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Pre-Christmas Retail Casualties Mounting

Sports Bar Operator and Women’s Retailer File for Ch. 11 Bankruptcy; Toys R Us Reports Huge Loss
December 18, 2013
Every year it seems a few careworn retailers can’t seem to make it through the holiday shopping season and have to take early drastic measures to pull off a turnaround. This year is proving no different.

Wichita-based F&H Acquisition Corp. filed for Chapter 11 bankruptcy reorganization through a potential sale of the company. The company operates 101 sports-themed restaurants and oversees 11 franchised restaurant locations in 27 states. Brands include Fox & Hound, the Bailey’s Sports Grille and Champps.

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Also filing for chapter 11 protection this past week was Loehmann’s Holdings Inc. This is the third (and perhaps final) go-around in bankruptcy for the Bronx, NY-based chain of 39 women’s retail stores, which said it intends to wind-down and liquidate its stores through a joint venture among SB Capital Group, Tiger Capital Group and A&G Realty Partners.

And while internationally recognized toy retailer Toys ‘R’ Us has not announced a restructuring, the Wayne, NJ-based firm this week reported falling sales and earnings for its third quarter, (which does not include the critical holiday shopping period.)

Comparable store net sales for the toy retailer were down 5.2% in the U.S. Its net loss for the third quarter was $605 million, compared to a net loss of $105 million in the prior year.

Game Over for F&H?

In recent years, the restaurant industry was deeply affected by the significant U.S. economic downturn and increased food costs. While new advertising campaigns, operational improvements and cost-cutting implemented by F&H Acquisition successfully mitigated certain negative effects on their businesses; it was not enough, according to documents in the company’s bankruptcy filing.

In late 2012, F&H’s liquidity position deteriorated, and it struggled to meet its debt service obligations and ended up defaulting on its loans.

Since February 2013 F&H explored strategic alternatives before deciding that a chapter 11 filing, coupled with an expedited operational restructuring and an efficient sale of its assets, was the best and most efficient way to best preserve the jobs of its employees.

Although the chain has been unable to secure a stalking horse bidder, together with investment banker Imperial Capital, it plans to continue to explore a possible sale.

Third Time Won’t Be a Charm

Following emergence from bankruptcy in 2000 and again in 2011, Loehmann’s implemented strategic and operational initiatives that had initially yielded positive results, including improved inventory turnover, reduced expenses and attracting previous customers.

Notwithstanding these initiatives, Loehmann’s stores continued to see declining sales and it now intends to wind-down operations and liquidate its stores. It is asking the court to commence store closing sales by no later than Jan. 7, 2014.

Loehmann’s leases a 44,250-square-foot facility in Bronx, NY, which serves as its corporate headquarters under a lease that expires in 2017. It also operates a 404,000-square-foot centralized distribution center in Rutherford, NJ under a lease that expires in 2022.

Loehmann’s leases all of its retail store locations with leases that have expiration dates ranging from 2014 to 2033. Loehmann’s average traditional store size is approximately 37,600 square feet and the rental rate is typically a fixed amount rather than a percentage of a store’s sales. Loehmann’s retail store lease obligations are approximately $2.13 million per month.

Not Toying Around

After Toys “R” Us reported financial results for the third quarter ended Nov. 2 this week, senior executives acknowledged the numbers weren’t good.

“Our operating results in the third quarter were positively impacted by improved operating earnings at our International segment versus the prior year, but this was more than offset by the adverse impact of sales weakness on the operating results of our Domestic segment, which resulted in an overall decline in profitability,” said Antonio Urcelay, chairman and CEO of Toys “R” Us.

“Now, in the heart of the Christmas selling season, the team is fully focused on executing our holiday strategy and leveraging our strong in-stock position on the season’s hottest toys. As we continue to respond to changing consumer shopping habits, we are benefiting from our enhanced omnichannel capabilities, as well as recent improvements made to our mobile shopping experience,” Urcelay said.

The company ended the third quarter with $1.9 billion of liquidity. Through the end of the third quarter, it was continuing to invest - $175 million primarily for store-related projects, opening of new stores and improvements to information technology and logistics systems and capabilities, compared to $215 million in the prior year.

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