Byline: Jeff Siegel

NEW YORK — Losses, sluggish sales and creditor infighting over the last 12 months has provoked speculation that Woodward & Lothrop won’t emerge from bankruptcy without selling off a large chunk of stores.
W&L, which filed for Chapter 11 in January 1994, has sold two stores since then — in Yonkers, N.Y. and Arlington, Va., feeding conjecture about selloffs. However, W&L has maintained that its goal is to emerge from bankruptcy independent and intact.
W&L reported soft sales numbers for the holiday period, prompting Rosemary Sisson, a retail analyst at Salomon Brothers Inc. to question W&L’s ability to compete against mega-retailers like Federated Department Stores.
“Woodies has great locations and has put money into its stores,” said Sisson. “But can any regional department store make it next to a $14 billion giant?”
Investors are also questioning W&L’s prospects for recovery. The prices of W&L’s unsecured bonds have plummeted to the low teens from about 20 cents during the summer.
“Clearly prices have come in because people are concerned whether it’s a viable concern,” said Robert Lynch, analyst at UBS Securities.
Other analysts mentioned Dillard Department Stores and Dayton Hudson as possible suitors for W&L properties, and noted that May Department Stores may be interested in the Wanamaker division. Wanamaker is a still a force in Philadelphia, where May Co. lacks a major presence. May Co. operates a Lord & Taylor unit in Philadelphia.
May Co. and Dayton Hudson declined to comment. Dillard did not return phone calls for comment.
W&L’s December sales, filed in bankruptcy court here, slipped 1 percent to $155.3 million from $157.8 million last year. Although earnings before interest and taxes rose to $25.2 million, from $22.3 million last year, the company termed the holiday results “disappointing” and said it would have to revise its long-range business plan to reflect the weaker-than-anticipated holiday season. W&L would not specify the revisions. For the 48 weeks ended Dec. 31, sales sagged 2.5 percent to $794.4 million from $814.2 million. Earnings before interest and taxes fell 88 percent to $239,000 from $1.9 million.
Sisson noted that W&L could be suffering from an eroding consumer base, stemming from its bankruptcy filing and the negative publicity that followed.
Executives at the firm, which owns 15 Wanamaker stores and 15 W&L units, refused to be interviewed and referred inquiries to its public relations firm, Sitrick & Co., based in California, 3,000 miles from the bankruptcy proceedings.
A spokeswoman said the retailer’s court-supervised reorganization is progressing faster than many high-profile cases like Macy’s and Carter Hawley Hale. She said the company plans to stimulate sales by putting a greater emphasis on soft lines, specifically casual apparel. W&L, she said, and is trying to keep its merchandise more current to attract higher-income customers willing to pay higher prices for more fashionable goods.
Changes, however, have been hampered by bureaucratic and legal distractions surrounding the bankruptcy. One of the biggest has been the battle between Alfred Taubman, W&L’s majority owner, and unsecured creditors.
Taubman wanted his $262 million pre-petition cash infusion to be classified as a general unsecured claim, but unsecured creditors said it should be considered an equity investment, subordinate to general unsecured claims.
Late last month, however, an agreement was reached, freeing W&L to concentrate on reorganizing and exiting Chapter 11. The spokeswoman declined to reveal any details about the agreement.
John Koodrich, who follows W&L’s bonds as managing director of First Albany in Pittsburgh, noted that investors who have stayed away from W&L’s bonds because of the fighting between Taubman and unsecured creditors may take another look at the issues.
“Once [the resolution] comes to light, you could see a real pop in the bonds,” he said.
W&L’s spokeswoman said progress is also being made in negotiations on some general terms of a reorganization plan, which often signals the beginning of the last phase of a reorganization.
The company last month received bankruptcy court permission to extend its exclusivity period 60 days to March 23 to revise its business plan and get down to substantive negotiations with its creditors.
Under a best case scenario, the spokeswoman said, the company could formulate a consensual plan of reorganization during the exclusivity period, paving the way for an exit from Chapter 11 sometime in June.
However, one source close to the process said it is more likely the firm will need another extension of its exclusivity.
Meanwhile, the chain continues its cost-cutting efforts. The firm plans to relocate its distribution center from New Jersey to Baltimore, an efficiency move expected to yield savings of more than $3 million a year.
W&L is also spending $21 million to remodel two Wanamaker stores in Pennsylvania, in King Of Prussia and Harrisburg.
Changes on the sales floor are ongoing, including cutting some managerial posts while increasing sales help. Seven stores have started on the program, which is expected to be rolled out.
W&L’s results for January will show a sales jump of about 17 percent, ahead of plan, following the pattern of other retailers.
Official results for the fourth quarter and year, ended Jan. 31, will be reported around mid-March. W&L’s fourth-quarter sales are expected to be flat, but its EBITDA will be “significantly higher” than a year ago, the spokeswoman said.