Joppa firm is credit risk, clothiers told For retailers, holiday season is mixed bag

November 24, 1993|By New York Times News Service

NEW YORK -- A shiver of concern swept through New York's garment industry yesterday as some factoring companies and credit-rating agencies advised their clients against shipping goods to Joppa-based Merry-Go-Round Enterprises Inc., the trendy but struggling operator of specialty stores.

The company, which operates the Merry-Go-Round, Cignal, Attiva and Dejaiz chains, has been paying its bills regularly, manufacturers said yesterday.

"This has been a very fine, fine company, but they've had some difficulties this year," said Richard Posner, executive vice president of Credit Exchange Inc., a credit monitoring agency. "People are worried going forward. Is this company going to represent some credit risk?"

The uproar comes at an awkward moment for Merry-Go-Round because it is still receiving last-minute shipments of holiday merchandise, though the company, probably has most goods it needs for the season in its warehouse.

"I have a very large order ready to be shipped to them," said one manufacturer on the West Coast, who spoke on the condition of anonymity. "I don't know what to do."

Isaac Kaufman, Merry-Go-Round's chief financial officer, yesterday called on various factors, the financing companies that guarantee that suppliers will be paid for their shipments. He reported on the company's prospects, according to people familiar with his visits.

They said Mr. Kaufman told the factoring companies that Merry-Go-Round expected to write off millions of dollars of unsold inventory, leading to a loss in the third fiscal quarter. One factoring executive said on condition of anonymity that the loss could be as much as $3 million.

Company executives could not be immediately reached for comment.

Credit Exchange took Merry-Go-Round off its approved list yesterday. "We've decided to just let it ride for a while and see how things go," Mr. Posner said.

Credit Clearinghouse, a unit of Dun & Bradstreet, lowered the company's credit rating earlier this fall because of declining sales.

According to Bloomberg Business News, Merry-Go-Round told factors earlier this month that it expected to write off a large amount of hip-hop clothing, the baggy, brightly colored apparel favored by rap singers and urban teen-agers. Those teens, who make up the bulk of customers in the company's 1,450 stores, now prefer hunting and camping gear.

The company said then that the write-off would hurt third-quarter earnings and that it might have to ask its banks to waive some loan covenants. Merry-Go-Round renegotiated its loans last summer.

Though they had been warned, the factors apparently did not expect the loss to be as large as Mr. Kaufman described yesterday. Also, a few already have large outstanding credit lines to the company and might be trying to limit risk, one factor said.

Merry-Go-Round lost $544,000, or 1 cent a share, in the first six months of this year, compared with a profit of $13.5 million, or 25 cents a share, in the same period last year. Its sales in stores open at least one year plunged 17 percent in October, 12 percent in September and 16 percent in August.

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