Woodies Buckles Under Debt

January 18, 1994|By Ross Hetrick | Ross Hetrick,Staff Writer

Woodward & Lothrop Inc., the venerable retail chain that has served Washington-area customers for 113 years, filed for Chapter 11 bankruptcy protection yesterday in an effort to work its way out from under the crushing debt it took on in the mid-1980s.

Affectionately known as "Woodies," the chain suffered persistent losses over the last several years after the $230 million leveraged buyout in 1984 by Michigan real estate magnate A. Alfred Taubman and the $183 million acquisition of the John Wanamaker chain from Carter Hawley Hale Stores Inc. in 1988.

Despite the bankruptcy filing, made in New York, the Alexandria, Va.-based company maintained yesterday that its operations were fundamentally healthy and that it had no intention of closing stores or laying off workers. The chain has 11 stores and 3,000 workers in Maryland.

"This is a capitalization issue," said Robert B. Mang, whom the company announced yesterday would take over as chairman and chief executive officer. "It is not a performance issue or an operational issue."

Mr. Mang, who joined the company in 1991 as president and chief operating officer, replaces Arnold H. Aronson, who has been chairman and CEO since 1989.

Woodward & Lothrop has assets of $608.2 million and liabilities of $659.4 million, according to the filing. This included $208 million in loans owed to Mr. Taubman, who also had made a $160 million equity investment in the privately held company. He owns 85 percent of its stock, company spokeswoman Sandra Sternberg said.

Woodies' largest secured debt is with Chemical Banking Corp. of New York, for $55 million. Major unsecured creditors include NationsBank, $2.4 million; Estee Lauder of Melville, N.Y., $1.4 million; and the Washington Post, $1.2 million.

The chain was joined in the bankruptcy filing by parent company Woodward & Lothrop Holdings Inc. and John Wanamaker Inc.

Mr. Mang said the company would continue its efforts to attract moderate- to upper-moderate customers. "We think the company is heading in the right direction," Mr. Mang said. "We don't see any reason to close stores. We don't see any reason to lay off people."

However, one analyst was skeptical that the company will be able to keep its no-layoff, no-closing pledge.

"When you go into Chapter 11, you take advantage of being able to get out of contracts," said Peter N. Schaeffer, a partner in Johnson Redbook Service, a New York company that follows the retailing industry. "You do lay off; you do close stores."

He said Woodies has confused its customers in the past by first going after upscale customers and then retreating to the moderate-price market. "They were confused in what they stood for and they confused the customer as to why they should shop there," Mr. Schaeffer said.

Company spokesman Michael Sitrick said holiday sales were "slightly up" over the same period a year ago, but a retail analyst said the critical Christmas sales season apparently wasn't strong enough for Woodies.

"Their results of the holiday selling season were obviously not positive enough to prevent the filing," said David S. Leibowitz, senior vice president and director of research for Republic New York Securities, a stock brokerage firm.

The Chapter 11 filing gives new creditors a higher priority in getting repaid, and the company announced yesterday that it has received a commitment from CIT Group of New York for a line of credit of about $300 million.

Woodward & Lothrop Holdings owns 16 Woodies stores, most of them located in the Maryland and Virginia suburbs of Washington. The company also owns the John Wanamaker department store chain, which has 15 stores in Philadelphia and the surrounding area; four specialty home furnishing stores; and three clearance centers.

In the last five years, Woodward & Lothrop has spent $200 million to remodel and upgrade old stores and to build new ones.

In Maryland, there are 10 full-service Woodies stores and one home furnishing store in Bethesda, Ms. Sternberg said. The three Woodies stores in the Baltimore area are at the White Marsh Mall in Baltimore County, Parole Plaza near Annapolis and the Mall in Columbia.

The company said its sales and earnings, before interest expenses, have increased during the last two years, and that all of the stores operate at a profitable level.

The stores, however, have been unable to generate enough cash to pay interest on the company's debt. For the nine months that ended Oct. 30, the company lost $43.4 million on sales of $572.5 million, according to Bloomberg Business News.

Woodward & Lothrop was able to sustain losses over the years as long as Mr. Taubman was willing to pour millions of dollars into the operation. That has apparently come to an end.

"Despite strengthening store performance and extraordinary efforts by management, it is now clear that this will not be able to be accomplished without the protection of the court," he said.

Mr. Taubman is chairman of the Centers Inc., which owns 19 regional malls in 11 states, including Marley Station in Anne Arundel County, Lake Forest in Gaithersburg and Fair Oaks in Fairfax, Va.

AT A GLANCE

Company: Woodward & Lothrop Inc.

Founded: 1880

Headquarters: Alexandria, Va.

Subsidiary: John Wanamaker in Philadelphia

Primary owner: A. Alfred Taubman

Assets: $608.2 million

Liabilities: $659.4 million

Stores:

16 Woodward & Lothrop stores in Washington-Baltimore area 15 John Wanamakers in Philadelphia area Four specialty home furnishing stores and three clearance centers

Total employees: 11,238

In Maryland:

10 Woodward & Lothrop stores One furniture and design gallery in Bethesda Warehouse and distribution center in Jessup Employees in Maryland: 3,000

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