Category Archives: Retailing

CFO leaves struggling retailer

[Update 08-02-20 Tailored Brands has now filed for bankruptcy]

Jack Calandra, CFO of Tailored Brands, is leaving the company in a cost-cutting move. The retailer, which has its head office in the Westchase area of Houston, operates 1,445 stores (mainly Men’s Wearhouse and Jos A Bank) and has been hit hard by global pandemic. All stores were shut between mid-March and early May. Sales are down substantially since most they reopened.

At the beginning of this month, the company announced it had elected not to pay interest on its 7% Senior Notes due 2022. Legally, the company has a 30-day grace period to make the payment before the non-payment is considered a default. In practice, it is negotiating with lenders on terms for a possible bankruptcy plan.

Mr Calandra will leave effective July 31, 2020. He will receive a lump sum payment of $600,000, which is the equivalent of one year’s base salary. The company has no immediate plans to replace Mr Calandra. Instead his duties will be divided up between CEO Dinesh Lathi and Holly Etlin, who has been appointed Chief Restructuring Officer. Ms Etlin is a Managing Director at AlixPartners.

The company has promoted John Vazquez to be the Chief Accounting Officer and Treasury. He was serving as the Vice President – Financial Reporting.

Layoffs and Store closures

The company will close up to 500 stores and reduce its corporate workforce by approximately 20%. It will record a $6 million charge for severance and other termination costs in the current quarter.

At the end of February 2020, the company had debt of $1.1 billion. In June it announced that it  had borrowed an additional $310 million from the credit facility. The company had $200 million of cash on hand. It’s market capitalization is currently just $34 million.

Disastrous Acquisition

As a reminder, back in September 2013, Jos A Bank made an unsolicited offer to buy Houston-based The Men’s Wearhouse for $2.3 billion (in cash at a 42% premium). Instead The Men’s Wearhouse ended up buying Jos A Bank for $1.8 billion in June 2014 (in cash at a 56% premium). The combined company was renamed Tailored Brands. Within 18 months, it had written off $1.3 billion of that. This is one of the most spectacular destructions of shareholder value in recent years!

The CEO in charge of that acquisition left in 2018 with a $10 million severance package. Mr Calandra was not part of that acquisition, having joined in December 2016.

SEC filing – Tailored Brands CFO to depart



CFO to step down at Houston auto dealership group

John Rickel, CFO of Group 1 Automotive, has announced that he step down from his role in August and retire by the end of the year. Daniel McHenry, currently the CFO of the UK subsidiary, has been appointed as the new CFO.

Group 1, which has its head office in the Memorial City area, has 119 dealerships in the 15 US states, 50 in the UK and 17 in Brazil. The company furloughed 4,800 US and 2,800 UK employees in response to the downturn caused by COVID-19.  In its earnings call in early May,  the company said it expected to bring back 500 US employees by the beginning of June.

Mr Rickel has been CFO for almost 15 years and worked at Ford for 21 years prior to that. His time-based restricted stock awards will fully vest on the second anniversary of his retirement.  At the end of December 2019, Mr Rickel had 38,322 unvested shares. At that time they were worth $3.8 million. They are down to $2.5 million at today’s stock price.

Mr Rickel won’t receive a severance payment or 2020 bonus and his performance-based equity awards will be forfeited.

Mr McHenry was born in Northern Ireland and joined Group 1 in 2007 as part of the acquisition of Chandlers BMW in southern England. He will receive a base salary of $575,000 (temporarily reduced by 20% to $460,000) and will relocate to Houston.

SEC filing – Group 1 CFO appointment


CFO leaves as Houston retailer files for bankruptcy

Stage Stores has filed for Chapter 11 bankruptcy. It will simultaneously solicit bids for a going concern basis and initiate an orderly wind-down of operations.

CFO Jason Curtis is leaving the company to take a position with another retailer, effective May 22, 2020. CEO Michael Glazer will oversee the finance function. The company has also retained Rick Stasyszen to assist Mr Glazer. He previously served as the company’s Senior VP, Finance and Controller until May 2019.

The company operates 738 stores in 42 states. Historically, the company operated department stores under the names of Bealls, Goody’s, Palais Royal and Peebles. It was in the process of converting all its stores to the Gordman’s off-price brand.

All its stores closed on March 27, 2020 due to COVID-19. The company anticipates that approximately 557 stores will open on May 15. A second phase of approximately 67 stores will open on May 28 with the balance on June 4.

The company has been struggling for a few years. It last made an operating profit in 2015 and the coronavirus was the last straw.

As of February 2019, the company had 13,600 full-time and part-time employees.

