MGRE REVEALS 3-YEAR PLAN FOR COMING OUT OF CHAP. 11

Byline: Carol Emert

NEW YORK--Hoping to emerge from bankruptcy protection in June, Merry-Go-Round Enterprises Inc. unveiled a three-year business plan Tuesday that emphasizes cost-cutting, including chopping its 700-member vendor list by more than half.
It also indicated an 18.3 percent total sales drop in fiscal '95 to $784 million, mostly due to store closings, and a 15.5 percent drop in fiscal '96 to $662 million.
Total sales grow slightly to $691 million in fiscal '97 and $727 million the next year. Comparable-store sales are seen down 17.7 percent in fiscal '95. For the three years following, the figures rise 10.5 percent, then 4.3 percent and 5.2 percent. Same-store sales are based on 1,230 stores in fiscal '95, and around 990 the following three years.
During a presentation here on the plan, executives from the Joppa, Md.-based chain, which has been in bankruptcy proceedings for a year, also said they intend to cut selling costs by 10.5 percent and management expenses by 20 percent.
In an interview, Wilbur Ross, senior managing director of Rothschild Inc., the adviser to the firm's equity committee, called the sales projections "very disappointing." "This does not look like much of a turnaround," he said.
Ross also complained that same-store sales growth projected for the next three years barely makes up for the 17.7 percent drop in same-store sales in fiscal 1995, not to mention the 12.6 percent plunge in fiscal 1994.
During the presentation, however, Thomas Shull, chairman and ceo of MGR, defended the estimates as very conservative. "We haven't met a plan in about two years," he said. "We need to establish our credibility. We fully intend to beat this plan." In the longer term, the firm expects to generate sales of about $1 billion in 2000, and its "ultimate goal is a 10 percent pre-tax profit," said Isaac Kaufman, chief financial officer.
Executives said the company maintains a strong real estate portfolio, strong franchises and a reliable customer core. Virtually all of the company's 991 stores - down from 1,231 a year ago - are profitable, they said.
The execs said a smaller vendor base will lead to a more focused and narrower merchandise mix.
"When you carry 5,000 skus [in a 3,000-square-foot store], you can't make a statement," James Kenney, MGR president, said, referring to the chain's profile over the past year.
For spring, MGR will focus on a handful of key items that are expected to account for about 25 percent of sales.
These key items include short skirts, crop tops and jumpers for women at the Merry-Go-Round division and suits and dresses at the Cignal division.
Kenney said that Merry-Go-Round, at 475 stores, has peaked, but Cignal could expand from its current 72 stores to 150 locations across the U.S.
Other components of the business plan include:
Expanding private label, including resurrecting the IOU label this spring, and rolling it on a bigger scale in the fall.
Staging in-store promotions each month, beginning in April, to boost sales.
Relying on consumer research, rather than gut instinct, to identify hot fashion trends.
--Fairchild News Service

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