Eddie Bauer caught in Spiegel Ch. 11 filing

Eddie Bauer's parent company, the Spiegel Group, has filed for voluntary Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York.

Eddie Bauer's parent company, the Spiegel Group, has filed for voluntary Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York. Its financial woes are a result of declining sales and a draining credit-card division.

Debbie Koopman, vice president of corporate and investor relations for the Spiegel Group, told SNEWS, "We have had some challenges over the last few years. We've had deterioration in the economic environment and a less stable retail environment and our sales across the Spiegel Group have declined over the last two years. In addition to that, we've seen a significant deterioration in the quality of our credit-card receivables."

Spiegel's overall sales sank 9 percent in 2001 and 18 percent in 2002 to $2.3 billion. Eddie Bauer makes up the majority of the company's sales with $1.5 billion in 2002, while its two other merchant divisions, Spiegel Catalog and Newport News, generated $617 million and $414 million, respectively, in 2002. The Spiegel Group employs 16,700 workers, 11,000 of which work for Eddie Bauer.

In its Chapter 11 filing papers, Spiegel listed total assets with a book value of $1.74 billion and total liabilities of $1.71 billion as of Feb. 22. 2003. It has secured $400 million in bankruptcy financing which will be used to supplement the company's existing cash flow during the reorganization process.

Koopman said all the company's retail stores and catalog operations are up and running, serving customers, and that it was premature to discuss the potential of store closings, layoffs, or the possible sales of Eddie Bauer. "We're continuing to provide the same services to our customers we had prior to the filing," she said.

"The whole bankruptcy filing is a process. (We are at) the beginning of a process where we will do a thorough analysis of all our business operations," she said. "Part of the process will be evaluating store leases, making decisions about what's the best store base for Eddie Bauer to have as they move forward. There is the possibility of some store's closing, which is something Eddie Bauer does on an-going basis anyway. But again, part of the bankruptcy process is the ability to review all of your lease obligations. At this point, none of those things are known, but we are in the analysis phase."

Like other large companies that have filed Chapter 11 in the last year, such as Kmart, FAO Inc. and Montgomery Ward, a main cause of Spiegel's woes is the economic turmoil of retail right now. Spiegel also adds to this a troubled credit card unit that it has been trying to sell for the last year. Its customers haven't been paying their credit card bills, which, in turn, forced Spiegel to pay back investors who bought securities backed by its credit-card receivables.

Spiegel has discontinued its relationship with its bank subsidiary, First Consumer National Bank, which is being liquidated under the terms of a preexisting consent order. Subsequently, Spiegel is no longer honoring the private-label credit cards issued by FCNB to its customers and has no credit-card program available to customers.

"Our intent is to be able to develop a new credit-card program for our customers and we're looking at third-party, credit-card providers or other alternatives. We are analyzing that right now and looking at what would be the best way to continue to offer our customers private-label credit programs," Koopman said.

SNEWS View: Despite Koopman's hesitancy to speculate whether any of Spiegel's subsidiaries will be sold off to raise cash, financial analysts predict Eddie Bauer will be put on the selling block to help Spiegel bail out of bankruptcy. Acquired in 1988, Eddie Bauer has been the financial feather in Spiegel's cap and the strongest brand name of all its merchant divisions. And, without a credit-card ally, its sales will be hit harder until it can establish a new third-party program. An ironic predicament for a company that was the first to extend credit to customers when its founder, Joseph Spiegel, launched the Spiegel catalog in 1865.


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