Sales plummeted again last month at Merry-Go-Round Enterprises Inc., and the company's continuing poor results are sparking speculation that the bankruptcy reorganization plan it filed earlier this year will have to be amended.
The Joppa-based national fashion chain, which entered bankruptcy proceedings in January 1994, reported yesterday that same-store sales fell by 13 percent compared with May 1994.
The company hasn't reported monthly same-store sales gains for well over a year. Its best month since its bankruptcy filing was April, when comparable-store sales were flat compared with April 1994.
"Merry-Go-Round is in a continuing state of collapse," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York retail consulting firm. "There's no change."
Its May results, reported yesterday, represent a further decline from a same-store sales drop of 24 percent in May 1994.
"We were disappointed in the sales for the month," said James Kenney, Merry-Go-Round's president and chief operating officer. "The unseasonably cool weather for May probably helped limit sales for some of the summer transition merchandise." Mr. Kenney pointed out that other specialty apparel chains also reported disappointing sales for last month.
The positive news is that Merry-Go-Round has been reaching the cash-flow targets in its business plan, thanks to deep cost-cutting since November by Mr. Kenney and CEO Thomas Shull. But it still lost $19.2 million in the quarter that ended April 29, the company said yesterday.
And it must achieve very solid back-to-school and Christmas results to meet financial goals for the year.
Merry-Go-Round presented a business plan several months ago with targets of $31 million in positive cash flow for the year ending next January and 10.5 percent growth in same-store sales. Cash flow -- earnings before interest, taxes, depreciation and lawyer's fees -- was negative $8.5 million in the April quarter.
Merry-Go-Round's reorganization plan would give creditors up to $130 million in cash and unsecured debt and 75 percent owner
ship of the chain. Present shareholders would get 25 percent of the new stock.
Increasingly, though, there is informal talk among creditors that a reorganized Merry-Go-Round might not be financially strong enough to support the debt prescribed in the plan, say people close to the company. The solution: Give creditors more ownership in the new company and give present shareholders less.
Privately, supporters of management and present shareholders downplay such talk. They argue that the company is still fine-tuning its merchandise and could generate a sales recovery for summer and fall. None would speak on the record.
However, independent retail analysts note that Merry-Go-Round managers have been predicting a sales turnaround since before the bankruptcy filing. It hasn't come.
Long-term debt of, say, $100 million, as provided for in the reorganization plan, would generate annual interest costs of roughly $10 million.
Merry-Go-Round wouldn't be profitable now even if it had no interest expense.