Fairway Group Holdings, corporate parent of New York-based Fairway Market, said Friday the company may fall out of compliance with financial covenants at the end of its fiscal year in April, with the possibility it might not have enough working capital to fulfill its debt obligations.
It said it is exploring alternatives to raise additional capital "to de-lever the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically."
According to a 10Q filing with the SEC, the company said it was in compliance with debt covenants on its senior credit facility through the end of its fiscal third quarter Dec. 27.
However, Fairway said its current operating performance has been below expectations that existed at the time the financial covenant levels were established in 2013, and it warned that if its financial performance does not improve “or additional third-party equity financing is not obtained, the company anticipates it will not be in compliance with the maximum total leverage ratio financial covenant” on April 3, when its fiscal year ends.
If it is not in compliance, Fairway said, it has “the ability to exercise equity cure rights within 150 days following the end of the quarter, which allows for the issuance of additional equity and for the proceeds to be treated as consolidated EBITDA for purposes of the covenant.
“In addition, the company can seek an amendment to the covenant or waiver of the violation from its lenders,” it said.
“In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the senior credit facility, as amended, immediately due and payable, and the company does not have sufficient working capital to fulfill this obligation.
“The company’s inability to raise additional capital, amend its covenants, have its covenants waived or improve its performance would raise substantial doubt about [its] ability to continue as a going concern and pursue its longer-term strategy for a reasonable period of time.”
For the 13-week quarter ended Dec. 27 Fairway had a net loss of $9.7 million, with adjusted EBITDA down 25.7% to $8.7 million, sales down 7.1% to $191.7 million and same-store sales dropping 7.5%, including a 1% increase in average ticket and an 8.5% decline in customer traffic.

For the 39-week period the loss was $35.7 million, with adjusted EBITDA falling 20.7% to $23.4 million, sales dropping 5.5% to $565.3 million and same-store sales falling 6.4%, with average transaction size up 2.1% and customer transactions down 8.4%.
The company said comparable sales were negatively impacted by the opening of a Whole Foods Market on New York’s Upper East Side and the addition of a new Fairway in Lake Grove to the sales base. Excluding those factors, the company estimated a 5.6% decline in comps for the quarter and a 4.5% drop for the year to date.
Fairway operates 15 locations in New York, New Jersey and Connecticut, with plans to grow its base in the Greater New York City area, the company said in the SEC filing.
It said it intends to improve operating margins through improved business processes, continued cost discipline and enhancements to its merchandise offerings.