Feeling the heat from a lackluster retailing environment that’s been especially tough for men’s tailored clothing, S&K Famous Brands Inc. may be running out of options in its battle to stay in business.
This story first appeared in the December 3, 2008 issue of WWD. Subscribe Today.
Credit sources said this week that liquidation was a possibility as the retailer struggles with tighter credit in general and, in its own operations, declining sales, mounting losses and a poor cash position. One credit contact said the retailer has delayed paying some vendors, while another said S&K’s bank is becoming more involved in operations in response to limited availability under its loan facility.
Neither Joseph Oliver 3rd, chief executive officer, nor Richard Hardy Jr., vice president of finance, returned calls Tuesday to comment on the firm’s financial situation.
Rumblings about the health of the Richmond, Va.-based specialty store chain have persisted since the summer. In July, the company hired turnaround firm Alvarez & Marsal and, seeking annual overhead reductions of $3.3 million, eliminated 50 full-time positions in its corporate office.
The retailer’s long-term debt on Aug. 2 was $20.6 million, up from $17.5 million a year ago. Cash and cash equivalents were $1.4 million, down from $1.9 million a year earlier.
Oliver, who hired Alvarez & Marsal, said in August that suits still represented nearly half of S&K’s volume. One bright spot for the company had been the tuxedo rental business, Oliver said then.
An executive from one longtime suit vendor said he wasn’t surprised to hear of S&K’s mounting difficulties. “Any retailer dependent upon tailored clothing is challenged in this market, especially one like S&K that relies heavily on private label brands,” he said. The company continues to ship goods to S&K but has demanded cash payments for a few months.
A check of S&K suppliers found that those still shipping to the chain are requiring cash payments and one, attempting to work down accounts receivable, is even billing the firm $2 for every $1 shipped.
Last year, S&K suffered a $3.9 million loss versus a $2.8 million profit in the prior year as sales declined 14.2 percent to $157 million from $183 million in 2006. Same-store sales contracted 12.1 percent. In the second quarter ended Aug. 2, the loss reached $4.1 million, or $1.85 a diluted share, from a deficit of $1.2 million, or 54 cents, in the year-ago period. Sales in the quarter fell 7.3 percent to $33.7 million from $36.3 million, while same-store sales declined 5.4 percent.
The company listed second-quarter charges of $796,000. The charges weren’t specifically detailed, but S&K said it had incurred restructuring costs due to personnel cuts and the hiring of Alvarez & Marsal.
For the six months, the loss was $5.5 million, or $2.49 a diluted share. Sales fell by 10 percent to $74.8 million from $83.1 million.
S&K, which operates more than 200 stores in 25 states, was founded in 1967 and went public in 1983.