LIFE IN CHAPTER 11: LOSSES, REVIVAL PLANS AT BRADLEES
Byline: Rich Wilner
NEW YORK — In the midst of a repositioning drive, Bradlees Inc. on Tuesday reported large losses and declining sales in the fourth quarter and year as it adjusted to heavy markdowns, a lackluster retail environment and life as a discounter reorganizing under Chapter 11.
Bradlees lost $13.6 million before interest, asset impairment charges, reorganization items and taxes in the fourth quarter ended Feb. 3. The net loss — including a $99.4 million charge related to the impairment of long-term assets, $44 million of reorganization costs and a $53.8 million income tax benefit — totaled $108.9 million.
Revenue fell 14.5 percent to $592.4 million in the quarter, with comparable-store sales down 17 percent.
In the year-ago quarter, before the chain filed for bankruptcy protection, Bradlees reported EBIT of $37.1 million and sales of $692.5 million. Interest and taxes cut net profit to $16.6 million, or $1.46 a share.
While calling 1995 a “difficult and extremely challenging year,” Mark A. Cohen, chairman and chief executive officer, said Bradlees has “moved aggressively” toward building its management team, reorienting its merchandising and operations strategies and improving its financial performance.
“We look forward to improved results in 1996,” Cohen said in a statement.
It is not uncommon, however, for retailers to experience a financial hit in the months following a Chapter 11 filing, as court-related expenses and stepped-up markdowns, aimed at bringing customers back into the store, are added to the balance sheet.
Bradlees, as reported, has redesigned its weekly sales circulars, eliminated some low-margin goods and added some higher price points in apparel. Its ads have also brought back “Mrs. B,” the chain’s spokeswoman during its successful run in the Eighties.
A spokesman for Bradlees, based in Braintree, Mass., said Tuesday the plan to add more higher-margin apparel lines has helped boost sales and fatten margins.
“We have seen early gross margin levels this fiscal year rise, not only above last year’s levels but above planned positions,” he said. He declined to specify the margin increases, saying those numbers were “still being crunched.” Neither would he name apparel items that are selling well.
The spokesman did say Bradlees has worked with vendors and suppliers to maintain pre-Chapter 11 payment terms. After filing for bankruptcy protection last June, Bradlees had to reestablish relationships with key vendors, some of whom had stopped shipping in the weeks leading to the filing. Initially, several vendors sought improved payment terms, which would have hurt Bradlees’ bottom line.
“We had no direct borrowings from our debtor-in-possession financing facility at yearend and had a cash and cash equivalents balance of $64 million,” the spokesman added.
Bradlees also disclosed Tuesday that it rejected leases for two stores that had been planned for this year: a 98,000-square-foot unit in Staten Island, N.Y., and an 80,000-square-foot store in Cheltenham, Pa.
Additionally, the spokesman said, Bradlees no longer plans to open a store at The Hub, 153rd Street and Third Avenue, in the Bronx. Bradlees had not signed a lease for The Hub location, but reportedly was negotiating for a 135,000-square-foot site.
“We’re concentrating on improving existing stores and operations,” the spokesman said.
The discounter opened three new stores and closed one since the end of the fiscal year. It plans to close 12 underperforming stores in May, leaving 124 stores.
Reflecting Bradlees’ recent promotional efforts and markdowns, gross margins dropped to 25.7 percent of sales in the fourth quarter from 28.4 percent. For the year, gross margins fell to 26.7 percent of sales from 29.9 percent.
For the year, Bradlees reported a loss of $122.3 million before interest, asset impairment charges, reorganization items and taxes compared with EBIT of $40.5 million. After the charges and an income tax benefit, Bradlees’ net loss totaled $207.4 million for the year, compared with a profit of $5.3 million, or 47 cents, in 1994.