmart or Target at a third of the price. Or better yet, at TJ Maxx or Marshals for 1/5 of the price. Nothing compelling to buy at J Jill.

        This trend of buying a “Brand” and then cheapening it and watering it down is really pissing me off. There are so many Brands I was loyal to and now I wouldn’t wear any of it if they gave it to me.

        So no surprise here. J Jill was gutted 10 years ago and now it is just throwing the hot potato around.

        • IdahoPotato says:

          True. I now buy J.Jill used on Ebay. It was my favourite brand. There’s no decent quality anywhere even if one is willing to pay for it, so I buy used.

        • Michael Fiorillo says:

          On the Naked Capitalism site they call this process, now institutionalized across almost every industry, “Crapification.”

        • Petunia says:

          J.Jill is definitely overpriced, but I still shop their sales.
          Just bought some stretchy pants at 50% off including tax. That’s my running around town wardrobe. The alternative would be lululemon and they are double the full retail price of J.Jill. Too rich for me.

        • Dave Kunkel says:

          About 10 years ago Mercedes was burned by the same concept. They were trading off of their reputation and seriously cheapening their cars. They’ve only recently realized their error and begun to improve their quality.

          There’s a whole dark side of engineering called Cost Reduction. You see the sorry results of this everywhere from cars to candy bars.

        • JimH says:

          Sounds like what happened to Land’s End after Fast Eddie got his hands on it. Having spent time where Land’s End was based near Madison, WI., I used to buy their products on return visits to the area. Almost from one year to the next the quality of the cotton used was much degraded. The designs remained but the fabric was much more coarse. Always assumed it was Lampert’s doing though not sure how many others noticed, so perhaps he was simply doing gawd’s work, maximizing his pockets’ linings.

        • TheDona says:

          JimH: Yes they cheapened (“cost engineered” as another commenter called it) the Brand and went to the low end cotton with short fibers and irregular diameter….which means it is coarse and most of your shirt will eventually disintegrate end up in your dryer’s lint trap. Finding clothing made of high quality cotton is getting impossible to find.

  8. mean chicken says:

    What a plan! I’m not sure PE isn’t really the oldest profession but I hear Fred Wilson is moving on to the AI robot sex worker industry where he anticipates success introducing feminism.

  9. cdr says:

    This reminds me of a time when I was young. I had a subscription to Superman. I received it a few days before it appeared on the news stands.

    I sold one issue to a friend for 2x the cover price. My pitch – Almost nobody has this issue – it won’t be available for a few days. You can read it before everyone else. It’s rare.

    I should have been a synthetic derivatives salesman.

  10. JungleJim says:

    Why does anyone continue to buy these companies ?

    Look no further than the Federal Reserve. The Fed has poured liquidity into our financialized economy. The money guys have to find some place to park it and after all, the risk is immaterial, it isn’t their money, If everybody loses, no one is to blame and today, even the Quants are finding it to be tough sledding.

    In addition, the Fed’s interest rate policies have eliminated real investments so we end up with unreal investment. Nothing to see here, move on say the Government’s cops.

  11. Bobber says:

    We can blame the central bankers for the “reach for yield” they created. People need a decent yield to fund important things like education and retirement, and they will fall prey to the financial wizardry of PE firms, who have inside knowledge to the Fed’s moves. It is the central banks that are fleecing the population. The PE firms are simply the soldiers.

  12. r cohn says:

    I like to invest in downtrodden retailers
    The first thing that I do is a balance sheet screen to see if the stock is undervalued relative to a realistic balance sheet valuation
    Looking at the prospectus of JJill.
    Here are some numbers
    book value=119m
    Lets adjust this book value by eliminating goodwill of 197m
    and by giving the intangibles a haircut of %50 = 83m
    This new number on book value then is 119-197-83= negative 181m

    Unless the company had a huge amount of free cash flow ,which it does not ,I would not touch this company

    • Petunia says:

      I won’t argue the numbers with you, but J.Jill is one of the few chains left catering to the older fatter demographic, which is growing(excuse the pun).
      I can buy something at the Gap or J.Crew once in a while, but I can’t dress myself out of those stores. The places where an older woman can dress herself well are disappearing. This is why I would add the goodwill portion of your valuation back.