Houston companies reduce salaries for senior executives

In recent days, a few public companies in the Houston have announced salary reductions for senior executives as they battle with the economic downturn. The changes are temporary though most haven’t set a timetable for when they will be restored. A summary of the changes announced for the CEO and CFO officers is set out in the table below.

A shout-out to Cactus, an oilfield services company, who were the first to announce changes.

[UPDATE 4/3/2020 – Since publishing this article, other companies have implemented reductions including Stage Stores (25%), NCS Multistage (20%), Target Hospitality (20%), Flotek (10%) and Team (10%)].

A couple of other comments

Occidental : All Executives had their salaries capped at $250,000. Furthermore, it appears that Oxy cut the salaries of all US employees making over $76,000 by 30%. It appears those making less got cut by 20%. Legacy Anadarko employees appear to have only got cut 4.9% to avoid breaching contracts in last year’s disastrous merger. That’s really going to help mesh the company cultures!

Group 1 Automotive : 3,000 US employees are furloughed for a 30-day period, with an option for a second 30-day period. 2,800 UK employees are furloughed for an initial period of 21 days. That’s about 40% of their workforce.

SEC filing – Group 1 Automotive


CompanyPositionNameOld salary $000New salary $000% reduction
CactusCEOScott Bender30015050%
CactusCFOStephen Tadlock33526820%
Group 1 AutomotiveCEOEarl Hesterberg1,15057550%
Group 1 AutomotiveCFOJohn Rickel63050420%
Luby'sCFOScott Gray34217150%
Nabors IndustriesCEOTony Petrello1,7501,40020%
Nabors IndustriesCFOWilliam Restrepo65052020%
Occidental PetroleumCEOVicki Hollub1,25025080%
Occidental PetroleumCFOCedric Burgher72525066%
Superior Energy ServicesCEODavid Dunlap85068020%
Superior Energy ServicesCFOWesty Ballard44037415%
US Physical TherapyCEOChris Reading80048040%
US Physical TherapyCFOLarry McAfee51033235%

Houston retailer appoints new CEO

Francesca’s Holdings has appointed Andrew Clarke as its new CEO, effective March 9, 2020. He replaces Michael Prendergast, who has been serving as interim CEO since February 2019.

Former CEO Michael Lawrence left to become the Chief Merchandising Officer at Academy Sports & Outdoors, based in Katy. However it was only in December that the company announced it had hired a retained search firm to find a new CEO.

Francesca has a market capitalization of $22 million and has its head office in west Houston. It operates approximately 700 boutiques in 47 states. Like many retailers, it has been struggling with tough market conditions.

Mr Clarke has plenty of retail experience and was previously the President at Loft and Chief Merchandising Officer at Justice. He will receive a base salary of $700,000 and a restricted stock grant of $500,000 that will vest over three years. As he is moving from New York, he will also receive a lump-sum payment of $200,000 to cover relocation costs.

Mr Prendergast is actually employed by consultants Alvarez & Marsal. The company had been paying A&M approximately $100,000 a month for the services of Mr Prendergast. With the appointment of Mr Clarke, the company has amended the agreement and will now be paying A&M $120,000 a month while Mr Prendergast is still the interim CEO. A&M may also receive incentive compensation of $500,000 subject to the achievement of certain targets.

In July 2019, CFO Kelly Dilts resigned to become the Senior VP Finance at Dollar General, based in Tennessee. Cindy Thomasee was promoted from Chief Accounting Officer to take her place.

SEC filing – Francesca CEO appointment

Houston retailer settles with SEC over improper accounting practices

Conn’s Inc, has settled with the SEC and its former COO, Michael Poppe, that it deliberately understated the company’s allowance for bad debts and overstated income in its financial statements.

The company has its head office in The Woodlands and has a market cap of $584 million. It is a retailer of furniture and electronics and many of its customers are sub-prime borrowers.

Conn’s has agreed to pay a $1.1 million civil penalty. Mr Poppe will pay a $50,000 fine.

Mr Poppe joined the company in 2004 as its Controller. He was the CFO from February 2008 through April 2012 and its COO from April 2012 through May 2017.

The charges relate to the period from the quarter ending July 2012 to the quarter ending July 2014. The company made a fateful decision in 2012 to take more of the credit risk in-house.

Last month I wrote about some of the issues the company was facing when current CFO, Lee Wright, was promoted to COO.

Roll-rate model

The SEC states that Conn’s was using a ‘roll-rate’ model to measure potential credit portfolio losses by segmenting the portfolio into delinquency buckets and applying a roll-rate to each segments. A roll-rate is a measure of the percentage of receivables that will migrate into the next delinquency bucket the following month.

