Eddie Bauer flirting with bankruptcy as it seeks new debt deal

Pummeled by falling sales and shrinking profit margins, outdoorsy retailer Eddie Bauer (EBHI) said in a regulatory filing that it could receive a vote of no confidence from its auditors unless it can rework the terms of a $225 million loan.

Like many retail chains, Eddie Bauer has had to slash prices to entice skittish shoppers who'd rather pay down debt or add to their savings than buy another pair of khakis. That has taken a big bite out of its bottom line. It has also bruised its balance sheet, inflating the company's ratio of debt to equity. Its creditors are worried and its accountants are waving red flags.

If it can't get the loan modified, Eddie Bauer may have to include a statement in its annual report from its auditors saying they're worried the company might not be able to continue as a going concern. In other words, bankruptcy could be right over the horizon.

Said Eddie Bauer CEO Neil Fiske in the filing: "We expect 2009 to be a very challenging, difficult year. While the amendment we are seeking is expensive, it will give us a new level of covenants with considerably more room on the downside through the first quarter of 2010."

In other words, this is probably going to hurt. But it won't hurt as much as following the likes of Circuit City, Sharper Image and Linens 'n' Things in filing for bankruptcy protection.

Investors are fleeing Eddie Bauer's stock, sending it down 44 percent to 44 cents in mid-day trading. For the three months ended Jan. 3, Eddie Bauer lost $127.5 million, or $4.13 per share, compared with a loss of $18.2 million, or 59 cents per share, a year earlier. The fourth quarter was also stung by $144.6 million in impairment charges.
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