Crown Books files Chapter 11, unit closings inevitable

Discount Store News, July 27, 1998

LANDOVER, MD. -- The family feud that Herbert Haft started when he was riding high as head of the Dart Group has destroyed his family and now has all but destroyed Crown Books, once the crown jewel of Dart.

As widely expected after two months of warning, Crown filed Chapter 11 on July 15 with its stock trading at less than 35 cents per share, compared to a 1996 high of $16.

Listing assets of $130.5 million and liabilities of $100.5 million, Crown immediately hired Zolfo Cooper LLC as financial advisor.

As part of its reorganization, it also hired Young Conaway as bankruptcy counsel and Montgomery McCracken as special litigation and securities counsel, said Steve Pate, Crown vp of operations.

The bankruptcy court approved interim debtor in possession financing of $40 million supplied by Paragon Capital and Foothill Capital.

The Chapter 11 financing permits Crown to pay in full CIT Group/Business Credit the money owed prefiling, as well as increasing liquidity.

The financing "will ensure that Crown will be able to reorganize as a going concern, Anna Currence, president and coo said in a release.

A company source said that Crown probably will close some of its 179 stores as part of its recovery efforts.

Almost out of cash and credit, Crown had little choice but to file after efforts to sell the chain collapsed. Stockholders are unlikely to recover their losses.

In an SEC filing last month, Crown disclosed that its cash had shrunk to $6.1 million as of May 2, down from $13.9 million. And it had exhausted $23.1 million of its $25 million line of credit. Even worse, its major supplier, Ingram Book, was shipping only on a cash-in-advance basis and sued to recover $10.1 million owed for past deliveries.

The cash crunch has left most Crown stores half-empty of merchandise, worsening its cash flow problem.

Besides Ingram, other major creditors are: Penguin USA, $1.2 million; MacMillan, $810,793; New American Library, $608,714; Berkley Publishing, $570,397; Bookazine, $513,243; Publisher Resources, $396,951; Pocket Mass, $380,230; Random House Value, $254,188; St. Martin's Press, $358,031; and Avon Books, $385,284.

Also: Aramark Maryland, $322,400; Random House, $392,474; Bantam, $242,903; Ballantine Mass, $306,883; Simon & Schuster, $233,465; General Publishing, $231,778; Workman Publishing, $303,750; Innovative Alliance, $241,146; and Book Sales, $243,587.

Crown changed hands in May when Richfood Holdings, a grocery wholesaler, bought the Dart Group. But Richfood was interested only in Dart's 37 supermarkets operating as Shoppers Food Warehouse.

Within days of taking title, Richfood spun off Total Beverages, Dart's five-unit liquor store chain, and announced it would divest both Crown and Trak Auto, another money losing Dart chain.

Richfood had been talking with a liquidator, New York-based First Lincoln Holdings, about selling the chain for liquidation. When those talks collapsed, Richfood filed.

"We weren't able to generate any interest," said Richfood chairman John Stokely. "We felt that the best thing to do was give Crown a chance to reorganize itself."

Crown was based on the 1977 graduate school thesis of Robert Haft, son of the Dart Group founder, Herbert Haft, and his heir apparent.

Offering discounts of 40%, Crown became a hit in the Washington, D.C., area and gained a national following as it expanded to the Midwest and the West. But Haft touched off a family feud when he rescinded plans to turn the Dart reigns over to his son, Robert, and then fired him. During years of court battles over the firing and a bitter divorce fight with Haft's wife, Gloria, that resulted, no one was minding the store.

And in the early 1990s, when Borders and then Barnes & Noble entered Crown's home market in Washington, Crown began posting losses in 1994: a loss of $19.3 million on revenues of $305,606.

It made a net of $3.7 million in 1995 but lost $0.9 million in 1996 and lost $48.7 million in 1997 on sales of $297.5 million.

In 1994, comp store sales began a downward spiral that started at a negative 2.5% and worsened to a negative 5.9% last year.

Another ominous factor for Crown: it is still developing a plan to deal with Year 2000 computer problems and said there is no guarantee it will be able to devise and implement a plan by the time Jan. 1, 2000 rolls around despite spending an estimated $600,000 in 1999.

Crown now operates 179 stores, down from a peak count of 240 in 1994.