STAGE STORES CREDIT LINE IN JEOPARDY AS FINANCIAL IRREGULARITIES SURFACE
Byline: Vicki M. Young
NEW YORK — The other shoe might be ready to drop for Stage Stores Inc.
The Houston-based retailer is said to be in dire need of cash and inventory, according to market sources. Some factors had approved orders earlier this year, but that started changing a few weeks ago, members of the credit community told WWD on Tuesday.
“We’ve had some requests for credit, but we’ve been declining them,” one factor said. Another added, “The company hasn’t been forthright with providing information for the last few weeks. Usually the company’s pretty good about that, so we’ve been holding orders.”
A West Coast market source representing vendors said, “Things are very bad there on the credit side.”
One bankruptcy professional said he expected some movement towards a bankruptcy filing “next month.” Another credit source said the filing could come as early as just after the Memorial Day weekend.
Once a company files for bankruptcy, it can obtain debtor-in-possession financing, which enables it to get fresh goods onto the selling floor without vendors having to worry about whether they’ll get paid. That credit facility would help a retailer make advantageous buys for the upcoming fall and holiday selling season.
Bob Aronson, director of investor relations at Stage Stores, on Tuesday said, “The company has a policy of not commenting on rumors.” A group of vice presidents reportedly were summoned to a meeting last week, but Aronson declined to comment, stating that “any meeting would be [considered] internal information.” He did confirm that the search for a new chief executive officer is still “ongoing.”
The search was necessitated by the departure of Carl Tooker on Feb. 22. Tooker was chairman, chief executive and president of the company. John Wiesner is acting interim chairman, ceo and president. Wiesner is a board member of Stage Stores and was chairman and chief executive of C.R. Anthony Co., a national retail apparel chain that Stage Stores acquired in 1997.
According to a Securities and Exchange Commission filing on Feb. 22, Tooker’s departure followed an inquiry by a special committee reviewing “certain transactions between the company and Tooker.” The committee determined that the company purchased Tooker’s personal residence in 1997, assuming all liability for the property’s upkeep and debts until Stage Stores sold it in 1999 at an $806,556 loss. While the payments were reflected on the company’s books, the transaction had “not been previously disclosed in prior filings with the SEC, nor was it discussed with or approved by the board of directors.”
In a May 1997 transaction, also “without the knowledge or approval of the board,” the company paid a former employee $608,317 as part of a severance and a separate consulting contract. According to the same February filing, the employee, who was not identified, later became Tooker’s wife. While employed with the company in 1996 and 1997, the ex-employee also entered into transactions with a company with which her sister “was believed to be affiliated,” in which the company paid “$313,260 for purchases of clothing inventory.” The filing said that the special committee did not find any overcharges in connection with the inventory purchases.
Stage Stores has demanded that Tooker reimburse the firm for the unauthorized payments regarding his home and severance paid to his wife. The company is also seeking $1.1 million in outstanding loans Tooker obtained from Stage Stores.
The special committee, according to the filing, also disclosed that during 1997 through 1999, Stage Stores maintained a contractual relationship with Stage Planning and Design Inc., a firm that manages the construction of store remodeling. Until late 1999, Tooker’s son-in-law, also unidentified in the SEC document, was an officer and project manager for the management firm. Stage Planning was paid in excess of $2.4 million in 1997 and in excess of $9.9 million in 1998. Like the other transactions, the expenditures were recorded on the company’s books, but not “discussed with and approved by the board.”
Steve Lovell, chief of field operations officer, left the company on March 31. No other information was provided in the February SEC filing. Market sources also told WWD that in recent weeks, Stage Stores lost many members of its buying staff.
The legal issues involving Tooker weren’t the only ones Stage Stores had to deal with recently. A shareholder lawsuit seeking class action status was filed in March 1999. The suit, which alleged securities law violations in connection with the company’s acquisition of C.R. Anthony, was dismissed in December.
Stage Stores still hasn’t reported first quarter results, but 1999 yearend numbers were disastrous. In 1999, the company lost $129.1 million compared with $3.7 million in income in 1998. Excluding a special charge, the 1999 loss would have been $126.3 million. Sales for the year dropped to $1.1 billion from $1.2 billion in 1998, with comparable store sales decreasing 7 percent.
Stage Stores operates 648 stores in 33 states under the Stage, Bealls and Palais Royal trade names. The stores, which sell brand name apparel and accessories, are located in small communities.
A credit analyst said, “The retailer had merchandised the wrong way, and shoppers have started going to the regional malls instead of coming back to Stage.”
Should Stage Stores file, there is a question of whether the retailer can survive in its present form. Observers said the likely scenario would be competitors coming in to cherry-pick the sites they want.
Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, observed, “There have been huge competitive pressures in the women’s apparel business. The company doesn’t have a balanced portfolio such as the inclusion of home furnishings to cushion it when the fashion cycle softens. Stage has a medium box format averaging between 25,000 and 35,000 square feet. There could be others looking at the stores, but only if the Stage boxes fit a particular store format.”
Sources in the retail and financial communities pointed out that the universe of retailers which could make bids on the store sites is “very small.” “There are very few operating in the smaller box markets, making the store sizes a hindrance to any possible sale for the entire chain,” pointed out one credit analyst.