Samuels to Shed 38 Stores

In an effort to shore up sagging profits, Samuels Jewelers will close 38 of its 163 stores. The stores are scheduled to remain in operation through January 2002.

Randy McCullough, president and chief executive officer of the Austin, Texas-based chain, says the company will use those stores to liquidate $11 million worth of unproductive merchandise through the Christmas season, thus creating a “huge liquidity event” for Samuels.

“The liquidation of this inventory coupled with the closure of the 38 stores positions the company to move forward with 125 profitable stores and a very clean inventory,” McCullough says.

Samuels has retained Gordon Brothers Retail Partners and The Ozer Group to oversee the store closings and liquidation of the inventory. The agreement also calls for Gordon Brothers to receive a purchase money security interest in approximately $1.5 million worth of gold jewelry that Samuels bought on a guaranteed sales basis from Gordon Brothers in October.

The closures will leave Samuels with 125 units in 23 states. The retailer’s store count had been as high as 198 only two years ago, until the company closed some 35 locations earlier this year. The moves come at a time when the jewelry chain is trying to stem its financial losses and avoid its third Chapter 11 filing in a decade.

Samuels has suffered net losses in each of the last two fiscal years, including a net loss of $46 million on net sales of $148 million in fiscal 2001 (for the year ended June 2), and a net loss of $7 million on net sales of $160 million in fiscal 2000.

The negative trend has continued in fiscal 2002. According to the company’s latest 10-Q statement filed with the Securities and Exchange Commission, Samuels reported a net loss of $6.2 million for the first quarter ended Sept. 1. First-quarter revenue was $23.6 million, a 20% drop from the previous year’s first-quarter revenue of $29.5 million. Comparable store sales in the quarter plummeted by 11.8% compared with the previous year, which Samuels attributed to the “continued general economic slowdown and not being fully stocked in certain top-selling merchandise in many stores.”

When Samuels emerged from the bankruptcy of its predecessor, Barry’s Jewelers, in 1998, the company quickly embarked on a 1999 acquisition binge that added four regional chains: the 17-store Musselman’s, the 40-store C&H Rauch, the 30-store Henry Silverman, and the five-store Harts chains. McCullough has since acknowledged that the retailer took on too much, too soon, and—in the case of Musselman’s—acquired a chain that wasn’t a good fit with its existing business. Most of the Musselman units were closed earlier this year.

According to SEC filings, Samuels in October renegotiated a $20 million senior revolving line of credit with DDJ Capital Management. The financing replaces a $50 million, three-year revolving credit agreement reached with its previous lender, Foothill Capital Corp., in October 1998. According to SEC filings, the company also has an additional $4 million available—at an interest rate of 20%—under a $29.3 million subordinate line of credit reached with DDJ in April.