Retailer has until Feb. to file plan

August 31, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

Fidelity Investments and other creditors have agreed to give Merry-Go-Round Enterprises until the end of February to present a bankruptcy reorganization plan, but they want proof in the meantime that the Joppa-based retailer is making sufficient progress toward that goal.

A Boston-based mutual fund company, Fidelity is interested in speeding up the bankruptcy process so it can increase the return on its substantial investments in Merry-Go-Round stock and debt, analysts said.

Fidelity opposed Merry-Go-Round's first request for more reorganization time, last spring, to no effect. It was expected to object again, perhaps trying to push the retailer out of bankruptcy proceedings before the important holiday selling season.

Instead, Fidelity is requiring Merry-Go-Round to implement an operating-cost reduction plan by Oct. 17 and to submit a detailed outline of a long-range business strategy by Nov. 1. The long-range strategy's final version must be ready by Jan. 31.

The agreement, made public in U.S. Bankruptcy Court in Baltimore yesterday, ensures that Merry-Go-Round will be free for at least another six months from hostile reorganization plans offered by third parties.

Merry-Go-Round has been trying to return to profitability since poor sales forced it to seek protection from creditors under Chapter 11 of federal bankruptcy law on Jan. 11. Through layoffs and store closings, the company has already cut costs substantially.

Its operating-cost reduction plan will address ways to further trim expenses, especially by increasing automation at the company's Joppa warehouse, said President Michael Sullivan. A computerized system that relays cash-register sale data quickly to the distribution center is supposed to be installed in all company stores by the end of next year, Mr. Sullivan said.

Buying such systems has been "standard practice" in big retail bankruptcy cases in recent years, said Peter Chapman, who runs Bankruptcy Creditors' Service Inc. in Princeton, N.J. "The first goal of the debtor is to get its warehousing working at its peak efficiency, getting the 1990s-style data processing equipment in place to be able to capture point-of-sale information."

Even though one goal of such a system is to reduce warehouse labor costs, Mr. Sullivan discounted the possibility of further layoffs, saying the company could reduce hours worked among flexible, part-time employees.

Cost-cutting alone won't return the company to profitability, he said.

"There's definitely something to be gained," from the operating-cost study, he said. "We've already made some sizable reductions, but the real key is growing sales."

Merry-Go-Round's selling and administrative expenses came to $230.6 million for the fiscal year that ended Jan. 29 -- 24 percent of sales. Mr. Sullivan declined to say how much the company hopes to reduce them by.

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