Byline: Valerie Seckler

NEW YORK--Battered by deep markdowns to keep cash flowing and avoid bankruptcy, Broadway Stores said Tuesday that it lost $37.4 million in the second quarter, versus a year-ago loss of $13 million.
The loss of 80 cents per share was nearly triple Wall Street's average loss estimate of 29 cents.
After Federated Department Stores said on Aug. 14 it had agreed to a stock-for-stock merger with Broadway, Broadway officials said they expected "an immediate return to a normal trade situation."
However, credit executives and financial analysts said Tuesday that some suppliers are maintaining a wait-and-see stance toward shipping Broadway. Reportedly, merchandise is thin at the stores.
"We're waiting to hear from Federated on how the trade is going to be secured," said a factoring executive. "Federated has to make the trade comfortable for goods to be shipped to Broadway, because if the deal falls through, suppliers will be stuck."
A Federated spokeswoman said Tuesday, "At this point, we're not planning to do anything before the merger is finalized, beyond our statement of Aug. 16 that we're providing credit support to Broadway to increase the size of Broadway's working capital line to $250 million."
Federated, which operates 454 department, specialty and clearance stores producing annual sales of $14 billion, expects to close the deal in October.
Sales in the quarter ended July 29 edged up 0.8 percent to $460.6 million from $457 million, while same-store sales slipped 1.2 percent.
Heavy promotions cut Broadway's gross margin to 23.6 percent from 26 percent, while operating costs expanded to 30.1 percent of sales from 28.6 percent.
"They were bleeding off inventory at the expense of gross margin, to make sure they weren't in such a dire cash position," said Thomas Friedberg, analyst at Genesis Merchant, San Francisco.
Nevertheless, Friedberg noted, the chain paid down its working capital line in the second quarter by about $40 million from the $96 million in short-term capital outstanding at the end of the first quarter.
For the six months, Broadway had a net loss of $80.7 million, compared with a loss of $30.9 million in the first half of 1994. Sales eased 0.4 percent to $884.6 million from $888.1 million as same-store sales fell 4 percent.
Friedberg estimated Broadway will lose $2 per share or $94 million this year. It lost $37 million in 1994. Friedberg also said Federated's merger with Broadway means it "could outsell May Department Stores by $1 billion in Southern California, beginning in 1997."
Broadway's Southern California division generates annual sales of $1.1 billion, said Friedberg, noting, "Federated believes it will keep $1 billion-plus in Broadway sales in Southern California."
The analyst added that by 1997, Federated could capture 60 percent of the Southern California department store market, with May Co. snagging most of the balance. Two years ago, May Co. held about 40 percent of the market, Broadway, 30-35 percent, and Federated, 25-30 percent, Friedberg estimated.
Robert Buchanan, analyst at NatWest Securities, projected profits from Broadway's California units will hit $60 million in their first year of Federated's ownership. After renovations, he sees the stores producing operating income of closer to $100 million.
In an Aug. 15 research report, Buchanan reiterated his belief that the roughly $1.5 billion Federated paid for Broadway Stores was too much, since the units to be retained produce annual sales of $1.4 billion and need renovation. However, Buchanan noted, the $65-$70 per square foot to renovate the 50 or fewer of Broadway's 82 stores to be retained "is more than justified" due to underinvestment in the past. Federated operates 36 Macy's stores in northern California and 20 Bullock's stores mostly in the southern part of the state, which churn out combined annual sales of around $2.5 billion.
--Fairchild News Service

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