Two area retailers have cold Feb.

March 04, 1994|By Ross Hetrick | Ross Hetrick,Sun Staff Writer

Struggling Merry-Go-Round Enterprises Inc. reported yesterday that same-store sales were battered last month, falling 23 percent in one of the worst performances of any major retailer.

Merry-Go-Round attributed the poor performance to severe weather and low inventories in its stores.

But as Merry-Go-Round and other specialty stores announced grim news yesterday, other national retail chains reported better-than-expected results as consumers spent freely, apparently encouraged by the improving economy.

Joppa-based Merry-Go-Round, which filed for Chapter 11 bankruptcy in January, said total sales for its 1,419 stores last month were $51 million. This was a 4 percent drop from the same time a year ago when the company had sales of $53 million at 985 stores.

But the critical same-store results took a beating. Merry-Go-Round's same-store sales have declined for at least the last seven months.

Same-store sales -- those from units opened a year or longer -- are considered a better measure of a company's health than total sales.

Despite the weak sales report, the company's stock gained 12.5 cents yesterday to close at $3.375.

The company operates stores under the name of Merry-Go-Round, Boogie's Diner, Toofers, Attivo, Chess King, Cignal, Dejaiz, Silverman's and Hollywood Store.

Merry-Go-Round is slowly closing stores with poor sales and recently asked the bankruptcy court to approve the rejection of a lease for a Toofers store on Chestnut Street in Philadelphia. That store was closed Feb. 16.

The company has already closed its Boogie's Diner in New York and is holding a going-out-of-business sale at the Boogie's Diner in Washington.

Besides the bad weather, the company blamed the poor results on problems with restocking its inventories, which had dropped to 75 percent of normal levels by the end of January.

Company officials have said the inventory problems were caused by some factoring companies refusing to finance purchases by Merry-Go-Round in the wake of its bankruptcy filing on Jan. 11. Factoring companies finance the purchase of a company's inventory by advancing money to the company's suppliers on behalf of the buyer.

The company had hoped these problems were solved by the bankruptcy court's approving on Feb. 1 the full $125 million line of credit from CIT Group of New York.

In a prepared statement yesterday, Merry-Go-Round said it was "optimistic about improving relationships with vendors and factors, but it will take a few months for the inventory levels to rebound."

Merry-Go-Round President Michael Sullivan did not return telephone calls.

But Merry-Go-Round could have avoided the problems with the vendors and factors if it handled its bankruptcy differently, according to Peter A. Chapman, president of Bankruptcy Creditors' Service Inc. of Princeton, N.J., which publishes a weekly newsletter on the Merry-Go-Round bankruptcy.

He said the company developed a credibility problem with the factoring companies by first assuring them that it was financially sound before the bankruptcy action, and then by not providing adequate information after the filing.

Mr. Chapman also wondered why the company doesn't use its more than $90 million in cash to pay for the merchandise in advance.

"There is a rule of thumb to conserve cash, but not at the expense of sales," he said.

"If those kinds of levels of sales continue and there are not store closings, it will be a problem," Mr. Chapman said.

Yet, with $200 million in stockholder equity, the company could weather losses for a long period, he said. "It could last a good year of losing money and it wouldn't have an obvious effect."

The company's inventories may also have been hurt by the time-squeeze it found itself in after filing for bankruptcy, according to Richard Posner, executive vice president of Credit Exchange Inc., a New York-based company that advises clothing manufacturers on the credit-worthiness of retailers.

Unable to buy inventory before the bankruptcy filing, the company found itself deep into the buying period of spring inventory when it did file in January.

"You'd have to do it in a week to 10 days," Mr. Posner said. "Impossible."

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