In a court filing, the retailer
says sales this year will be off
$76 million after a bad '97

By Rick Daysog
Star-Bulletin

Liberty House Inc., which filed for bankruptcy reorganization last week, said its sales dropped about $37 million in 1997 and could fall another $76 million this year before flattening out in 1999.

The state's largest and oldest department store chain said the tough financial situation -- brought on by the Asian economic crisis and looming competition from mainland retailers -- may force it to close up to 8 of its smaller specialty and resort stores over the next nine months.

But the company stressed that it doesn't plan additional layoffs.

In court filings yesterday, Liberty House said its weakened condition underscores the need to obtain $50 million in new financing from General Electric Capital Corp. to allow the company to operate without interruption.

"The consequences of leaving Liberty House without an adequate credit facility are disastrous," Liberty House President John Monahan said in court papers.

Liberty House said it had sales of $394.7 million in 1997, down from the year-earlier's $431.9 million.

But those sales numbers are projected to drop $309.8 million in 1998 before leveling at $297.9 million in 1999.

(Liberty House -- which receives about a third of its overall revenues from tourists -- noted its 1996 results benefited from an extra week of sales which added about $8 million of business.)

Most of last year's decline was felt by its flagship Ala Moana Center store, which is highly dependent on Asian tourists. Sales at the Ala Moana store's skidded $23.6 million to $134.5 million in 1997 from $158.1 million in 1996.

The company forecasted the Ala Moana stores' sales at $90.2 million for 1998 and $87.3 million in 1999. During its peak in the early 1990s, the Ala Moana store generated more than $200 million in annual sales.

Monahan said the fourth-quarter sales decline left the company with little means to make payments on $148 million of its outstanding debt.

At the same time, many of Liberty House's vendors restricted or terminated the shipments of new merchandise or requested cash advances prior to delivery, worsening the company's cash holdings, Monahan said.

The new financing from GECC will help the company restore its credit with vendors and replenish its inventories, Monahan said.

Without the financing, Liberty House said it may be forced to close at least eight of its smaller locations.

The targeted stores include the Rack outlet at the Maui Marketplace; Home Outlet stores in Kakaako and the Maui Marketplace; a Liz Claiborne outlet at Pearlridge Center; and resort and specialty shops at the Sheraton Waikiki and the Kaluakoi hotels, the Lahaina Center, and the Aloha Tower Marketplace, according to court documents.

Liberty House said it has already closed resort shops at the Westin Maui and the Embassy Suites at Kaanapali. A resort shop at the Kauai Marriott is scheduled to close at the end of April.

The company has not ruled out the possibility of selling the specialty shops.

Liberty House said that none of its 11 department stores will be sold or closed.

"Liberty House urgently needs debtor-in-possession financing in order to purchase inventory and continue its business and operations without interruptions," Monahan said.

Liberty House, which employs about 3,800 workers, stressed it doesn't plan further layoffs. The company laid off 136 workers and said it had eliminated another 300 jobs last month, in its worst-ever downsizing.

However, the retailer said that it is eliminating a program of matching employee contributions to a company 401(k) retirement program. The company said it also discontinued its direct mail catalogs to Japan last year.

Founded in 1849, Liberty House operates 11 department stores and 29 specialty and resort shops in Hawaii and Guam. The company filed for Chapter 11 reorganization on Thursday, listing assets of $284.4 million and debts of $248.2 million.

A Chapter 11 reorganization allows a company to continue operations and protect its assets while restructuring its debt.

The filing came minutes after Liberty House's lenders -- including Bank of America and Merrill Lynch -- received an order from a Pennsylvania judge replacing the retailers six-member board with three board members that it selected.