In another big, painful step to try to return to profitability, Merry-Go-Round Enterprises Inc. said yesterday that it will close 200 more stores by February.
The move means hundreds more store employees will lose their jobs. And it raises a question of whether additional positions will be cut at the retailer's Joppa headquarters, now that there are fewer Merry-Go-Round, Dejaiz and Chess King stores to support.
Company executives could not be reached yesterday to comment on the number of jobs being eliminated and locations of the stores.
As 1994 began, Merry-Go-Round had 1,445 fashion clothing stores, mostly in malls, aimed at teen-agers and young adults. By February, it will operate about 1,000 -- shrinking in one year by nearly a third.
"They're performing radical surgery to save the patient," New York retail consultant Alan Millstein said of the latest closings. "They had no choice at this point, because of the lackluster . . . store performance through the fall and the holidays."
Merry-Go-Round has been in Chapter 11 bankruptcy proceedings since Jan. 11. As the filing's first anniversary approaches, the latest retrenchment underscores how poorly Merry-Go-Round has fared in bankruptcy court and how that performance has contrasted with initial expectations.
A year ago, several extremely sophisticated investors were betting that Merry-Go-Round's problems of picking the wrong fashions for its stores were temporary. With far more assets than liabilities, the thinking went, Merry-Go-Round under bankruptcy protection could regain the confidence of suppliers and become profitable again by the year-end.
Instead, Merry-Go-Round's sales and cash flow have been sharply negative all year. Cash flow, a common measure of financial performance for companies in bankruptcy proceedings, was negative $21.9 million for the nine months ended Oct. 29, on revenue of $544.1 million. Cash flow is profit before subtracting tax, interest, depreciation, amortization and bankruptcy expenses.
Investors such as Fidelity Investments, Bear, Stearns & Co. and T. Rowe Price Associates Inc. now hold Merry-Go-Round securities that are worth far less than when they bought them.
The situation became so critical that Merry-Go-Round's board hired "crisis management" consultants Meridian Ventures last month to take over the company. Meridian partners Thomas Shull and James Kenney replaced Leonard "Boogie" Weinglass, who stepped down as CEO but remains chairman, and Michael Sullivan, who retired as chief operating officer.
Meridian's aim now is to find a healthy, if smaller, core amid Merry-Go-Round's bleeding assets.
"After a detailed store-by-store analysis and a review of the holiday sales pattern, we have determined that it is necessary to close more underperforming stores than originally anticipated in order to achieve a rapid turnaround," Mr. Shull said in a statement.
The extent of the latest shutdowns surprised even creditors, who have been pushing Merry-Go-Round to move more quickly to stop losses. "I didn't think it would be 200," said one creditor, who asked not to be identified.
The closings will be spread relatively evenly throughout the country, a company spokesman said.
The official shareholders' committee in the retailer's bankruptcy case supports the shutdowns, said Stephen Selbst, its lawyer.
"Nobody on the equity committee is pleased to see the closing of stores," he said. "It's one of those painful necessities."
A year ago Merry-Go-Round employed more than 1,000 people in Joppa. Since a layoff of 70 people this month, fewer than 650 work there now. One reason given for the earlier cuts: fewer stores to support in the field.
Merry-Go-Round's companywide employment has shrunk from almost 15,000 people a year ago to fewer than 13,000 now. The company operated 58 Maryland and Washington stores a year ago. As of September, it had formally moved to close six.
Closings announced yesterday will include approximately 80 Chess King stores for young men; 70 Dejaiz and Attivo stores for young men; and 50 Merry-Go-Round stores for young men and women, a spokesman said.
In addition to closing stores, Mr. Shull and Mr. Kenney are trying to make the clothes in remaining locations more appealing to buyers. They're rejiggering the Dejaiz concept, abandoning an attempt to sell dressier apparel. The Merry-Go-Round and Chess King operations will be carrying fewer styles -- but with more selection in color and size.
Included in the latest adjustments is a decision to convert 21 Dejaiz/Attivo stores to Merry-Go-Rounds or Chess Kings.
Merry-Go-Round also said yesterday that it voluntarily reduced its line of credit with lender CIT Group from $125 million to $100 million. Now that Merry-Go-Round is smaller, it won't need to borrow as much to finance inventory, officials said.