Subject:  FAO to Close Stores as Holiday Sales Disappoint |
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BADNEWS
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Date Posted: 17:16:09 12/17/02 Tue
FAO to Close Stores as Holiday Sales Disappoint
December 17, 2002
FAO Inc. (FAOO), facing slower than expected holiday sales and a liquidity crunch, plans to close some stores and raise additional funds in January.
The company, which owns FAO Schwarz, Zany Brainy and Right Start stores, said its net loss more than doubled for its fiscal third quarter ended Nov. 2, to $23.6 million, or 66 cents a share, from $9.9 million, or $4.07 a share, for the year-earlier quarter.
Same-store sales were down 20% from the prior year, the company said, including a 25% decrease at Zany Brainy and a 10% decline at FAO Schwarz. The company had net sales of $83 million, compared with $57 million a year earlier -- prior to Right Start's acquisition of FAO Schwarz and including only some sales of Zany Brainy, which was acquired in September 2001 out of bankruptcy court. Shares outstanding for the latest period totaled 35.8 million, compared with 7.3 million a year earlier.
In a conference call, Chief Executive Jerry Welch told analysts that same-store sales for December were down in the "mid-single digits" this year compared with 1996, the last year with such a short shopping season. He declined to make a sales comparison with last year. Also, the King of Prussia, Pa., toy retailer's bank, Wells Fargo Retail Finance LLC, has placed new borrowing restrictions on its credit line, Mr. Welch said, limiting the company's spending ability.
FAO began canceling orders for December to limit its inventory buildup. With cash tight, it owes its top 20 suppliers between $9 million and $10 million, Mr. Welch said.
To cope with the liquidity crunch, FAO plans aggressive sales beginning Dec. 26 to quickly shed inventory. It also plans to hire an investment bank in January to raise funds to shore up its balance sheet. Mr. Welch wouldn't be specific about how many stores the company plans to close, but he said each chain will be reviewed, and "we're going to go through those which can't demonstrate success in the long term," he said.
Two weeks ago, FAO warned it didn't plan to meet its already reduced indications for the fourth quarter. Monday, Mr. Welch declined to project what sales may reach for the year, but he confirmed the retailer wouldn't be profitable.
Wall Street Journal Staff Reporter Lisa Bannon contributed to this report.
(END) Dow Jones Newswires
12-17-02 0348ET
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