NEW YORK -- Woolworth Corp., hit by huge writeoffs and sluggish operations, has a new problem -- accounting irregularities.

The $9-billion-a-year general merchandise and specialty store retailer said Wednesday that it will restate its financial results for the year ended Jan. 29 and may have to restate interim results for the prior year.

While Woolworth said it did not expect the statements to have an impact on the results for both years, the company has retained a law firm and an accounting firm to investigate charges of accounting discrepancies.

Woolworth currently operates about 8,300 stores, including 7,400 specialty stores and 960 general merchandise units.

Specialty formats include Foot Locker, Lady Foot Locker and Champs Sports, which carry athletic footwear and activewear; Afterthoughts/Carimar, accessories, and in Canada, two women's apparel chains -- Northern Reflections and Northern Traditions.

The company said the problem appears to be focused on gross margins and that the restatement would reflect corrected margins. It also admitted that it "is not in a position at this point to estimate the amount of any required interim restatements."

A special committee of outside directors has been appointed to investigate the alleged accounting irregularities and the procedures that resulted in the need for restatement.

Edward Johnson of Johnson Redbook Service said that it is difficult to assess the damage "because we have so little information."

"But," he added, "it does remind me of the Leslie Fay Cos. situation." About a year ago, Leslie Fay announced that it was investigating accounting irregularities that could wipe out all profits reported for 1992. As it turned out, not only were the profits wiped out, but large losses were discovered and the company ended up filing for Chapter 11.

The Woolworth announcement prompted Moody's Investor Service to review for possible downgrade the ratings on $1.5 billion in Woolworth debt. The Moody's review will focus on the results of the restatement and details of possible weaknesses in Woolworth's internal controls.

Woolworth currently carries a BAA1 Moody's rating on long-term debt and prime-2 rating on commercial paper. Moody's noted that it was possible the review would result in confirmation of the ratings.Standard & Poor's, which said it has had Woolworth on CreditWatch since March 7, said Wednesday that the latest announcement increases the chances of a deeper downgrade. Despite a Woolworth statement that it did not believe there will be a material impact on its financial condition, "the investigations involve the integrity of financial management and may reveal deeper problems than initially anticipated," S&P said.

The special committee is headed by John W. Adams, chairman of the audit committee and a Woolworth director since 1981. He has retained Paul, Weiss, Rifkind, Wharton & Garrison to work with the committee, and Paul, Weiss has retained KPMG Peat Marwick to help in the investigation. A Woolworth spokeswoman declined to provide more information on the accounting irregularities, stating, "The release speaks for itself."

In its last financial report, Woolworth showed a loss of $495 million for the year ended Jan. 29 on sales of $9.6 billion. The loss included $630 million in charges for shutting down or reformatting 970 stores.

There was also a charge of $168 million to cover the loss on the sale of 120 Woolco stores in Canada to Wal-Mart Stores. Before the special items, Woolworth reported an operating profit of $145 million in the latest year, against $574 million a year earlier.

Woolworth stock closed at 17 1/8, down 7/8 on the New York Stock Exchange Wednesday.

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