NEW YORK -- Striving to emerge from bankruptcy as an independent, public company as quickly as it can, R.H. Macy & Co. said Wednesday it will file its reorganization plan on June 30 and has fine-tuned its business plan. The company's objectives...
NEW YORK -- Striving to emerge from bankruptcy as an independent, public company as quickly as it can, R.H. Macy & Co. said Wednesday it will file its reorganization plan on June 30 and has fine-tuned its business plan. The company's objectives were disclosed to Wall Street analysts at a meeting in the Waldorf-Astoria. The presentation was designed to build support for the chain and entice potential investors. Compared to the original business plan issued in May 1992, this version projects more conservative sales growth but further expense reductions leading to stronger gains in earnings as a percentage of sales through fiscal 1999. The old plan made projections through fiscal 1998.
"They [Macy's] came off very confident," said Peter Schaeffer of Dillon Reed, one of 100 analysts who attended the meeting. "They seem to have the creditors on their side."
"It gave potential investors more of a feeling for the company by providing a lot of background," added analyst Walter Loeb, who felt the meeting "came off very well." Sources said Myron E. Ullman, Macy's chairman and chief executive officer, said little about Federated Department Stores, which is seeking a hostile takeover of Macy's. Many retail observers are waiting for Federated to make another move on Macy's, possibly breaking out a proposal with improved payouts, and eventually a full-blown reorganization plan. If the payout is rich enough, the court would have to consider Federated as an alternative.
Federated issued an initial proposal May 9, but bondholders are backing Macy's latest reorganization proposal, an enhanced package also issued May 9. In addition, court-appointed mediator Cyrus R. Vance last month reaffirmed Macy's exclusivity rights, which expire Aug. 1, in effect tossing aside other proposals as inadequate. Exclusivity gives Macy's the advantage of filing a plan before any other party. That's an appealing element to creditors, who want a payout as soon as possible.
On Wednesday, Macy's released its timetable for recovery. It said it will distribute the full text of its revised business plan Aug. 1, get its reorganization plan confirmed Nov. 30 and emerge from bankruptcy Jan. 31, 1995.
In the new business projections, Macy's sales growth is more conservative -- from $6.2 billion in the year ending July 31, 1994 to $8.4 billion for the year ending July 31, 1999. The old plan projected sales at $6.59 billion for fiscal 1994 to $8.53 billion for fiscal 1998. In the new plan, comparable-store sales gains rise to 4.3 percent in fiscal 1999 from a negative 1.9 percent in fiscal 1994, while the old plan showed comparable-store sales rising to 6.6 percent in fiscal 1998 from 5.5 percent in fiscal 1994.On the other hand, lower operating expenses could brighten the picture. The revised plan sees operating expenses as a percentage of sales ranging from 34.1 percent in fiscal 1994 to 30.2 percent by fiscal 1999. Previously, Macy's forecast operating expenses falling from 34.6 percent in fiscal 1994 to 31.3 percent in fiscal 1998. Macy's has already drastically dropped its employment from 70,000 in August 1991 to about 48,000 at the start of this year.
Under the latest plan, EBITDA gains over the next five years would go from 7.7 percent of sales to 10.8 percent. The old plan had EBITDA rising to 9.6 percent in fiscal 1998 from 5.4 percent in fiscal 1994.
Gross margins are seen as stabilizing, and the forecasts are roughly the same in both plans, ultimately reaching 40.9 percent in fiscal 1998. The new plan sees gross margins reaching 41 percent for fiscal 1999.
Ullman outlined the possibility of rolling out current store formats on a limited basis, including 50,000-square-foot freestanding men's wear stores. The firm operates just five freestanding men's units of that size on the West Coast and will be exploring opportunities in other parts of the country.
The company also operates eight 3,000-square-foot stores specializing in women's large sizes. Ullman believes more could open.
In addition, he said, Macy's private label merchandise could grow, reportedly from a current 15 percent of the chain's total inventory to a couple of points higher in the next few years.
Macy's also plans new department stores in Tampa and The Falls, both in Florida, and is considering Boca Raton as well. Other openings are slated for Providence, R.I., Norfolk, Va., and Nashville, Tenn.
Ullman reportedly presented Macy's as being more aggressive in negotiating with developers to lower occupancy costs at certain locations and help finance store renovations. Macy's, which operates 111 department stores, has generally kept its stores in good shape, and has only about a dozen stores said to be suffering from high occupancy costs and low sales per square foot. They include units in New Orleans, Baltimore, Washington and parts of Texas and California.
Macy's is in a strong bargaining position with developers since, under bankruptcy law, it's easier to break leases and close weak units.Separately, The Blackstone Group LP, Macy's financial advisers, has filed a fee application for $525,000 in compensation and $24,000 in expenses for work from February through April.
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