Historically, Conn’s used a roll rate that was based on the previous time period (month, quarter etc) or an average of several recent time periods. From July 2012, the roll rates used in the model were hard-coded plugs that reflected management’s unduly optimistic future expectations.

As a result, the bad debt expense was higher than projected/reserved charge-offs for 14 consecutive quarters. In the quarter ended July 2014, Conn’s finally began to build up its doubtful debt reserve. In the following quarter it removed the management plugs entirely. This caused a $20 million increase to the doubtful debt reserve. Conn’s share price dropped 30% on the day of the Q2 announcement and 41% on the day of the Q3 announcement.

Since October 2014, Conn’s has replaced all of its senior management team. Also, it no longer utilizes a roll rate model to calculate its allowance for doubtful accounts.

Poppe received restricted stock awards

It’s not clear whether Mr Poppe received a severance payment when he left. He had a base salary of $460,000. At the time the SEC filing announcing his departure did not refer to any severance payment. In addition, the annual proxy filed the following year did not list him as one of the top 5 officers.

Mr Poppe only received a cash bonus of $50,000 for the year ended 30 January 2017 and none the previous two years. For those three years, he did receive restricted stock units that were cumulatively valued at almost $3 million in the annual proxy filed for the year ended 31 January 2017. It’s not clear how many were forfeited on Mr Poppe’s departure.

SEC press release – Conn’s


Charming Charlie files for bankruptcy – to close all stores

Social Woodlands

Houston-based retailer, Charming Charlie, has filed for bankruptcy protection for the second time in 19 months. This time it intends to close all remaining 261 stores by the end of August.

In its Chapter 11 filing, the company listed assets of less than $50,000 and liabilities of between $50 million and $100 million.

The company has more than 3,300 employees. It has suspended online sales and the issuance of new gift cards. According to the Wall Street Journal, the company has $19.8 million in gift cards outstanding. It is seeking court approval to honor gift cards for 30 days.

Bankruptcy in 2017

The company was founded in 2004 by Charlie Chanaratsopon (then aged 26) and was backed by PE firms, TSG Consumer Partners and Hancock Park Associates.

It originally filed for Chapter 11 in December 2017 and exited in April 2018. During that process, the company closed 100 stores. Before the original bankruptcy filing, the company had $154 million of debt. It exited with $50 million in term loans and a $35 million credit facility.

Mr Chanaratsopon stepped down as CEO in October 2017 to be replaced by Lana Krauter. The current CFO is Al Bellon, who was appointed to the role in April 2019. He originally joined the company as Assistant Controller in December 2014.

Current creditors

After the conversion of debt to equity, the company’s major shareholder is THL Credit. They still hold about $25 million of the remaining term loans. They also have a commitment of $8.3 million in vendor financing.

Major unsecured creditors include the professional firms of Guggenheim Securities ($2.1 million), FTI Consulting ($850,000), Paul, Weiss, Rifkind, Wharton & Garrison ($637,000) and BDO ($325,000).

Law firms Paul Hastings LLP and Klehr Harrison Harvey Branzburg LLP are handling the chapter 11 proceedings. Clear Thinking Group LLC is the restructuring adviser.

Charming Charlie Chapter 11 filing


CFO resigns from struggling Houston retailer

Kelly Dilts has resigned from her position as CFO of Francesca’s Holdings to pursue another (as yet unnamed) opportunity. She had been the CFO since March 2016. The company promoted Cindy Thomasee to take her place.

[UPDATE 08-12-19: Kelly Dilts is now Senior VP, Finance at Dollar General, based in Tennessee]

Ms Thomasee joined the company in 2017 and was currently serving as the Chief Accounting Officer. She will receive a base salary of $325,000. She also received a grant of stock units worth $200,000 (less the value of a grant given to Ms Thomasee in April 2019). The grant will vest over 3 years.

Francesca’s has its head office in Northwest Houston and has been struggling in recent years. Its share price at the close of business on 1 July was 44 cents (market cap $18 million). The company announced that it would perform a reverse stock split of 12-to-1 to get the stock price back over $1. The Nasdaq had notified the company back in February that it was in danger of being de-listed.

At the end of January CEO Steven Lawrence resigned and the Board appointed Michael Prendergast of Alvarez & Marsal as its interim CEO. The company is paying A&M a monthly retainer of $100,000 for Mr Prendergast’s services. A&M protected themselves from bankruptcy by also negotiating what effectively amounted to a $250,000 up-front deposit.

At the same time, the company announced it had retained Rothschild to assist in a potential sale of the company.

The company still has 722 stores and has experienced sales declines every quarter since Q2 2017.

