NEW YORK — Factory 2-U Stores Inc. on Tuesday did what it managed to avoid doing last year, filing a Chapter 11 petition seeking bankruptcy court protection.
This story first appeared in the January 14, 2004 issue of WWD. Subscribe Today.
The filing, in a Delaware bankruptcy court, lists total assets of $136.5 million and total liabilities of $73.5 million. According to a company statement, the San Diego-based company remains open and is “conducting normal business operations.” It said the filing was to “enable the company to enhance its liquidity, reduce costs and focus on generating profitable growth.”
The 243-unit off-price retailer said it has received a $45 million debtor-in-possession financing facility commitment from the CIT Group/Business Credit Inc. and GB Retail Funding. The facility, which still requires bankruptcy court approval, will ensure that suppliers and vendors are paid in full for goods provided after Tuesday’s filing.
The company, which has had several executive changes since 2002 ranging from a new chief executive officer to a new chief financial officer, has been showing signs of financial distress for two years. By December, there was speculation it would face a credit crunch from suppliers after the holiday season. Factors were predicting a Chapter 11 filing by mid-February as a best-case scenario, but several credit analysts were more skeptical, expecting the tightening credit noose to move the filing date sooner.
Norman Plotkin, who was named to the ceo post on Tuesday following a short interim ceo tenure, said in a statement, “We believe — and our board of directors concurs — that the company has the foundation necessary for long-term success, a solid operating strategy, a portfolio of productive stores in good locations, and a strong management team committed to achieving our objectives.”
Factory 2-U sells branded casual apparel for families having an average annual income of $30,000, along with selected domestics and household merchandise at prices lower than those offered by its discount competitors. Its stores average 15,000 square feet and are primarily located in strip centers.
The chain employs 6,005, with 433 as salaried employees and the rest as hourly workers.
Dennis I. Simon, managing principal at Crossroads, the international consulting firm that will assist Factory 2-U in its restructuring, said in a statement, “Factory 2-U is a fundamentally sound business in need of operational and financial improvements that can only be achieved through the Chapter 11 process.”
Plotkin noted that in 2002, the company experienced a decline in sales along with a 7.7 percent decrease in comparable-store sales, due to lower transaction counts and lower average purchase size per customer. The company closed 44 underperforming stores in the past two years.