FAO Schwarz Makes New Bankruptcy Filing

Wednesday, December 3rd 2003, 12:00 am
By: News On 6

PHILADELPHIA (AP) _ The owner of FAO Schwarz toy stores plans to file for bankruptcy protection this week, its second such filing this year amid a harsh competitive struggle with discount stores that sell many of the same toys at lower prices. The company's stock tumbled 73 percent Tuesday following the news.

FAO Inc. hopes to find a buyer by Dec. 15 for its FAO Schwarz and Right Start toy-store chains while liquidating its Zany Brainy stores, the company said in a statement.

The company, based in King of Prussia near Philadelphia, said it could liquidate the other two chains if it cannot find a buyer for them.

Stores will remain open while FAO searches for a buyer, but all sales will be final, the company said. Meanwhile, FAO will significantly reduce its non-store staff in the next few days.

Sales from its retail stores, its catalog and the Internet have been significantly below expectations in the early part of the holiday shopping season, the company has said.

Chains such as Wal-Mart Stores Inc. and Target have been offering deep discounts on toys this season to lure shoppers, while a revitalized Toys ``R'' Us now boasts revamped stores, competitive prices and a strong toy selection, analysts said.

``Whether or not somebody can come along and revive FAO and keep that going is anyone's guess,'' said Sean McGowan, a toy industry analyst with Harris Nesbitt in New York. ``If you're saying it's got to be done in two weeks and you've known about it for a year, I might take the under on that bet.''

The company said in September its sales for the quarter ended Aug. 2 had dropped 49 percent to $46.3 million from $90 million a year earlier, and reported an $18.8 million loss for the quarter.

FAO, through an outside spokesman, declined to release updated sales figures or characterize seasonal sales on Tuesday. A company spokeswoman did not return telephone messages left by The Associated Press.

Amid disappointing early holiday sales, FAO said last month it was trying to resolve issues that caused its lenders to deliver a default notice that signaled they would no longer be obligated to supply further loans or letters of credit.

FAO filed for Chapter 11 protection from creditors in January and emerged from bankruptcy in April.

The company on Tuesday said it plans to delist its common stock from the Nasdaq Stock Market and said it does not expect common stockholders to recover their investments. FAO's investment banking consultant, Capital Strategies Group LLC, will handle any potential offers for FAO Schwarz and Right Start.

In trading Tuesday, FAO shares closed down 66 cents, or 73.3 percent, to 24 cents.

FAO operates about 140 stores nationwide. Among them are 15 FAO Schwarz stores, including the flagship New York City store that draws tourists from around the world. The store's image as a playland has been reinforced by movies such as ``Big,'' which featured Tom Hanks and Robert Loggia playing ``Chopsticks'' on a giant piano keyboard.