Fretter reported a steeply increased second-quarter loss, said it will show a substantially higher third-quarter deficit -- after as much as $48 million in store-closing charges -- and warned it may have to file a Chapter 11 bankruptcy petition.
For the three month's to July 31, Fretter said it had a loss of just under $11 million -- presumably including costs related to the shuttering of 12 stores -- while sales dropped 22.6% to $158.1 million, including a 28.5% shrinkage of sales at comparable stores. During the quarter it also opened six outlets.
Although Fretter didn't release results for its fiscal first half, the indication is it had a near-tripled loss of around $15 million on a 16% sales drop to about $320 million. The steep decline in sales for both periods is understood to stem from the soft market for major appliances, store closings, and a low inventory situation at many outlets.
Unable to digest the financially ailing 185-store Silo chain it swallowed at the end of 1993, Fretter is moving to shut many Silo locations down. It is closing all stores in California, New Mexico, Oregon, Texas and Washington, and reducing its store count in Illinois, Massachusetts, New Jersey and Pennsylvania. In all, Fretter said, it is closing 70 stores.
That will leave it with 159 Fretter, Fred Schmid, Dash Concepts, Silo and YES! stores in Arizona, Colorado, Delaware, Illinois, Indiana, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, Ohio, Pennsylvania and Wyoming.
More To Come
Fretter estimates that it will take a third-quarter charge of $36 million to $48 million to cover the cost of the closings and indicated there may be more to come as it reviews the profitability of all remaining stores and markets.
Fretter said it is now in default of loan covenants with its primary lender and is seeking a waiver that it may or may not get. Additionally, with retained advisers, it is looking at alternative plans, "each of which would lead to a material adverse impact on the ability of the company to continue its current operations in the current fashion." These possibilities include a Chapter 11 filing for the company and subsidiaries.
A number of the store closings happened just after Labor Day without warning, surprising some key suppliers and forcing consumers to call busy hotlines for information on pending deliveries.
Suppliers said they were aware that Fretter would be closing stores, but not on such a scale. "We had no indication they would be exiting entire markets," said one manufacturer.
Fretter executives did not comment on the timing of the store closings.
Hitachi executive VP Gary Bennett said he saw a bright spot in the move, because Fretter "decided to concentrate on the stores that are doing well, and in the long run it could be a benefit for them. They can take all the money that was tied up in display merchandise in the closed stores and apply that to more inventory."
Competing retailers were only surprised that Fretter didn't wait until after Christmas to shut the stores.
Industry observers said that the chain has been suffering from non-motivated, non-commissioned salespeople and poor store traffic -- particularly on the West Coast, where Silo faced stiffening competition in a sluggish regional economy. It was also impacted by competition from Circuit City in Philadelphia and Best Buy in Chicago.
--Additional reporting by Amy Gilroy
Fretter is closing all Silo stores in California, New Mexico, Oregon, Texas and Washington, and reducing its store count in Illinois, Massachusetts, New Jersey and Pennsylvania.