2025 got off to a rough start for crafts retailer JOANN, with the company filing for Chapter 11 bankruptcy for the second time in under 12 months this January.

Michael Prendergast, JOANN’s interim CEO, blamed the second bankruptcy on the “significant and lasting challenges” that have plagued the retail industry over the past several years, coupled with JOANN’s precarious financial position and “constrained” levels of inventory. 

This time around, store closures and inventory auctions are expected for the firm. But that wasn’t the case just 9 months prior when JOANN first filed for Chapter 11 bankruptcy. Then, the retailer claimed there would be no disruption to stores or supplier agreements. 

The company also struck an agreement with lenders to provide $132 million of new financing in exchange for a court-supervised financial restructuring to reduce its $1.1 billion in debt by $505 million. It simultaneously delisted from the New York Stock Exchange, with private equity backer Leonard Green forfeiting its stake.

2011 to 2020: Indebted

It was a bitter end for an asset Leonard Green held for 13 years. The firm first acquired JOANN in a 2011 take-private transaction with an enterprise valuation of $1.6 billion, or $61 per share.

Given that analysts at the time were placing target prices on JOANN stock at around $53 per share, it was a lofty premium to pay – 34 percent over unaffected closing price and a 17.4x multiple on forward earnings. 

This was likely where the debt issues began. The massive leveraged buyout was financed by JPMorgan Chase, Bank of America, and TCW/Crescent Mezzanine. 

For 10 years, JOANN operated as a private company. Over this period, Leonard Green saw it through a rebrand in 2018 – changing its name from “Jo-Ann Fabrics” to JOANN in order to appeal to a broader crafting consumer base – as well as turnover in the company’s c-suite. Over the course of Leonard Green’s ownership, the company saw four CEOs: Travis Smith, Jim Kerr, Jill Soltau, and Wade Miquelon. Soltau was the only external hire for the job.

As all of this was going on, the debt problem kept building. By 2019, JOANN was named a “Tier 2” company on Fitch’s “Loans of Concern” list, which catalogues companies with significant bankruptcy risk. The following year, 2020, Moody’s gave it a C-rating, indicating high default risk.

2021: Mastering the Craft

The pandemic was catastrophic for many retail companies, as people were forced to stay home during lockdown. But for JOANN, it was an opportunity – crafts and DIY projects became all the rage as people searched for something to do.

JOANN experienced a fast influx of new customers. These customers were younger and more affluent, as their spending showed. JOANN claimed it made $174 million in net income, with a total revenue of $1.92 billion, in the first three quarters of 2020 – a massive increase from the period the year prior, when the firm operated at a loss of $188 million with $1.55 billion in revenue.

Riding these tailwinds, Leonard Green launched an initial public offering for JOANN in early 2021 while staying on as majority shareholder. The IPO underperformed by about 30 percent, raising $131 million (as opposed to the targeted $186 million). Proceeds were used to pay off its debts, which had reached $794 million by the end of January 2021.

Many assumed that the explosive income growth it had experienced via these new customers would stick, allowing the company to pay down its sky-high debt. 

Of course, it didn’t. 

2022 to 2023: Cutting Losses

JOANN went on to face a rapid retreat in demand. Fading pandemic tailwinds in 2022 and 2023 coincided with a surge in inflation, higher interest rates, and increased operating costs due to supply chain modifications the firm made in the wake of Chinese tariffs. 

As such, the company went back into the red, reporting a $200.6 million loss on net sales of $2.2 billion for fiscal year 2023. 

And, of course, debt ballooned once more. By the end of January 2023, the company owed $990 million. By the time it filed for bankruptcy in March 2024, that number was $1.1 billion.

After a brief reprieve in 2021, JOANN again found itself on rating agencies’ at-risk lists for 2022 and 2023, though this time in top slots. 

By 2023, Wade Miquelon – the CEO that Leonard Green itself installed – had stepped down. Soon after, the firm underwent layoffs in an attempt to restructure. But it was too little, too late. 

2024 to Now: Over Consumer

By March 2024, JOANN had finally filed for bankruptcy, and Leonard Green gave up ownership of the asset in an attempt to restructure. It didn’t work – last month, another Chapter 11 bankruptcy filing was made on behalf of the retailer.

It’s unclear if Leonard Green took a loss at all on the asset, as the firm did not respond to requests for comment on this piece. What is known is that the vehicle that bought JOANN in 2011, Green Equity Partners V, made an 18.5 percent internal rate of return overall – nothing to scoff at, but below the 28 percent return that Leonard Green was able to garner from funds prior. 

In all likelihood, though, Leonard Green likely made a loss on JOANN. According to a document from the Rhode Island Office of the General Treasurer, Leonard Green capped its initial equity investment for each portfolio company at 10 percent of the fund’s overall value, which was $5.3 billion. As such, it is unlikely that Leonard Green spent more than $530 million in equity when acquiring the asset. 

The firm pulled $5 million a year from the company in management fees until 2021 (when the fee charged was just $1.3 million for one quarter, as the firm listed itself in Q2). As of October 2020, just prior to the IPO, Leonard Green had only taken out $800,000 in debt of its own accord for the asset. 

So, did JOANN’s demise serve as a cautionary tale? Likely not. Leonard Green continues to be active in the retail space, albeit with mixed results. For every tale of bankruptcy like JOANN and Sports Authority, there’s a story like SRS Distribution – one of the largest private equity exits of 2024, pulled off by Leonard Green (and Berkshire Partners) in the retail space, for $18.25 billion.