Unable to quickly mend some of its credit fences in the apparel industry, Merry-Go-Round Enterprises Inc. officials yesterday said its inventory has fallen to less than 75 percent of its normal level, ensuring that sales for this month and part of March will be harmed.
"It's an old retail saying that you can't sell from an empty wagon," said Michael D. Sullivan, president of the Joppa-based clothing chain that filed for Chapter 11 bankruptcy protection last month.
Mr. Sullivan would not speculate on how much the low inventories will hurt sales.
Also yesterday, a Merry-Go-Round spokesman denied that Leonard "Boogie" Weinglass, the company's chairman and chief executive officer, told a retail trade publication that 100 to 200 of the company's 1,450 stores may be closed in the next year.
Spokesman Michael W. Kempner said that Mr. Weinglass told Women's Wear Daily that the company will close more than the 80 stores previously announced, but less than the 500 that stock analysts expect. "It is considerably less than the 500, closer to the 80," he said.
Mr. Kempner did confirm that Mr. Weinglass said the company will shift its focus from young men's clothing to women's apparel, with 65 percent of the inventory eventually being devoted to women's wear.
Mr. Sullivan was at the Garmatz federal courthouse yesterday as Judge E. Stephen Derby gave final approval of a $125 million line of credit to Merry-Go-Round from CIT Group of New York.
"The company has been limited in making merchandise orders until the [line of credit] is approved," said Richard H. Wyron, an attorney representing Merry-Go-Round. "The company would like to get inventory into its store as fast as it can," he told Judge Derby.
Mr. Wyron said that despite getting an interim approval for a $40 million line of credit on Jan. 21, the company had not been able to get many factoring companies to help finance purchases.
As a result, inventories are now at $64 million, compared to a normal level of $90 million to $100 million at this time of year, Mr. Wyron said.
Factoring companies finance the purchase of a company's inventory by advancing money to the company's suppliers on behalf of the buyer. In return, the factoring companies get accounts receivable, or IOU's, payable from the buyer to the supplier. In this way, a factoring company is a stand-in for the supplier and takes the risk of not being paid by a retailer.
Mr. Sullivan said the factoring companies wanted the assurance of the full $125 million line of credit because of concerns about being paid back in two to three months. With the line now approved, he said the company should be in a "good position" in the second half of March.
Merry-Go-Round operates stores under the names of Merry-Go-Round, Chess King, Dejaiz, DJs, Attivo, Cignal, Club International, and Boogie's Diner.
Its future has been further complicated by a recent buying spree of the company's stock and debt by Fidelity Investments. According to reports, the Boston-based mutual funds company has bought about 10 percent of the company's stock and about $90 million of the face value of the company's debt.