Despite a healthy sales increase in the week before Easter, Merry-Go-Round Enterprises Inc. has decided to delay its exit from bankruptcy proceedings, perhaps until fall, and may close dozens more poorly performing stores.
The Joppa-based national retailer said yesterday that it will miss its June 30 target for obtaining a judge's confirmation of its plan to emerge from the Chapter 11 bankruptcy process. The reason: lenders need more evidence that Merry-Go-Round can earn money before they'll finance a reorganized company.
April sales for the boutique chain have been relatively healthy, prompting cautious optimism among creditors and big shareholders. Revenue in stores open for at least a year popped by 27.2 percent in the week before Easter, one knowledgeable source said.
That was possibly the best weekly performance since Merry-Go-Round sought bankruptcy protection in January 1994, the source said. Merry-Go-Round Chairman Thomas Shull declined to disclose sales figures but said, "we feel we'll do well overall in April."
Even so, sales for January through March were poor. Merry-Go-Round continues to lose money. And lenders have said they want to see the company meet the sales and cash-flow targets in its business plan for several months in a row.
The apparel retailer's reorganization scheme calls for an unspecified amount -- perhaps up to $100 million -- in operating loans.
"Our initial feedback from the banks is that they'd like to see eight to 12 months of consistent performance to plan," Mr. Shull said in an interview. "If you're operating on that framework, then October is probably the earliest we could achieve our exit financing."
One knowledgeable source said that Merry-Go-Round will close more poorly performing stores and that managers have identified 50 or 60 locations as likely candidates.
Mr. Shull confirmed that more closings are being considered. "The number isn't as high as 50," he said, and added that managers won't act until April results have been analyzed.
Merry-Go-Round operates about 1,000 stores bearing the names Merry-Go-Round, Dejaiz, Attivo, Chess King and Cignal, all of them in malls. It already has shed 400 locations.
Mr. Shull dismissed a suggestion that Merry-Go-Round's reorganization plan, which would give 75 percent of the company to creditors and 25 percent to existing shareholders, might be jeopardized by the delay and spotty operating results. The plan "is very viable," he said. "The only issue is the timetable."
Wilbur Ross, senior managing director of investment bank Rothschild Inc., is advising Merry-Go-Round's shareholder committee. "We would have preferred them to be right on schedule, but it's not the end of the earth," he said yesterday.