Perfumania Holdings Files for Chapter 11 Protection

Perfumania Holdings, Inc. has initiated a recapitalization to be facilitated through a pre-packaged Plan of Reorganization to reduce its retail store count to better align with current consumer shopping patterns, increase investments in its e-commerce business, and become a privately-held company. The plan, announced over the weekend, includes some of the firm’s units filing for Chapter 11 relief.

The company’s Parlux and Five Star Fragrance subsidiaries, which are responsible for a range of fashion/designer/celebrity scents like Vince Camuto, Paris Hilton, Tommy Bahama and Rihanna, were not included in the Chapter 11 filings that were presented at US Bankruptcy Court for the District of Delaware on Saturday.

Perfumania says it will continue to operate in the normal course of business during this time and beyond.

“Our employees can be assured that during this time and beyond they will continue to receive their salaries and benefits. Our retail customers can continue to purchase the brands they love at our stores and online, and our wholesale and retail customers will not see any interruption in the flow of merchandise. There will be no changes to our license agreements and we will continue to uphold our obligations, and our valued vendors and suppliers will be paid in full,” said Michael Katz, Perfumania president and CEO.

“This process will allow us to more quickly adapt to the shift in consumer shopping habits by focusing more of our resources on implementing our e-commerce strategy, making Perfumania a stronger and more competitive company,” added Katz.

Key components of the plan include:
·       · The company expects to pay vendors and suppliers in full in the ordinary course of business.
·       · A reduction of the Company’s retail store portfolio.
·       · It is anticipated that current equity of Perfumania will be cancelled, however, current shareholders will be given the opportunity to receive consideration of $2.00 per share in exchange for completing a shareholder release form.
·       · An equity infusion that will be used to make (1) distributions under the Plan; (2) to fund the consideration being paid to shareholders who submit a shareholder release form; and (3) to fund ongoing operations.
·       · Upon emergence, Perfumania will be a privately-held company.

The company said it has ample liquidity to fund operations and has received a commitment for up to approximately $84 million in debtor-in-possession financing from its existing lender, Wells Fargo, which is expected to be replaced by a $100 million exit facility upon emergence. The exit facility will, in combination with the equity infusion noted above, provide Perfumania with additional liquidity support.

Looking forward, Perfumania will further emphasize and invest in its e-commerce business so as to improve customers’ online shopping experience. Moreover, the company will continue to “look for ways to leverage digital technologies and believes that a greater focus on omni-channel initiatives will enhance and create a more seamless shopping experience for consumers.”

“The company has been working diligently to amend its business model, reduce its cost structure, improve supply chain efficiency, optimize marketing, reduce expenses and improve operating results long-term,” added Katz. “Today’s actions allow the company to expedite all of these initiatives to create a stronger company with the financial resources to invest in areas that will foster our long-term growth. The support of our lenders and the new DIP and exit financing commitments underscore their confidence in the future of the company.”

Perfumania has already been reducing its retail store portfolio by accelerating the closure of under-performing stores and those stores in locations affected by declining mall traffic, as part of its strategy to maximize sales and improve store productivity and profitability. To that end, the company has identified stores that are core to the Company’s ongoing operations and will remain with the company post-emergence, stores that have begun clearance sales, and those that are part of the cmpany’s lease- negotiation process, the firm said.