Why Sports Authority filed for bankruptcy protection

The big-box sporting goods store, once a bastion for cheap treadmills and other products, has announced that it filed for Chapter 11 bankruptcy protection and will close several stores. 

Richard Drew/AP
A woman leaves a Sports Authority store, in New York, (March 2, 2016). Sports Authority is filing for Chapter 11 bankruptcy protection. The Englewood, Colo., company has 463 stores in 41 states and Puerto Rico.

Sports Authority, the big-box athletic apparel and equipment retailer, filed for Chapter 11 bankruptcy protection Wednesday. The company said it will close 140 stores, or about a third of its locations nationwide.

Papers filed with the U.S. Bankruptcy Court show that the company’s debts could be as high as $1.1 billion.

Sports Authority has secured access to up to $595 million that will keep the rest of its locations open for now. But if the company can’t find a buyer by April, it will close its remaining stores.

Company plans to regroup

Filing for bankruptcy protection can allow companies to restructure their debts or sell off some of their assets in order to regain profitability — and stay open. This appears to be Sports Authority’s motivation.

“We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry,” CEO Michael E. Foss said in a statement posted on the company’s website. “We intend to use the Chapter 11 process to streamline and strengthen our business both operationally and financially so that we have the financial flexibility to continue to make necessary investments in our operations.”

Consumers should resolve unfinished business

Companies in Chapter 11 bankruptcy can continue to operate. However, if Sports Authority can’t find a buyer and is forced into Chapter 7 bankruptcy, it will have to close all of its stores and liquidate its assets — which could leave customers in the lurch. 

The company expects its customer loyalty program to continue without any changes for now, and will honor warranties on items purchased at its stores or online, Foss said in the statement. Customers can still make returns or exchanges and use Sports Authority gift cards. 

But if you have a gift card, it’s best to use it as soon as possible, according to advice the Better Business Bureau provides to customers of stores in Chapter 11. The cards could be worthless if the company goes out of business. The same advice applies if you’d like to return or exchange an item: Take care of it now, or you might be left with unwanted goods.

This article first appeared at NerdWallet.

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