Bradlees fends off Ch. 11 rumor

Discount Store News, June 19, 1995 by James Mammarella

BRAINTREE, MASS. -- Memorial Day was no picnic at Bradlees. Its stock lost 30% of its value in the last week of May, falling from $7.50 to $5.13 as rumors of an allegedly impending bankruptcy spooked Wall Street. Meanwhile, in the garment district, credit rater Jim Rice of Bernard Sands Credit alerted the 75 to 100 of his clients who wholesale apparel to Bradlees to "cut your goods, but hold shipments" for a week or two, until the financial picture cleared.

One precipitating event: Bradlees' announcement on the eve of its May 24 annual meeting that it would not pay its usual $0.15 quarterly dividend, would not open five new stores in 1996 and would report a first quarter loss of at least $2.25 per share. This news followed a May 23 alert by Standard & Poor's, lowering Bradlees' long-term debt rating (see DSN, June 5, 1995, page 3).

The next event: CNBC reporter Dan Dorfman, referring to three unnamed sources and to consultant Edward Johnson of Johnson Redbook Services, broadcast May 26 that the chain was on the brink of bankruptcy.

"My words were expanded by Dorfman," Johnson told DSN.

Bradlees chairman Mark Cohen called the report "irresponsible and inaccurate." He said, "Bradlees is a turnaround company in its first stage of transition." He decried the rumors, saying, "It is unfortunate that unsubstantiated and speculative commentaries have such negative impact on shareholder value."

For Bradlees vice chairman Peter Thorner, it was familiar territory. He accelerated the effort to land a better, asset-based credit facility, taking time out only to massage analysts, factors and vendors by telephone. By June 6, he won a preliminary victory: the chain's current bank group, led by Bankers Trust Co., said it would waive any restriction that might arise from non-compliance with covenants under the revolving credit agreement as a consequence of the negative first quarter results.

Observers recalled Thorner's success in reassuring vendors and financiers at a critical phase of Ames Department Stores' emergence from Chapter 11 several years ago. "He is adroit at assuring people about the viability," said retail analyst Walter Loeb, who sat on Ames' board during that period, "and the sincerity is there."

Meanwhile, Cohen emphasized that Bradlees will revamp--not close--a number of its smaller, less productive stores. The only stores slated for liquidation are its two units in southeastern Virginia that are sited outside the chain's area of concentration; Bradlees has no other stores south of Pennsylvania or New Jersey.

Bradlees needs time to remake itself, but it must start showing sales increases soon. To obtain the solid inventory it needs to spur sales, it must assuage vendors' concerns.

Loeb said that Cohen and Thorner must act quickly to ensure a strong in-stock position for the Back-to-School season, but remarked that by virtue of the 136-store chain's 52% soft lines position, "they can flow in faster" than a retailer more reliant on hard lines.

Time is short. On June 1, Bradlees announced that comp store sales were down 6% in May, in contrast to many other chains' May rebound. Securing a new credit facility is a key goal, but it must be followed by getting more customers into the stores -- and leaving with smiles on their faces and shopping bags full.