Ames Stores Files for Bankruptcy
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Unable to recover from the setbacks it suffered after taking over the Zayre discount department stores in 1988, Ames Department Stores Inc. said yesterday that it had filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code. Unable to recover from the setbacks it suffered after taking over the Zayre discount department stores in 1988, Ames Department Stores Inc. said yesterday that it had filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code. Ames, the nation’s fourth-largest discounter after the K Mart Corporation, Wal-Mart Stores Inc. and Target Stores Inc., said a sharp drop in sales in recent weeks had left it short of cash. Retail analysts said most of the drop had occurred at the nearly 400 Zayre stores. Ames, with 680 stores, all east of the Mississippi, was already experiencing an inventory shortage because many suppliers had balked at making new deliveries until they were paid for earlier ones. The company said that when it could not reach a new lending agreement with its banks, it decided that the most sensible next step was to seek creditor protection while it sought to reorganize itself. Late Wednesday Filing The actual bankruptcy filing took place late Wednesday in Federal Bankruptcy Court in Manhattan, but it was not until yesterday morning that Ames, based in Rocky Hill, Conn., outside Hartford, disclosed that it had sought protection. ”The Chapter 11 petition will give our suppliers the assurance they need to resume the steady flow of merchandise into our stores,” said Peter B. Hollis, Ames’s chief executive. Trading was halted on the New York Stock Exchange yesterday in Ames’s stock, which rose 12.5 cents, to $1.50, on Wednesday. Last year, Ames traded at a high of $20 a share. Ames also said yesterday that Chemical Bank in New York had agreed to provide $250 million in interim financing. While the retailer did not say so explicitly, the indications were that Ames would use the money to get new merchandise and to meet expenses like payroll, rent and utilities. By meeting those daily obligations, the analysts said, Ames could continue operating all its stores while it began the arduous process of working with creditors to restructure its finances. ”It will be business as usual,” said a banker who has done business with Ames. ”They will pay their employees and open the registers.” The Zayre troubles were also a big reason for Ames’s announcement several weeks ago that it expected to report a loss of $228 million for the fiscal year that ended on Jan. 27. As retail experts told it yesterday, that announcement touched off a chain of events. First, Ames’s lenders declared the retailer in default on certain debt covenants. Next, so-called retail factoring companies, which guarantee a merchant’s payments, stopped extending credit to Ames. Finally, many suppliers stopped making shipments, fearful that they might not be paid. In fact, the bankruptcy will leave several well-known suppliers with unpaid bills. Among them are American Yard Products Inc., the big lawn-mower company, which is owed $7.6 million; the Thermos Company, owed $5.2 million; the Sara Lee Corporation, due $3.9 million; Rubbermaid Inc., owed $4.5 million, and the Gitano Group Inc., the sportswear maker, due $5.3 million. Gitano, based in New York, said it would reduce its first-quarter earnings by about 10 cents a share in anticipation that it would not be paid for the Ames shipments. But retailing experts said big changes loomed for Ames, which with $4 billion in sales was once regarded as one of the best-run retailers in America. Kurt Barnard, an industry consultant who also publishes a retailing newsletter from New York, predicted yesterday that Ames would seek to undo its October 1988 acquisition of Zayre. He said Ames might sell off hundreds of the Zayre stores and refocus on the Ames discount stores, which had been performing well. Mr. Barnard said that possible buyers for the Zayre stores included Target, a division of the Dayton Hudson Corporation, and Wal-Mart. ”A Target might pick up a store here or a store there,” he said. ”But a discount-department operation will not reach out and buy the whole cluster. It’s too risky.” |