Back in April, the company entered into a retention agreement with Ms Dilts that agreed to pay her $380,000 if she remained employed with the company through April 2020. Presumably she has another role lined up that will more than make up for the retention foregone.

Other Houston retailers to have changed CFO’s this year are Stage Stores and Conn’s

SEC filing

Houston retailer appoints new CFO

Conn’s Inc, a retailer of furniture and electronics, has announced a series of financial promotions, including a new CFO. The company has its head office in The Woodlands and has a market capitalization of $559 million.

CFO Lee Wright has been promoted to COO. Mr Wright joined the company in June 2016. Prior to that he was CEO of Professional Directional Enterprises, an energy services company. His annual salary will increase from $600,000 to $650,000.

George Bchara has been promoted from Chief Accounting Officer to CFO. He joined Conn’s in December 2016 from BankUnited, based in Florida. Prior to that he worked at PwC. Mr Bchara’s salary will increase from $325,000 to $400,000.

Ryan Nelson has been promoted from Controller to Chief Accounting Officer. He joined the company in May 2018. Prior to that he spent seven years with EnLink Midstream Partners. His salary will increase from $200,000 to $225,000.

Sub-prime borrowers

For the year ended January 31, 2019, 70% of Conn’s retail sales were made using in-house credit programs. A further 23% use third-party financing. Only 7% of sales are made with cash or credit card. Many of the customers are sub-prime borrowers. As a result, the profitability of the company is very dependent on its credit management program and the delinquency rate of its customers.

Increase in delinquency rate 2013-2015

At the end of 2013, the company had a market capitalization of $2.8 billion. It was hit hard by the subsequent downtown, especially in the Energy sector as many of its stores are in Texas and the surrounding states. The company compounded that problem by taking more of the credit risk in-house. The provision for bad debts as a percentage of the total credit portfolio rose from 7% in 2013 to 16.1% in 2015. When Mr Wright joined the company, the market capitalization had dropped to $250 million.

That decline took a toll on the senior executive team. A new CEO, Norm Miller, was appointed in September 2015. There were also 3 CFO’s in 4 years (including a former CAO who was interim CFO for 6 months) prior to Mr Wright arriving.

Credit management improvements

The company has improved its delinquency rates since Mr Wright arrived. The provision for bad debts has dropped to 12.9% for the year ended January 2019. This is due to a combination of improved credit management processes, increased use of third-party financing and an improving economy.  However, the company remains vulnerable if there is a sharp downturn in the economy.

SEC filing



Entertainment company delays quarterly filing due to SEC investigation

RCI Hospitality Holdings (market cap $184 million) which has its head office in NW Houston, has announced that it will delay filing its quarterly 10-Q. It also received a delisting notice from Nasdaq.

RCI operates 39 adult nightclubs (including Rick’s Cabaret) and 7 restaurant/bars under the Bombshells brand name.

According to the SEC filing;

In mid- and late 2018, a series of negative articles about the registrant was anonymously published in forums associated with the short-selling community. Subsequently in 2019, the SEC initiated an informal inquiry. In connection with these events, a special committee of the registrant’s Audit Committee engaged independent outside counsel to conduct an internal review. The registrant and its management are cooperating with both the internal review and the SEC inquiry. Because the internal review is still ongoing, the registrant will be delayed in filing its Form 10-Q.

Anonymous allegations

That got me searching for the negative articles. They weren’t too difficult to find. You can read them here.

The anonymous author alleges, among other allegations

  • RCI made loans to the CEO, Eric Langan, that were not disclosed in SEC filings
  • One of RCI’s independent Directors is the brother of a senior executive. This is a violation of the SEC requirements for being an independent director
  • Another of the independent Directors represents RCI in lawsuits
  • CEO’s relative defaulted on a loan received from RCI – also not disclosed in SEC filings

Interestingly in the 10-K filed at the end of December for the year ended September 30, 2018, the company states that Nourdean Anakar is an independent director. Yet, under related party transactions, the company discloses that it borrowed $500,000 at 12% interest from Ed Anakar, an employee of the company and the brother of Nourdean. Ed Anakar is the Director of Operations at RCI.

Since the company disclosed the delay in filing the 10-Q, the stock price has dropped 15%.

Material Weaknesses

Unrelated to the allegations, the 10-K also disclosed material weaknesses in controls over

  • Revenues – segregation of cash counts
  • Complex accounting and management estimates
  • Financial statement close and reporting
  • IT – lack of controls to prevent unauthorized access to certain systems
  • Segregation of duties.

That’s the most comprehensive list of internal control weaknesses I have seen disclosed for a publicly-traded company. RCI did go live with a new ERP system in October 2017


SEC filing