Ames faces final deadline - reorganization

Discount Store News, Jan 6, 1992

Ames Faces Final Deadline

ROCKY HILL, Conn. - Comparable store sales were up against a dismal 1990 at Ames Department Stores during the third quarter, although sales overall dipped slightly to $708.3 million from $740.2 million.

Total sales for the nine months also dipped to $2.1 billion from $2.3 billion, primarily due to 13 store closings earlier this year and the exclusion of October results of 77 other stores scheduled to be shuttered after Christmas.

Losses totaled $196.3 million for the quarter and $290.5 million for the nine months, but about half of that was due to restructuring charges in the third quarter involving the store closings. Chief financial officer Peter Thorner predicted that fiscal 1992 operating losses "will not exceed $80 million to $90 million."

Chairman Stephen Pistner projects a small profit before taxes, restructuring charges and Chapter 11 expenses during the fourth quarter.

Ames faces what is likely a final deadline Jan. 10 in submitting a plan of reorganization to the Bankruptcy Court. Prepetition bank lender Citibank had unsuccessfully challenged Ames' period of exclusivity (its ninth extension), during which the retailer retains exclusive rights to propose suggested reorganization plans, and is then subject to creditor and court approval. Citibank, in a motion filed in November, charged that the protracted length of Ames' exclusivity period had resulted in potential recoveries being diminished by "excessive" legal, investment banking and other fees.

Ames, supported by its Unsecured Creditors Committee and its Employees Committee, contended that vacating the exclusivity period would irreparably harm the chain by throwing ongoing negotiations into disarray, that the exclusivity period would expire in January anyway and was unlikely to be extended again, and that disruption during the Christmas selling season would be disastrous.

Judge Peter Leisure of the District of Southern New York agreed with Ames, and was particularly convinced by the Christmas argument. "A termination of the exclusivity periods now would likely have a disruptive effect on the Ames Group's business operations during one of the retail industry's most crucial selling periods," he wrote. "Giving the Ames Group another seven weeks in which to file its own reorganization plan will not only avoid such a disruption in the Ames Group's operations but will also allow the Ames Group to factor its Christmas season sales results into a proposed reorganization plan."

Ames' Thorner noted that early fourth quarter results have been encouraging despite a continuing recession in the Northeast. "In November, we had the second highest same store sales increases in the industry, after Wal-Mart," he said. "And, the 371 stores we'll retain after the announced closings are all profitable on a four-wall basis."

Thorner added Ames plans to file its reorganization plan "on or before Jan. 10," but could not speculate on when the chain would emerge from Chapter 11. "We're seeing a lot of good signs," Thorner continued. "Our new strategies [specialty destination departments in crafts, fine jewelry and H&BC] have been successful where tested, our inventories are coming down and will be on plan by the end of Christmas, and we totally cleaned up our revolving credit [seasonal borrowing declined to $30 million for the holiday season from $72 million a year ago] 10 days early."