An online news report detailing risks of a potential loan covenant violation appears to have triggered a sharp decline in the price of Fairway Group Holdings shares.
Stock in the parent of New York’s Fairway Markets chain was down by more than 18% Monday, closing at an all-time low of $1.71 per share. The sell-off followed a report on the financial website Seeking Alpha Friday saying that Fairway was nearing a leverage ratio that would violate terms of its secured and revolving credit facilities. Although the report said Fairway could cure the violation with additional equity, that solution could dilute value in the stock.
A source told SN Monday the covenant violation was “not a big deal by itself,” and acknowledged the stock decline was likely “headline related."
Fairway has been struggling for some time. The retailer, known for its lively, high-volume stores in places like the West Side of Manhattan and in Brooklyn’s Red Hook neighborhood, has struggled to replicate those volumes as it has expanded while encountering sales declines as a result of new competition from companies like Whole Foods and cannibalization as a result of expansion.
Last month the chain reported a $13.9 million quarterly loss and a 5.3% decline in comparable-store sales, although officials highlighted an uptick in margins and were encouraged by recent sales-building initiatives in some stores.
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