Retail chain scouts CEO candidates

November 04, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

Merry-Go-Round Enterprises Inc.'s board is building a short list of corporate turnaround specialists as candidates for the company's soon-to-be vacant chief executive officer position, knowledgeable sources said yesterday.

The move reflects creditors' impatience with progress at Merry-Go-Round since it entered bankruptcy court in January and their desire for an outside executive with experience in reviving troubled retailers, sources said.

The plan is to identify several "crisis management" pros, interview several and then decide whether to hire one as acting CEO, the sources said. Interviews could start as early as next week.

No final decision has been made to hire a CEO from outside the 1,220-store fashion chain. But the board of directors is leaning in that direction, the sources said.

A company spokesman declined to comment yesterday.

Merry-Go-Round co-founder Leonard "Boogie" Weinglass is now chairman and CEO. On Wednesday, the company said Mr. Weinglass would resign as CEO but stay as a hands-on chairman, directing broad strategy, attending trade shows and helping to pick merchandise.

The search for a chief executive comes as Merry-Go-Round reported its best monthly store-for-store sales comparisons of the year, which analysts nevertheless called lackluster. October sales in stores open for at least a year fell by 11 percent compared with results in the same month last year, the company said.

That's far better than the same-store sales declines of 20 percent and more in some earlier months this year, and it comes with 30 percent less inventory in the stores than last year. And for October's first two weeks, companywide same-store sales were positive. "We're trending better," Mr. Weinglass said in an interview.

But October 1993 was a poor month for Merry-Go-Round -- with same-store sales falling 17 percent that month -- so 11 percent less than that isn't too encouraging, analysts said.

"They're not hemorrhaging, but they're not full of vim and vigor, ,, either," said Alan Millstein, editor of Fashion Network Report, an industry newsletter.

Merry-Go-Round stock closed at $1.25 yesterday, unchanged.

Analysts praised Merry-Go-Round's apparent decision to seek a "crisis manager" as CEO.

"It's time they did start looking on the outside to bring someone in that would have a different perspective on the business than the people who built the business," said Peter N. Schaeffer, a retail analyst for Dillon Read & Co. Inc. "It should have been done before."

Crisis management, or turnaround, specialists are known for entering problem companies and quickly making changes -- sometimes painful -- to improve results. For example, when Sears, Roebuck & Co. hired Arthur C. Martinez as merchandise chief, one of his first decisions was to close the company's venerable catalog operation, Mr. Schaeffer said. But it paid off.

The CEO selection process could spark a contest between Merry-Go-Round's shareholders and its creditors, analysts said. Creditors have priority over shareholders on the list of parties to be repaid when a company emerges from bankruptcy.

Merry-Go-Round's creditors will favor a chief executive who would quickly restore profitability and hurry the company toward reorganization -- even if it meant closing many more stores and leaving less value for stock owners. Shareholders, on the other hand, will favor a CEO who would take a longer-term view and try to fix Merry-Go-Round at close to its present size, analysts said.

One challenge may be finding a manager who understands apparel sales. Turnaround artists generally are financial pros used to fixing balance-sheet problems.

For Merry-Go-Round, with its merchandising difficulties, "the question is, who is there who's really a merchant-oriented turnaround artist?" said Peter Chapman, head of Princeton, N.J.-based Bankruptcy Creditors' Service Inc.

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