Forty years after introducing DresSports, considered the first classic dress shoe with a rubber sole, The Rockport Company filed for Chapter 11 bankruptcy protection for the second time in five years. The petition lists some $99.71 million in funded debt obligations and more than $63.1 million owed to its 20 largest unsecured trade creditors. Topping that list are Stella Intl. ($24.1m), Maersk Warehousing and Distribution ($10.9m), East Mount Shoes of China ($6.9m), and India’s Farida Shoes ($2.56m). Two of Rockport’s three loan facilities, totaling $61.1 million, are slated to mature on Aug. 2. The third, with an approximate principal balance of $35.6 million, is slated to mature on Feb. 2, 2024.
The West Newton, Massachusetts, firm controlled by a CB Marathon Holdings, an affiliate of Charlesbank, has been coping with deteriorating financial conditions for months and has been unable to secure an outright buyer since Sept. 2022. It will now auction off its assets to the highest bidder through the bankruptcy court process. A hearing on bidding procedures to sell substantially all company assets is slated for tomorrow in U.S. Bankruptcy Court in Delaware.
In late May, Rockport IP and Rockport U.S. signed a non-binding letter of intent for the sale of certain assets. Negotiations on that potential transaction are ongoing. Earlier, between September 2022 and April 2023, investment bank Stifel contacted 13 strategic buyers for the business and eventually signed an Indication of Interest (IOI) with a potential acquirer in mid-December 2022. When a formal transaction failed to materialize before the end of an exclusivity period, Stifel commenced another sale outreach program in mid-April. At that time, three of the 22 contacted parties submitted formal written proposals for Rockport.
Following its first Chapter 11 filing in May 2018, which Rockport blamed on a challenging retail environment and a rocky relationship with its 3PL provider, the company moved swiftly to reposition the brand through an effort focused on increasing its range of casual shoe offerings, attracting younger consumers, and simplifying its business model to drive efficiencies and growth. But the company continued to struggle with high overhead expenses and weakening demand for its core products. Those factors, combined with impacts from the Covid-19 pandemic, contributed to a 41 percent decline in annual revenues in 2020 to $162 million from $275 million in 2019. Still, the company, founded in 1971 by father and son Saul and Bruce Katz, could step forward with its business strategy thanks to consistent support from its ownership group and a temporary reduction in minimum borrowing availability requirements on its loans. Rockport’s senior facility has been amended 14 times since 2018; its term loan, a dozen times.
In 2022, the company generated $203 million in sales, which included a 23 percent growth in e-commerce revenues to $34 million and a 44 percent increase in e-tail sales via direct-to-consumer platforms to $42 million. Rockport has no operations outside the U.S., instead relying on six entities in the U.K., South Korea, China, Spain, France, and Portugal. The company also has 30 distributor partners in 60+ countries, with China, Japan, the U.K., and Hong Kong as the brand’s top markets.
Throughout its 52-year history, Rockport has been affiliated with three major athletic brands, and it could now be owned by a shoe manufacturer if top unsecured creditor Stella emerges as the winning bidder for its assets. In 1986, Reebok purchased the business from the Katz tandem for $118 million. More than 30 years later, Rockport became an independently operated subsidiary of Adidas when the German company acquired Reebok. Subsequently, in 2015, a joint venture between New Balance and Berkshire Hathaway, parent of Brooks and other footwear companies, bought the business.
Since Rockport acquired the Reef brand from VF Corp. over four years ago, it’s fair to ask how the bankruptcy will affect the California-based sandal specialist. The bankruptcy documents mention that Rockport and Reef have some shared services, but it does not seem to be part of the bankruptcy.
Joseph Marchese of PKF Clear Thinking has been named Rockport’s chief restructuring officer. He has extensive experience managing complex financial and operational restructurings, including providing interim management services to preserve and maximize value. Gregg Ribatt has stepped down from his role as the company’s CEO but is available to support an orderly transition. Many Rockport employees are expected to remain with the company and assist Marchese and independent advisors and professionals in Rockport’s operations during the Chapter 11 proceedings.
“The immediate relief of Chapter 11 is appropriate to provide the Company the opportunity to assess the situation and develop a process to maximize value recoveries for all stakeholders,” said Marchese. “Rockport has valuable assets that can be effectively administered in an organized joint process. I want to assure every employee, customer, creditor, contract party, investor and other stakeholders that we are going to conduct this effort with diligence, thoroughness and transparency.”
The company currently anticipates that operations will continue “as usual” during the Chapter 11 proceedings and that customers will not experience any interruption in service or product quality. Subject to court approval, Rockport will utilize debtor-in-possession (DIP) financing to provide Rockport with sufficient liquidity to continue operations during the Chapter 11 proceedings and related sale process. In anticipation of the Chapter 11 sale process, Rockport has commenced negotiations with a potential buyer with significant industry experience and is expected to act as a stalking horse bidder.
