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Cash-crunched Fortunoff files for Chapter 11

By Michelle Graff
February 05, 2009

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Fortunoff Fine Jewelry and Silverware LLC has filed for Chapter 11 bankruptcy protection.

Westbury, N.Y.--Fortunoff Fine Jewelry and Silverware LLC has filed for Chapter 11 bankruptcy protection, citing the same dismal economic conditions afflicting retailers worldwide as well as a "severe liquidity crisis" magnified by a poor holiday season and weak consumer spending, court documents show.

Due to its dire financial situation, court documents state, Fortunoff has been pursuing an investor or sale of some or all of its assets since the end of 2008, but it is now unable to continue its business due to a lack of liquidity, according to documents filed in U.S. Bankruptcy Court for the Southern District of New York in Manhattan.

"The jewelry and home goods businesses have been hit particularly hard by the economic downturn," Fortunoff President and CEO Charles Chinni said in a statement issued on Thursday. "However, we are actively seeking a buyer for the business, and we will continue to do so in the Chapter 11 process."

The Fortunoff brand was founded in 1922 by the Fortunoff family, which sold a majority stake of the company to investors in 2005. After first filing for Chapter 11 back in February 2008, Fortunoff was seemingly rescued in March 2008, when private equity firm NRDC Equity Partners, which owns Lord and Taylor department stores, purchased it. But Fortunoff struggled to get on its feet in 2008, and as the global economic conditions worsened, the company's problems multiplied.

According to court papers, Fortunoff began to experience a "severe liquidity crisis" in January 2009. The company's vendors had pulled back, extending less credit and "putting pressure on the company's cash needs," court documents state.

In the last several months leading up to the bankruptcy filing, these cash constraints were "substantially exacerbated" by a variety of factors including "dismal sales over the 2008 holiday season, increasing weakness in consumer spending on high-end furniture and jewelry, the costs associated with expanding the company's jewelry line into the Lord and Taylor retail stores and reduced borrowing capacity," court papers say.

Fortunoff incurred losses of $42.2 million on revenues of about $260 million between March 3, 2008 and Nov. 30, 2008, court papers say.
 
While in Chapter 11, Fortunoff seeks "to continue to operate their business," as it looks to sell its assets as a going concern, either as a whole or in parts. However, "if such a transaction is not possible," court documents state, Fortunoff will "wind down the business through an orderly liquidation and going-out-of-business sales."

The company operates a total of 20 stores in New York, New Jersey, Connecticut and Pennsylvania, and has 1,780 employees. The company confirmed that it has closed its store on 57th Street in Manhattan, but the status of its other stores was not immediately clear.

As of its Chapter 11 filing on Thursday, court documents show the company has estimated assets of between $100 million-$500 million, but it also has an estimated $100 million-$500 million in liabilities. It has somewhere between 1,000-5,000 creditors.

According to court documents, Fortunoff's unsecured creditors in the jewelry and watch industry include New York-based Diamond Trading Co. sightholder Michael Werdiger Co., whose estimated claims total $992,232; Disons Gems Inc., with estimated claims of $624,534; Swatch Watch Group, with estimated claims of $589,921; and Gucci Watch, with estimated claims of $580,715.

It is the second trip to bankruptcy court in two years for the Westbury, N.Y.-based fine-jewelry and housewares retailer. Following its February 2008 filing and subsequent purchase by NRDC Equity Partners, plans called for NRDC to pump money into Fortunoff's freestanding stores and incorporate Fortunoff's jewelry and bridal registry into Lord and Taylor stores, a plan that seemingly never got off the ground in a year in which the global economic situation went from bad to worse.
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