Nichols weighs choices facing uncertain future.
Nichols weighs choices facing uncertain future
NEW YORK - S.E. Nichols Inc., while considering a number of financial alternatives that may include filing for bankruptcy, remains committed to its recently developed Pharmhouse deep-discount drug format.
Questions concerning the operation's finances began to surface on May 31, when the company announced that it would not make a $1.3 million interest payment that was due on June 1. The missed payment, coupled with a reported $37.2 million loss for the fiscal year ended February 3, led to speculation over the status of the company.
Officials at Nichols state that such concern is unfounded. Regarding the missed interest payment, the company maintains that it is using a 30-day grace period to examine a number of financial possibilities. Moreover, the company reports that the grace period is within its legal rights and that it will not incur any costs or penalties for missing the June 1 payment date.
"The bottom line is that we are using the 30-day grace period to pursue alternative forms of financing," says senior vice president of finance James Herlihy. "We are looking at several options for new financing, including investor groups, a debt-restructuring and Chapter 11. We will deal with these issues after the 30-day grace period."
Herlihy could not speculate at this time as to which direction the company was headed financially, or what was the likelihood of filing for protection under Chapter 11. He did state, however, that the company's efforts with its Pharmhouse operation remain on schedule.
Nichols previously announced its intention last January to switch from a discount department store format to a deep-discount drug format. At that time the company was operating a total of 34 discount stores in eight states: New York (13), Pennsylvania (nine), Virginia (five), Maryland (two), North Carolina (two), Delaware (one), Ohio (one) and West Virginia (one).
An undetermined number of these outlets, ranging from 80,000 to 100,000 square feet, were scheduled for conversion to 40,000-square-foot units. The remaining space will be leased out, with an average of two tenants in each site.
May convert 25
The company liquidated nine department stores and converted them to Pharmhouse by mid-June. Another 10 stores are expected to be converted by early August and, depending on financing, as many as 25 could be completed by the end of the year.
At the same time, Master's Inc., a discount retail apparel chain, has leased space in three of the current Pharmhouse locations. Management is presently negotiating with other would-be tenants to sublease additional units.
Nichols first began converting its stores in early April, citing poor performance over the previous three years and an oversaturation of discounters in its markets. To date, Pharmhouse's deep-discount drug format has met much less resistance in the market.
"The performance has been encouraging so far, the stores look good, and customer response has been very favorable," says Herlihy. "Our goal is still to be a strong player in the deep-discount format. We've shown that we know what we're doing in this arena, and we are very happy with our early results."
PHOTO : Despite problems, Nichols has confidence in Pharmhouse.