February 22, 2016

Sports Authority Facing Chapter 11

Sports Authority is said to be seeking the protection of Chapter 11 Bankruptcy after failing to make a $20 million interest payment to its creditors on a $343 million loan in January 2016. Since the acquisition of Sports Authority in 2006 by Leonard Green & Partners LP, the company has seen a notable decline from its once secured footing in the sports industry.

Once known as a mega-retail outlet for all things sporting goods, Sports Authority has faced many challenges over the years stemming from competition with such retailers as Academy, Amazon, and its closest competitor, Dick’s Sporting Goods. Failure to expand online has also affected the company as have direct-to-consumer platforms such as Nike and Under Armor.

Sports AuthorityDowngrading Sports Authority’s corporate credit rating from Caa1 to Caa3, Moody’s Investor Service reports that the sports retailer’s “operating performance has been inconsistent over the past several years due to weak execution, adverse weather, high promotional activity and competitive pressure, and a challenged consumer. Despite recent efforts to implement an operational improvement plan, sales have once again turned negative due to store closures and weak comparable store sales, while EBITDA margins have been pressured by expense deleveraging, lower merchandise margins and higher shipping costs related to growing e-commerce sales.”

According to a Bloomberg Report, with over $643 million in debt, Sports Authority is looking to reorganize the company through Chapter 11 Bankruptcy in order to keep the company afloat however, as many as 200 of their 450 stores may be closing their doors as part of the company’s reorganization plan, making it an opportune time for investors seeking commercial spaces.

To date, Sports Authority has confirmed that around 100 workers have been laid off at its corporate office and more layoffs are expected. While the company has until February 14, 2016 to make the payment on their outstanding loan, it is more likely that relief will come through the filing of Chapter 11.

Sports Authority will have to realign their marketing strategies and find new ways to appeal to a growing fitness market if they hope to gain ground in the industry. Moving online, creating opportunities for buyer’s in-store, and keeping up with customer demands will be important steps in the revitalization of the company.

Only time will tell if Sports Authority can regain momentum to keep their doors open but in the meantime, investors will be coming out of the woodwork to claim some of the prominent locations.