Merry-Go-Round downplays 16% drop in December sales

January 07, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

Embattled Merry-Go-Round Enterprises Inc. reported critically important December sales that the firm said indicated it was heading in the right direction, but analysts said the numbers leave the future of the Joppa-based retailer in doubt.

The company said sales for the five-week period that ended Jan. 1 increased 5 percent, to $178 million, from the same period a year ago. But same-store sales for last month fell 16 percent.

Same-store sales -- sales at stores open more than a year -- are an important gauge of performance because they allow retailers to compare one year to the next.

Despite the 16 percent drop, company President Michael D. Sullivan said the figures are an improvement over the whopping 23 percent drop in November.

He attributed much of the decline to the company's efforts to pare inventories, which at the beginning of December were 20 percent lower than last year's levels. The investment community had complained that the company's inventories, and thus costs, were too high.

"My point is that if you have 20 percent less inventory, you are going to do a lot less sales," Mr. Sullivan said. He said sales actually increased 3 percent over last year during the last week of December. The improvement since November "shows a trend going forward," he said.

But analyst Edward Johnson of Johnson Redbook Service in New York said the company did not take questions from analysts after disclosing the December results. And Mr. Johnson said it's too soon to say the improvement helps the company's chances of avoiding filing for bankruptcy court protection.

Merry-Go-Round acknowledged last month that it might have to file for Chapter 11 protection under the Federal Bankruptcy Act if it could not negotiate with lenders to shore up its finances.

The company operates about 1,445 stores in 44 states -- catering to men and women in their teens and early 20s -- under the names Merry-Go-Round, Attivo, DJs, Dejaiz, Cignal and Chess King.

Mr. Sullivan said the company received no immediate reaction to its announcement from major factoring companies, some of which last month stopped extending financing to the company for new inventory. He declined to say whether the announcement made bankruptcy court-supervised reorganization more or less likely, citing negotiations with bank lenders.

Bloomberg Business News reported yesterday that $ Merry-Go-Round is seeking more time to pay off debt to its major creditors while it negotiates a new bank loan.

The company violated covenants in its credit agreements after it took a $35 million charge in the third quarter to write down the value of poor-selling goods and to close about 30 weak stores.

It reported a loss of $38.5 million, or 71 cents a share, for the quarter ended in October.

To give it breathing room while it talks to its banks, Merry-Go-Round wants creditors to wait 60 days or as long as 18 months to be paid for bills that were due Dec. 10, said one creditor who asked not to be identified, according to Bloomberg Business News. "They're running around like chickens with their heads cut off," the creditor was quoted as saying. "It's all an act of desperation."

Specialty retailers had been widely expected to post weak performances during December, analysts said. But they said markdowns could have played a strong role in the sales gains for the stronger performers, and for the late December gains for Merry-Go-Round.

"If they got the volume at the expense of the bottom line, then it's a problem," said Peter Schaeffer, analyst with Johnson Redbook Service.

Merry-Go-Round's shares closed at $3.50, down 50 cents yesterday. Volume was 2.16 million shares, almost twice the three-month daily average of 1.13 million shares.

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