With the report that it lost $38.5 million in its third fiscal quarter, Merry-Go-Round Enterprises Inc. announced yesterday that it fired Stuart Lucas, president of its men's division for 14 years, and replaced him with Leonard "Boogie" Weinglass, the founder and chairman of the Joppa-based clothing chain.
"It's the most painful thing I've done. This man has helped make me rich," Mr. Weinglass said about the firing of Mr. Lucas, who has been with the company for 20 years. "He has been one of the most talented men that I have met in the industry in the young men's division. But, for whatever reason, it has been in a slump. We can't go on making excuses."
Mr. Lucas' departure was part of a larger housecleaning at the company in which nine men's merchandising executives were dismissed.
Like other retailers of young men's clothing, the 1,460-store chain has been unable to latch on to any sustainable fashion trend recently, and sales have been poor.
In its earnings report, the company said it was taking a noncash charge of $35.1 million, or 65 cents a share, primarily to reduce thebook value of clothing that was not selling. Without the charge, the company would have had a loss of $3.4 million, or 6 cents a share.
"The first order of business is to cancel some of the stuff that was on order that was not to my liking," Mr. Weinglass said. "We've been backing a lot of wrong trends."
Analysts applauded the move, saying Mr. Weinglass will bring more discipline to the company's all-important selection of merchandise.
"It's a good foundation to be building the business on," said Thomas H. Tashjian, managing director of First Manhattan Co., a New York-based investment brokerage firm. "It should allow them to capitalize on fashion trends when they arrive."
However, he warned that the young men's clothing business, which accounts for about 75 percent of Merry-Go-Round's business, continues to be poor.
Mr. Tashjian said the company is in a strong financial shape with $200 million stockholder equity. In the coming year, he said, the company would be run "in an incredibly conservative way so as to allow cash flow to be very strong."
The stock market reacted enthusiastically to the company's announcement, boosting the stock by 21 percent, or $1.125 a share, with the price closing at $6.50 a share.
The main task for Mr. Weinglass is to select just the right clothes to draw in young men, said Harry G. Katica, a retail analyst for Raymond James & Associates Inc., a stock brokerage in St. Petersburg, Fla.
"They have to be fashionable, but a little more mainstream in their appeal," he said. "Some new people were needed to make that transition."
But capturing the fancy of young men will not be easy in a market that has lately been hurt by unexciting fashions and economic doldrums.
Until three months ago, Mr. Weinglass, the company's largest stockholder, had been in semi-retirement, living in Aspen, Colo. But in September, he moved back to Baltimore County and took over the women's operation. He said he has been able to turn around that division by switching to more casual skirts and shorts and exercising a more hands-on management style.
"I literally went out into the market and did the picking," Mr. Weinglass said.
Mr. Weinglass said he plans to move away from a more "trendy" look, which goes out of style quickly. "We're not going to be as far out," Mr. Weinglass said.
Mr. Weinglass said he expected to see results from the new direction in the company's fourth quarter, which ends Jan. 31, when there will be a "modest to nice" profit.
Merry-Go-Round Enterprises Inc.
Ticker ...... Yesterday's
Symbol ...... Cls. ... Chg.
* MGR ......... 6 1/2 .. +1 Period ended Oct. 30
@4 ...... ...... 3rd qtr. ..... Year ago .... Chg.
Revenue ....... $255,473 ...... $229,792 .... +11.2%
Net Income ... $(38,522)* ..... $10,518 ...... --
Primary EPS ... $(0.71)* ........ $0.20 ....... --
........... 9 mos. ..... Year ago .... Chg.
Revenue ..... $655,812 .... $582,815 .... +12.5%
Net Income.. $(39,068)* .... $23,985 ....... --
Primary EPS... $(0.72)* ...... $0.45 ....... --
* Includes a $35.1 million non-cash charge, equal to 65 cents a share, for the write down of inventory and other assets.
=1 Figures in thousands (except per share data.)