Merry-Go-Round's faithful unfazed by crisis

December 18, 1993|By Patricia Meisol and Ross Hetrick | Patricia Meisol and Ross Hetrick,Staff Writers Bloomberg Business News contributed to this article.

While executives of the Joppa-based Merry-Go-Round Enterprises Inc. struggled yesterday to find financing for a spring shipment of clothing that could make or break the retail chain, 18-year-old Corrinne Chavis cheerfully helped customers in the company's newly remodeled East Point Mall store, never giving a thought to her next paycheck.

"Every Thursday I come in and it's here," she said.

Like many other young employees and some shoppers in the Dundalk store yesterday, Ms. Chavis was oblivious to the company's financial crisis and certain that nothing could shake the place where she's been buying clothes since junior high.

"I don't really think they'll close the store down. They've been open so long," said Ms. Chavis, a theater and dance student. "It's always been the cool store to work in. All my friends come here."

Indeed, for many repeat customers, it's the hip boutique that they've grown up with or shopped in as soon as they could fit into the clothes.

But this fall, what the company decided was hip was not what many customers were looking for. Now, the company is negotiating for financing to bring in the type of spring merchandise it hopes will turn things around.

Reports of the company's financial problems have sent the company's stock price spiraling down.

Share prices for the 1,460-store chain fell yesterday an additional 26 percent, or 75 cents a share, to close at $2.125 on the New York Stock Exchange. With more than 12 million shares traded, it was the most active stock on the NYSE for the second day in a row.

A 2.2 million-share block, representing 4.1 percent of the company's outstanding shares, traded through broker Merrill Lynch at $2 a share. Merry-Go-Round officials said they weren't aware of the 2.2 million-share block trade. As of Sept. 30, only two institutional investors held more than 2.2 million shares -- the State of Wisconsin Investment Board and TIAA-CREF Investment Management in New York.

The stock had plunged from $6.125 a share to $2.875 a share Thursday on fears that the company might file for Chapter 11 bankruptcy protection after missing Dec. 10 payments to suppliers, who are refusing to ship merchandise to Merry-Go-Round.

"If you don't go into Chapter 11, you go out of business," said Peter N. Schaeffer, a partner in Johnson Redbook Service, a New York company that follows retail stocks.

His assessment was shared by other analysts, who said an expanded line of credit was crucial. But they also said that talks with the bank group, led by Signet Banking Corp., were stalled over Merry-Go-Round's refusal to allow the banks to use its inventory as collateral.

Company officials have said they do not plan to file for bankruptcy, but they are not ruling it out.

Yesterday, at least one company executive was sounding upbeat. "As we get on the right track and when we get the right type of merchandise in our stores, which is a little different from the past few months, sales will grow. People have shopped with us for years and continue to," said Paul D. Levine, president of store operations for Merry-Go-Round, Attivo, Chess King, and DeJaiz. The company also owns Cignal.

He said sales of velvet holiday wear were "terrific" and showed that the company was headed in the right direction. "There is a cleaner, sexier and more fun-type merchandise. It is doing better than some merchandise we did have in the fall for back-to-school," Mr. Levine said.

There were also reports the company is starting to pay some bills.

"The check came in yesterday," said Kenneth Zimmerman, chief executive officer of Kenar Enterprises Ltd., a women's clothing maker.

Debbie Spagnolo, district manager of seven stores, including Dundalk's, started with the company 11 years ago. She said merchandise comes in daily and, despite reports of the corporation's troubles, so do customers. She said she expects to continue working no matter what happens.

"Look at Macy's," she said, referring to its restructuring under Chapter 11 bankruptcy laws that kept most of its stores operating.

Other employees had the same attitude. Manager Leah DiVinagracia, who has been with the company for 10 years, said the financial crisis hasn't made her question her goal of advancing to a corporate job with the company.

In Dundalk, there was no sign of the hip-hop-style merchandise that slowed company sales this fall. The East Point store, one of the first in Baltimore, also is one of the company's most successful. Last year, it had sales of more than $1 million, well above its target. And this year, as overall sales at stores open more than one year have been falling, sales at East Point are exceeding last year's level.

"They have the kind of style you see at school. You come here and they have it already," said Gerrie Smoot, 13, on her second trip yesterday to the checkout counter, accompanied by her mother.

Customers have followed the store for years because it has been quick to provide the latest styles at reasonable prices. Yesterday, managers pointed out their regular customers by name.

And at least one customer came in yesterday specifically to support the company.

Pat Inners, with her daughter and her daughter's boyfriend, purchased a Christmas gift from Merry-Go-Round for her nephew, who shops there. Mrs. Inners said she did so at the suggestion of her husband, who bought 5,000 shares of Merry-Go-Round stock when it was selling at $21 a share, almost $19 higher than its price yesterday.

"I hope they turn around!" she said.

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