Garment firm expects revenue drop as partner parent goes bankrupt
Risk provision may write some revenue off the record for Song Hong Garment JSC as the company prepares for the likely bankruptcy of its US partner’s parent firm.
US-based retailer RTW Retailwinds, owner of 400 New York & Co stores in 32 states across the US, filed for bankruptcy on July 13 and it will likely close all of its stores.
RTW Retailwinds reported revenue in 2019 dropped 7% year-on-year to US$827 million and recorded a net loss of US$61.6 million. In 2018, it reported a profit of US$4.2 million.
When the COVID-19 pandemic halted all economies, the company had to temporarily close stores and furlough workers.
RTW Retailwinds’ New York & Co is currently the largest partner of Song Hong Garment.
After RTW Retailwinds announced the plan to close all stores, shareholders and investors at Song Hong Garment voiced concerns about the Vietnamese firm’s earnings prospects this year.
According to sources, all liabilities in 2019 RTW Retailwinds owed to Song Hong Garment are already settled.
The liabilities so far in 2020 are worth VND220 billion (US$9.5 million) and if RTW Retailwinds’ bankruptcy proposal is approved, Song Hong Garment will lose that income.
In the first-quarter financial report, Song Hong Garment said liabilities owed by New York & Co were worth VND166 billion.
“The company is working to join the bankruptcy proceedings to claim its liabilities owed by New York & Co,” Song Hong Garment said in a filing to the Ho Chi Minh City Stock Exchange on July 17.
“Further information and the official decision of the US court regarding the case will be updated,” the company said.
According to Song Hong Garment JSC, the company's operation will not be affected by the bankruptcy, but in the short term, earnings will be dampened as revenue from RTW Retailwinds often accounts for a large proportion of its total.
“Revenue from New York & Co accounted for 13 percent of Song Hong Garment’s total revenue in 2019,” the company said in the filing.
The local garment firm expects total revenue in 2020 would drop 27% year-on-year to VND3.2 trillion and pre-tax profit would dive 54% year-on-year to VND250 billion.
The local garment firm’s shares (HoSE: MSH) plunged total 10.7% in the last two trading days to end July 17 at VND30,450 (US$1.31) apiece.