Harry & David Gets Funds, Needs A Plan

Now that Harry & David Holdings received approval for a $310 million financial bailout from the U.S. Bankruptcy Court in Delaware, what’s next for the troubled of food and gifts merchant?

Medford, OR-based Harry & David Holdings, the parent company of Harry & David, Cushman’s and Wolferman’s, had filed for Chapter 11 bankruptcy protection at the end of March. It had previously announced $57.6 million in losses during 2010.

Neil Stern, a retail analyst and senior partner for consultancy McMillan Doolittle, says the good news is that there is an approved plan and financing to exit Chapter 11.

But there are few details regarding more store closures or operational changes, he says. (Harry & David operated 122 stores as of Dec. 25, 2010; it’s since shuttered 52 locations and is trying to shed those leases, according to an SEC filing.)

“Obviously, the company still needs to address how to turn around the business long term,” Stern says.

Lee Helman, managing director with investment firm Financo, says it’s unclear as to what Harry & David’s operating business plan will be moving forward. “There is an interim CEO, and until the new board hires a new CEO, or appoints a permanent CEO, then it’s impossible to know anything. But they have financing that should enable them to operate.”

The company in February had brought in Kay Hong, a managing director at global turnaround specialist firm Alvarez & Marsal. Hong was appointed chief restructuring officer and interim CEO for Harry & David.

Harry & David Holdings reached a resolution with about 81% of the company’s public notes on the structure of a consensual Chapter 11 plan. The company also received final bankruptcy court approval for a $100 million first-lien debtor-in-possession revolving credit facility provided by the company’s secured lenders and for a $55 million second-lien DIP term loan provided by a group of holders of the company’s public notes.

Also, the court approved up to $100 million in exit financing as well as a $55 million rights offering that provides Harry & David with the necessary equity financing to emerge from Chapter 11.

But its debt wasn’t the merchant’s only problem, says Chris Kampe, managing director for investment firm Tully & Holland. Harry & David’s products have been increasingly perceived as “ordinary,” and that hurts the brand’s value proposition.

“They need to find a way to grow sales, reacquire their core customer, and cut operating expenses,” Kampe says.

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