Men’s specialty retailer S&K Famous Brands Inc. on Monday filed a Chapter 11 petition for bankruptcy court protection.
The filing was in a Richmond federal bankruptcy court.
The 136-unit chain said it filed for Chapter 11 to restructure the firm’s capital structure and business operations. In July, the company hired turnaround firm Alvarez & Marsal and, seeking annual overhead reductions of $3.3 million in response to growing losses and tightening credit, eliminated 50 full-time positions in its corporate office. The company has faced an uphill battle against shrinking demand and limited financing since then.
According to an affidavit filed in the bankruptcy case by Richard H. Hardy Jr., vice president of finance and information technology, S&K sustained the first operating loss in its history — $3.9 million — in the just-concluded year ended Feb. 2. Income had fallen to $2.8 million in the year ended Feb. 3, 2007, from $3.9 million in the previous year.
The retail chain is seeking bankruptcy court approval of a $13 million debtor-in-possession financing facility provided by Wells Fargo. S&K had a prepetition $35 million credit agreement with Wells Fargo, with a current borrowing base of $8.5 million, of which it has drawn down $7.5 million. If approved, the company said it will use the money to “fund its working capital requirements, including employee wages and benefits, post-petition vendor payments and other operating expenses during the reorganization process.”
The company also said it “intends to continue operations without interruption during the Chapter 11 process, while its management team and advisers focus on executing the comprehensive restructuring plan announced in July 2008.” This included “consolidating” the store base — at the end of the summer, the company operated 219 stores in 26 states — reducing operating costs and tweaking its merchandise mix to decrease emphasis on tailored clothing in favor of sportswear and casualwear. The company’s tuxedo rental business is also seen as a bright spot.
Reports surfaced in early December that S&K was exploring various options, including a potential bankruptcy filing as well as liquidation. At the time, chief executive officer Joseph Oliver 3rd said the company was not planning to liquidate and that he believed it was “a viable go-forward business.”
In a conference call Monday afternoon, Oliver reiterated that statement, saying: “The goal is to go into Chapter 11 and get out as quickly as we can. This is not a path toward liquidation.”
He said the company has reduced its debt to $7.5 million from $24 million and has closed 80 underperforming stores. He said S&K “ran positive comps for holidays” and experienced “a 30 percent increase in store traffic” during that period.
Oliver noted that its bank, Wells Fargo, is “very aggressive,” but it expects to be able to pay off the debt by selling its headquarters building for $5.5 million as well as the inventory from 30 stores that will be liquidated, an asset Oliver said is valued at $2 million. Both these transactions are subject to bankruptcy court approval, he said, as well as higher bidders.
“Over the next 60 days, we will work quickly to recapitalize S&K,” he said, noting the goal is to “build a unique, contemporary men’s wear chain, one that will stand the test of time.”
The retailer was founded in 1967 by Hip Siegel and his brother-in-law Abe Kaminsky. It grew from 100 stores in 1990 to over 200 in 1997. S&K went public in 1983 and is currently traded over the counter on the pink sheets. Court papers said that as of Sept. 22, Stuart C. Siegel, chairman of S&K and Hip’s son, owned 15 percent of the company’s stock.
Hardy said erosion of vendor confidence, decreased consumer spending and the inability to obtain feasible lease settlements with some landlords contributed to the need for the bankruptcy filing.
In the petition itself, S&K listed total assets of $41.4 million, and total liabilities of $35.5 million.
Among the top 20 unsecured creditors listed in the petition are: GMAC Commercial Services Division, New York, $2.3 million; Enro Shirt/Fashion Prod Group, Chicago, $575,746; Vanetti Inc., Rancho Cucamonga, Calif., $465,358; Satphire Sportswear Ltd., New York, $429,272; Peerless Clothing, St. Albans, Vt., $413,411; General Growth Properties, Chicago, $254,439, and Milberg Factors, New York, $223,492.
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