For Joppa-based clothing chain, the need to regain its reputation for fashion is vital Can Merry-Go-Round revive itself?

January 16, 1994|By Timothy J. Mullaney and Ross Hetrick | Timothy J. Mullaney and Ross Hetrick,Staff Writers Staff Writers Michael Dresser and Frank Lynch contributed to this article.

Merry-Go-Round Enterprises Inc. soared for years by catering to the whimsical fashions of the young. But it was the company's lost sense of those fleeting tastes that drove it into Chapter 11 bankruptcy last week.

Although the filing protects the company as it searches for that magic again, the question is: Can the Joppa-based retail chain score big in the spring season and remain intact? Or will creditors wrest control from Leonard "Boogie" Weinglass, the co-founder and chairman?

Mr. Weinglass is back in charge, having been named chief executive the day of the bankruptcy filing, resuming a job he left in 1981 to go into semiretirement in Aspen, Colo. The fate of the company, which owns Merry-Go-Round, Cignal, Free Fall, Dejaiz, Attivo and other "fashion forward" chains, turns, in part, on whether he can again fill the stores with clothes that capture the imagination of young people.

The job is much harder than it was. Heading a company in bankruptcy, Mr. Weinglass will be closely watched by the company's creditors, many of which are fashion business leaders like Guess? Inc., Melville Corp. and Saxony. He will be closely supervised by Judge E. Stephen Derby of U.S. Bankruptcy Court. And, mostly, he will need to regain the confidence of people in the fashion and investment communities, many of whom say they feel burned by what they see as the company's lack of candor as business got worse.

And Mr. Weinglass may not have much time.

"If Merry-Go-Round doesn't get it together pretty fast, the

creditors are going to hire the people Merry-Go-Round should have hired, and they'll be driving the bankruptcy train," said Peter A. Chapman, president of Bankruptcy Creditors' Service Inc. of Princeton, N.J., noting that even successful reorganizations often end with new managers in charge. "They've got one season."

As of now, Merry-Go-Round is given an excellent chance of emerging from bankruptcy reorganization as a healthy company. has $463 million in assets and only $265 million worth of liabilities. Indeed, the price of its bonds rose after the bankruptcy filing, demonstrating Wall Street's confidence that the bonds would be largely repaid.

Not unexpectedly, the company shares that bullish position.

"The company has confidence in its intrinsic strength and continuing viability of its business which has been built over the past 22 years," Merry-Go-Round said on the day of the filing in Baltimore.

"Merry-Go-Round Enterprises is firmly committed to putting itself a sound financial footing so that it can move forward through these proceedings and emerge a much stronger and healthier company," the statement said.

But, like a slew of other retail companies that have entered bankruptcy, the Merry-Go-Round that emerges is likely to be quite different from the growing chain of a few years ago.

As many as 500 of the company's 1,460 stores may be closed, experts said, although the company says it has not made any such decision. If there are closings, many workers, including some of the 1,080 employees at the company's Joppa headquarters, are likely to be let go. And shareholders, including Mr. Weinglass, whose stake has fallen by nearly $79 million on paper since December 1992, could see their investments wiped out.

With its filing, Merry-Go-Round joins the ranks of some of the nation's mightiest retailers that have sought protection in the arms of the bankruptcy courts, including Federated Department Stores Inc., R.H. Macy & Co. Ames Department Stores Inc. and the Carter Hawley Hale Stores.

But Merry-Go-Round is in a different situation. The other companies had been healthy when they got into trouble as a result of one-shot financial maneuvers like leveraged buyouts and hostile takeovers.

"Those [other] companies went into bankruptcy because they owed too much money," said Peter Schaeffer, a partner in Johnson Redbook Service of New York, a research boutique that tracks retailing stocks. Merry-Go-Round "went into bankruptcy because they weren't doing any business."

In fact, sales at Merry-Go-Round stores that have been open more than a year -- a key measure of a retailer's success -- declined in all but five months of the past two years. After writing off millions of dollars worth of inventory, the company reported a loss of $38.5 million in the fiscal third quarter, which ended Oct. 30, on sales of $225.5 million. And that was before a disastrous 1993 Christmas season, when same-store sales fell 23 percent in November and 16 percent in December.

Merry-Go-Round has acknowledged that last fall, its young-men's line was too far out of the mainstream even for a customer base that had prided itself on being cutting-edge.

"We're not going to be as far out," Mr. Weinglass said in December on the day that the president of the company's men's division, Stuart Lucas, was fired, along with eight other merchandising executives.

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