Retailers like Peloton and Saks keep paying vendors late, signaling possible ‘financial distress’

In the months before Bed Bath & Beyond declared bankruptcy last April, the former home goods titan was trapped in a crushing cycle. The retailer had been failing to pay its vendors on time, if at all. During the pivotal holiday season, some began requiring payment when goods were delivered or refusing orders altogether, which left Bed Bath unable to stock shelves. 

Running low on cash and needing a strong holiday quarter, the retailer’s position — and in turn its relationship with vendors — only got worse. The cycle continued until the big boxer succumbed to bankruptcy, and was liquidated a few months later. 

Similar dynamics accelerated the demise of other once-ubiquitous retailers, such as RadioShack and Toys R Us. While the factors that led to their downfalls varied, failing to pay vendors on time is often a sign of financial distress or an early indicator of bankruptcy risk, experts have told CNBC.

Retailers including Peloton, Saks, Express and Bath & Body Works have often failed to pay their vendors on time in the last few months, according to new data from Creditsafe, a business intelligence platform that analyzes companies’ financial, legal and compliance risks.

Plenty of companies, including many that are healthy, leave bills unpaid for weeks or months. But when companies have sudden fluctuations in unpaid bills, at the same time their sales fall or debts rise, late-payment rates help to build a picture of which businesses could face financial risks in the coming months and years if their operations don’t improve.

In some cases, Peloton, Saks, Express and Bath & Body Works were later on their bills than usual, indicating they could be struggling to manage cash flows or planning for revenue fluctuations.

“It is generally a telltale sign of financial distress,” Perry Mandarino, the head of restructuring at B. Riley Securities, told CNBC in an interview. “It’s either they have liquidity issues, or they don’t care.” 

To be sure, late payments don’t always signal financial troubles. Some large retailers with many vendors could have a healthy balance sheet, but because they have leverage they could decide to pay their suppliers when it’s convenient to them, said Mandarino. Those instances are bigger issues for vendors than for retailers.

In other cases, inconsistent payments could indicate cash flow issues, especially when companies aren’t profitable and have high debt. It’s not unusual for a business to pay a vendor 10 days late, if that’s what it typically does. But if that cadence suddenly changes, it’s cause for concern, said Mandarino. 

Creditsafe’s insights are based in part on companies’ payment history with suppliers, collected through its “global network of partners and trade payment contributors.” 

The firm uses the data and other insights to determine a company’s credit risk. Investment banks also use the information when deciding lending terms with a company, or to gauge whether a business is in financial distress. The information is regularly updated, and the data used in this report was current as of last Wednesday.

Creditsafe spokesperson Ragini Bhalla said payment data is only one factor the firm considers when assessing a company’s financial health.

Though the data “doesn’t represent a company’s total trading behavior, analysis has proven that it is hugely predictive of a company’s financial health and creditworthiness,” Bhalla said.

The connected fitness company paid most of its bills on time in November, but the percentage of late payments spiked in December. It dipped in January, before jumping again in February, according to Creditsafe’s report.

“When the number of late payments increases like this, it’s often indicative of financial challenges and poor cash flow forecasting,” Creditsafe said.

Peloton has consistently failed to reach positive free cash flow, it said in February when announcing fiscal second quarter earnings. CEO Barry McCarthy, who previously told employees that “Cash is oxygen” and “Oxygen is life,” aimed to achieve positive free cash flow by February. But the company has said it now expects to meet that goal during its fiscal fourth quarter, which concludes at the end of June. 

The rumors first arose on social media and were later confirmed by Business of Fashion. In a quarterly letter to vendors made public in December, CEO Marc Metrick insisted to his suppliers that the company has “sufficient liquidity and a sound balance sheet,” Women’s Wear Daily reported. 

“As we carefully manage our business against the industry wide softness in the U.S. luxury market, we are confident in our ability to continue meeting our financial obligations,” Metrick wrote, according to the outlet. 

Creditsafe’s data show a company increasingly behind on its bills. While Saks often made late payments last year, its on-time payments have dropped significantly since October 2023, the firm said.

The average number of days that Saks is paying its bills late has also fluctuated.

In response, a company spokesperson told CNBC, “We believe the numbers you shared are incorrect.”

To keep operations afloat, Saks’ parent company HBC secured $200 million in capital and amended the terms of its revolving credit facility in February. 

The liquidity infusion will be used for “growth initiatives” and “general working capital purposes,” the retailer said in a news release. 

Creditsafe has classified Saks as being at a “high risk” of failure.

In February, The Wall Street Journal reported Express is looking to restructure its debt and could be headed for bankruptcy if its lenders don’t amend their repayment options or agree to give it more cash.

Preventing bankruptcy also depends on whether Express’s vendors will keep fulfilling orders without tightening payment schedules, which would only put more pressure on the retailer, the outlet said. 

Given the recent payment trends provided by Creditsafe, Express is already struggling to keep up.

The average number of days that Express was paying its bills past the terms of its vendor contracts grew from nine in January to 15 in February. The percentage of payments that were late also increased in that time frame.

“This constant up-and-down pattern with the company’s [payments] indicates that its cash flow isn’t stable and is likely being affected by revenue changes, debt and other factors,” said Creditsafe.

Executives told analysts on the company’s third-quarter earnings call that it’s banking on an infusion of cash from the IRS under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help keep operations afloat. Express expects to get at least $48 million back from the federal government, interim finance chief Mark Still said.

He said the company is working with the IRS to move the claim forward “given the importance of this receivable to our liquidity.”

In the meantime, Express’s newly appointment CEO Stewart Glendinning, who took the helm of the company in September after CEO Tim Baxter resigned, said he’s working on recovering the company’s “full profit potential,” including by cutting more costs, he told analysts during Express’s third quarter earnings call in November.

As of Monday’s close, Express’s stock was down about 83% year to date. On March 6, it was delisted from the New York Stock Exchange because it couldn’t sustain a market capitalization of at least $15 million for 30 consecutive trading days.

Express has not announced a reporting date for its fourth quarter and full-year results, which it reported last year on March 24. 

Creditsafe has classified Express as being at a “high risk” of failure.

Express didn’t return a request for comment on the report.