HOWARD AND PHIL'S FILES CHAPTER 11 : WESTERN-WEAR CHAIN REORGANIZING.

Byline: Dawn Yoshitake Daily News Staff Writer

The owner of Howard and Phil's Western Wear has filed for bankruptcy protection as plummeting sales and a landlord's lien against its assets were threatening the company.

Howard and Phil Enterprises Inc., a Canyon Country-based western wear retailer with 43 stores in California, Nevada and Utah, filed two weeks ago for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Reorganization under Chapter 11 allows a company to operate while keeping creditors at bay. No significant changes are imminent at the chain, company officials said.

Howard and Phil's, which operates one of the nation's largest western wear retail chains, expects 1996 sales to hit $26 million - a 32 percent drop from its peak in 1993.

``We've experienced declining sales since 1994,'' said Tim McKeon, vice president of finance. ``Sales were good in the previous years when there was a big country-western fashion explosion in 1989 though 1991 (popularized by) line dancing. But that's died down.''

Riding high in the 1980s, Howard and Phil's expanded rapidly. The company, owned by U.S. Rep. Howard ``Buck'' McKeon, R-Santa Clarita, and his four brothers, grew from 11 stores and about 60 employees in 1980 to 55 stores and 400 employees in 1993.

``Without a doubt, we overexpanded and expanded too quickly,'' Tim McKeon said.

Marcie Hervey, executive director of Western-English Retailers Association, said the owners of Howard and Phil's are no different from other retailers.

``When things are good, people expand,'' she said. ``I think a lot of people were opening stores when we had seen that country-western had peaked. We were still getting calls from people interested in opening stores.''

She estimates there are 2,800 to 4,200 western retail stores, with only a handful of chains with more than 40 stores.

For Howard and Phil's stores open a year or longer, sales began slumping in 1993. Same-store sales dropped as much 12 percent at some outlets in 1994, compared with the previous year. Overall sales were hurt by the sluggish economy and a loss of business after the Northridge Earthquake.

There was an additional 10 percent decline in same-store sales in 1995, Tim McKeon said.

Faced with a steep revenue drop, the company began closing stores and negotiating with landlords to lower rent payments.

``We were successful with a lot of landlords. We just wanted to get the same rates they were charging people who were coming into the malls, rather than pay 1989 rates,'' he said.

But talks with one landlord soured.

The company was able to achieve more than a 30 percent rent reduction in 1995 for a Bay Area store in Antioch, but nevertheless pulled out of the mall this year. Macerich Management Co., the Santa Monica-based mall owner and operator, filed a lawsuit alleging breach of contract and last month was granted the right to place a lien on Howard and Phil's assets.

``They didn't comply with the lease and they didn't comply with the earlier settlement to modify their rental agreement,'' said Steve Spector, legal affairs director for Macerich.

Meanwhile, McKeon said the lien prompted the company to seek bankruptcy protection.

``That's what's driving this thing. They got a $1.6 million judgment,'' McKeon said. ``We thought we were making progress on talks with that store and five others that we have with them.''

Howard and Phil's reported $10.2 million in assets and $16.7 million in liabilities in the bankruptcy filing.

``I'm not surprised that they've taken this step. Their payments to us have been slow for the past year,'' said Jim Smith, managing partner of a Santa Monica-based advertising agency, Ground Zero, and an unsecured creditor. ``This is not a client that is saying, `Screw you' and not paying. This is a client that's in trouble.''

Howard and Phil's sales have stabilized this year, McKeon said.

``Our inventory had been diminished because a lack of cash flow did not allow for new inventory. But now we've been resupplied and we're starting to see more sales. I feel by the end of May or early June we'll see increases in same-store sales,'' McKeon said.

Restructuring the company may involve closing an additional four to five stores unless the rents can be reduced, launching a joint-development with a boot manufacturer to design a special line of shoes and expanding into a lower-price range market, McKeon said.

``The reorganization will help us refocus and strengthen the company,'' said Buck McKeon, a 20 percent shareholder in the privately held family business. ``It's been a tough time for the retail business in general and for western wear in particular. It's been tough during the past few years.''

He added that no plans are in the works to sell the business founded in 1963 by his parents, Howard and Phyllis.

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Photo

Photo: The Howard and Phil's western-wear chain, includingthis store in Canoga Park, has filed for protection from creditors.