Late Payments by Retailers Signal Potential Financial Struggles

📝 SUMMARY: In recent developments that echo the pre-bankruptcy situations of retailers like Bed Bath & Beyond ($BYON), several well-known brands, including Peloton ($PTON), Saks, Express ($EXPR), and Bath & Body Works ($BBWI), have exhibited a worrying trend of delaying payments to their vendors. This behavior is highlighted in a new report by Creditsafe, a platform that analyzes financial, legal, and compliance risks of businesses. Delayed payments can be an indicator of financial distress, and such patterns were observed before the collapse of giants like RadioShack and Toys R Us, signaling potential bankruptcy risk.

The issue of late payments is not isolated to struggling businesses; it can also reflect a strategic choice by companies with significant market leverage. However, abrupt changes in payment patterns, especially in conjunction with falling sales or increasing debts, may point to deeper financial challenges. Peloton, for instance, has been battling to reach positive free cash flow, a situation exacerbated by declining sales post-COVID-19 pandemic. Similarly, Saks faced vendor pushback over unpaid bills, leading to tightened orders and a scramble for additional liquidity to maintain operations.

Express's rising operational costs and mounting debt have placed it under scrutiny, with speculation about a possible bankruptcy if it cannot restructure its debt or maintain vendor support. Bath & Body Works, despite being profitable, showed erratic payment behaviors that could jeopardize its financial arrangements or supplier relationships.

Creditsafe's findings, based on payment history and other financial data, classify Peloton and Saks at "high risk" of failure, with Express also struggling significantly. Bath & Body Works is considered at "moderate risk." These patterns underscore the importance of closely monitoring payment behaviors as a barometer for a company's financial health, especially in an environment where cash flow is a critical determinant of sustainability and growth.

🔍 SOURCE: https://www.cnbc.com/2024/04/04/retailers-like-peloton-saks-express-are-late-on-vendor-bills.html