S&K seeks quick restructuring

S&K Famous Brands Inc. has joined a growing list of Richmond-area companies filing for bankruptcy protection as the menswear retailer tries to restructure in the midst of a credit crunch and deteriorating sales.

The Henrico County-based chain filed under Chapter 11 of the bankruptcy code yesterday. The company plans to seek permission to close about 30 of its 136 stores, officials said.

S&K joins Henrico-based Circuit City Stores Inc., Mattress King and LandAmerica Financial Group Inc. in bankruptcy.

On a conference call yesterday, S&K President and CEO Joseph A. Oliver III said the company is using the process to restructure its operations.

"Our goal is to get in and out as fast as we can," he said. "This is not a path to liquidation."

According to yesterday's filing, the chain has $41.4 million in assets and $35.5 million in liabilities.

At a hearing in Richmond yesterday, Judge Kevin R. Huennekens gave S&K interim approval for a $13 million line of credit to continue operating.

As a condition to permitting the line of credit, S&K must find a buyer for its headquarters complex by May 15.

A bidder has committed to pay $5.5 million for the property, an S&K attorney said. Oliver would not identify the buyer but said the deal would allow S&K to lease the site.

S&K still must hold an auction in hopes of finding a bidder offering more money.

The complex includes a store, the two-story headquarters building, and a 110,000-squarefoot distribution center. The chain listed the property for sale in December. It paid $4.5 million in 1985 for the warehouse, distribution center and headquarters.

The judge also approved about a dozen other motions, including allowing the company to continue paying employees and accepting gift cards.

He also allowed S&K to break leases at stores it already closed and reject about 22 contracts for such items as deferred compensation and cell phones.

Richard H. Hardy Jr., vice president of finance and information technology for S&K, wrote in a statement filed with the court that S&K ran into a "perfect storm."

The storm included vendors losing faith and, in some cases, demanding cash up front for merchandise; decreased liquidity because of tightening credit markets; and a drop in consumer spending.

Oliver, however, said sales were up last year compared with 2007 for the weeks between Thanksgiving and Christmas.

According to Hardy's statement, the company has been working to restructure its operations for the past year.

The chain, he wrote, generated net income of $2.78 million for the fiscal year that ended in February 2007. One year later, it reported a net operating loss of $3.93 million.

Hardy wrote that in January 2008, the senior management team agreed to cut its combined salaries by $240,000 and last February the board of directors voted to cease paying director fees for fiscal 2009.

Then, in the summer, S&K hired retail consultants Alvarez & Marsal North America LLC to plan a strategic turnaround.

The chain implemented the plan, which was to close underperforming stores; reduce overhead and inventory to stabilize cash flow; develop a plan to gain vendor support; and to rebrand itself as a carrier of casual wear.

Also last summer, S&K eliminated 47 positions. in November, it laid off 12 people at its headquarters.

And since July, it has closed 78 stores, the company said.

David Urban, a professor of marketing at Virginia Commonwealth University, said yesterday that S&K simply is a victim of the times.

"When they started in the'60s, they carried high-quality clothing at low prices," he said. "But the market has seen some shifts in what people wear to work. It's not that there isn't a market. If you want to buy a suit, there are a lot of places to get it."

To get a larger piece of the market, S&K is going to have to position itself better and show it carries casual clothes as well as suits, he said.

Contact Louis Llovio at (804) 649-6348 or .