      • r cohn says:

        Goodwill is an accounting plug reflecting overpayment for past acquisitions with no real value by itself and subject to impairments
        Intangibles reflect patents ,copyrights ,brand names,customer lists etc..
        There is already an intangible impairment schedule in the prospectus ,so I deleted only half of the total in my calculations
        Plus and maybe most important is the 237m in long term debt and the non cancellable operating leases totaling193m in the years 2019 and later.Starting in Jan ,2019 these operating leases which are currently off the balance sheet will have to shown as long term liabilites on the balance sheet
        I am NOT doubting that its brands and its brand names have value;but as an investor the company is a very poor investment

        • Petunia says:

          Just an observation on non cancellable operating leases going forward.

          There is a relatively upscale shopping mall by me that has lost many tenants already profiled by Wolf in his bankruptcy articles. One of the women’s chains mentioned by others in comments here has a store there which looks like it doubled in size. As a recovering fashionista, my opinion is that it is highly unlikely that their sales have double or risen to justify this expansion. Therefore, I am assuming, they got a really good deal on the rent to justify the expansion.

          This is something to consider, going forward, that may not show up for a while.

        • Idaho Potato says:

          NYU prof Ashwath Damodaran calls goodwill a “plug variable”. Rightly so.


      • IdahoPotato says:

        Dunno about older fatter demographic, but I’ve loved J.Jill since I was 25 because of the quality.

  13. Rates says:

    Why? Isn’t it the same OPM i.e. Other People’s Money. This smells like the old Michael Milken network, whereby Milken had a ready supply of underlings where he could stash his junk bonds, giving him an “unlimited” power to issue those trash.

  14. Carlos Leiro says:

    ¿Death or Alive”

    The note say this:

    “The great retail apocalypse. The death of retail.

    All of these are phrases you’ve probably come across at one point or another in the past few years. I know I still do. However, if you’re in the retail industry then you certainly already know this is not the case. Retail isn’t going away and consumers aren’t spending any less.

    People still like shopping in physical stores, even millennials!

    Has there been an abundance of store closures in the past few years? Yes, obviously.

    However, a recent research report by IHL Group reviewed 1,804 retail chains operating in the U.S. with 50 or more stores, and the data suggests that…wait for it…more stores are opening than closing in 2017…”
    “Yes, that’s right. You heard me.

    According to IHL Group:

    “Over 4,850 more stores are opening than closing among big chains, and when smaller retailers are included the net gain is well over 10,000 new stores. As well, through the first seven months of the year, retail sales are up $122 billion, an amount roughly equivalent to the total annual retail sales of The Netherlands.”

    Stores are closing, however, retailers are also transitioning into smaller spaces. A recent Forbes article highlights the following:

    “The reason why you see so many vacancies even though more stores are opening than closing is that the footprint and locations of the stores being closed aren’t suitable for the stores being opened. The old stores’ formats can’t be transformed and their locations don’t work for the new stores that are opening.””
    “While store closures dominated the headlines during the first half of the year, store openings are now casting a shadow over the so-called retail apocalypse. The main takeaway is this: the retail game is changing.”

    • Beard681 says:

      You are right. I peaked into a UPS truck yesterday expecting to see a pile of Amazon boxes but they were in a minority. There were Walmart.com, Target, many others and even some short pieces of electrical conduit taped together somebody ordered from somewhere (home depot?).

      The supposed “brick and motar meltown” is just a cover for private equity companies taking over lightly capitalized retail companies (but who may have significant real estate holdings that can be leveraged) to “bust” – load them up with debt to pay themselves dividends.

      • Wolf Richter says:

        Walmart’s “brick and mortar” sales are declining. Its online sales are booming at a rate of 30-40% a year. Macy’s store sales are dropping, but its online sales are strong. Best Buy too has figured out how to leverage online sales. Retailers that have a powerful internet presence are doing OK-ish even when their store sales are not. This is what “brick-and-mortar meltdown” means.

        If there are some people who say that brick-and-mortar retail sales are doing fine, they’re not looking at the numbers.

        However, there are some types of brick-and-mortar sales that are still largely immune to online competition: gasoline, autos, groceries (only 2% bought online), and some others.

        • Larry says:

          I thought appliances fell into the category that was exclusively (or nearly so) brick and mortar with Best Buy increasing it’s sales of these higher profit items and backing off of the cut throat world of consumer electronics. It seems that part of their strategy is to take that Geek Squad model and apply it to other high value purchases. Maybe? Recent news articles note that they are quite nimble at competing with Amazon. I have to admit that I long thought Best Buy would follow the Circuit City playbook and disappear, but they have surprised me.


        • Wolf Richter says:

          We’ve bought some large appliances online. Best Buy does just fine in online appliance sales. They made a real effort to get on top of this. The thing gets delivered and installed, and the installers take the old thing away… no need to go to the store. Appliance retailers that don’t have a vibrant online effort will be left in the dust.

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