Merry-Go-Round turned a profit during August

October 07, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

Merry-Go-Round Enterprises Inc. turned its first monthly profit of the year during August, giving mild encouragement to analysts and demonstrating that the fashion chain can make money with fewer clothes in its stores.

But in a sign that its troubles aren't over, Merry-Go-Round's September sales results, announced yesterday, were sharply below last year's levels and below analysts' expectations.

The clothier suffered a 15 percent sales decline during September, compared with the comparable period a year ago, in stores that were open during both periods. The performance broke a four-month improving trend in such "same-store" results, considered an important measure of retail health. In August, same-store sales fell 13 percent.

The company, operating in bankruptcy proceedings since January, has already closed more than 200 poorly performing stores this year. It now operates 1,230 units. But September's results suggest that it may have to cut more, particularly in its floundering Dejaiz chain for young men, one analyst said.

September's same-store sales decline "was more than I expected," said Walter Loeb, a prominent New York retail consultant.

"I do think they're trying to get a handle on the whole company, and the downsizing that they have done so far may not be enough."

But Mr. Loeb said August's profit was encouraging, adding that he wouldn't be surprised to see another "positive trend" in September earnings, despite the lower sales. September profit won't be publicly available for another month.

August's operating profit, according to documents filed with the U.S. Bankruptcy Court in Baltimore, was $1.39 million on sales of $56.33 million. The profit came despite the fact that Merry-Go-Round reduced its inventory for the important back-to-school season and had delivery problems with men's shipments.

"It's nice to be back in the black," said Michael Sullivan, Merry-Go-Round's president. "We would have liked to have done better. Obviously, we would have made more money if the comps [sales] had been flat or positive."

Lawyers' fees and other bankruptcy costs cut into the operating profit. But the company still had net income of $473,000 for August, or 1 cent per share. Merry-Go-Round's operating cash flow -- earnings before subtracting interest, taxes, depreciation and reorganization costs -- was $4.1 million for August. It was the first positive monthly cash flow this year.

One factor that hurt September sales comparisons was the fact that, a year ago, Merry-Go-Round was slashing prices to move bloated inventories of unpopular clothes, company officials said. That boosted sales for the month, they said -- but not enough to keep September 1993 same-store sales from falling by 11.8 percent.

Average sales per store, reflecting the closing of 214 underperforming stores, declined 10 percent for September 1994. Average sales per store in the Merry-Go-Round division fell 6 percent compared with September 1993; in the Chess King division, down 3 percent.

In the smaller Cignal division, average store sales were ahead of last year, the company said. The Dejaiz/Attivo division "continues to lag in performance," it said.

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