- The Washington Times - Wednesday, December 25, 2002

KING OF PRUSSIA, Pa. (AP) The parent company of 140-year-old FAO Schwarz announced it would close 70 underperforming stores by March and that it is working with its lender to try to avoid bankruptcy.
The company had said last week that bankruptcy was likely if the bank did not relax borrowing restrictions.
FAO Inc., which also owns Zany Brainy and the Right Start, lost $23.6 million, or 66 cents a share, for the third quarter ended Nov. 2.
Analysts said the celebrated toy retailer just can't compete with the likes of Wal-Mart, Target and other discount chains that carry many of the same toys at lower prices.
For instance, the LeapPad, a hot-selling interactive book that helps teach preschool children how to read, sells for $59.99 at FAO Schwarz. It can be had for less than $40 at Wal-Mart, Target, Toys R Us and KB Toys.
"The prices are certainly not only not competitive with Wal-Mart, they are not competitive with anybody," said analyst Sean McGowan, who follows FAO for Gerard Klauer Mattison.
FAO officials said Monday night that they had reached an agreement with the company's bank, Wells Fargo Retail Finance, that could postpone bankruptcy.
Under the agreement, the bank agreed not to act against the company until Jan. 10. But it also included a stipulation that both sides could terminate the deal on three days' notice.
"It means we're on hold for a little bit," FAO spokeswoman Renee Hollinger said.
The company's shares rose more than 6 percent yesterday, gaining 4 cents, to 64 cents, each on the Nasdaq Stock Market.
FAO said 55 of the 70 anticipated closings will be Zany Brainy stores and that they will close by the end of March. FAO said the rest of the closings will be a combination of Right Start and FAO Schwarz stores.

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