Finlay's future unclear

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Finlay's future unclear

Retailer closing stores, plans to be out of licensed departments by the fall

May 05, 2009

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New York--The future of Finlay Fine Jewelry, known for operating a mix of licensed jewelry departments and standalone stores, is in doubt amid the economic crisis, according to a recent Securities and Exchange Commission filing.

A Form 10-K filed on May 1 by the recently tight-lipped company states that there is "substantial doubt" about Finlay's ability to continue as a going concern as it struggles to implement its strategic plan, repay its debt and secure future lines of credit.

"If we cannot resolve some or all of these factors," the filing states, "we may be unable to maintain a level of liquidity necessary to continue to operate our business."

The strategic plan includes exiting the licensed department store business, which the company aims to complete by the end of the third quarter of 2009 (the company's 2009 fiscal year began Feb. 1), and closing approximately half of its 108 specialty jewelry stores, according to the filing.

This would constitute about 54 stores and is an increase from previous reports that stated Finlay would only close about 40 standalone stores.

As of Jan. 31, Finlay operated a total of 674 locations: 566 department store- based fine-jewelry departments in seven host store groups in 38 states, 69 Bailey Banks and Biddle stores in 24 states, 34 Carlyle stores in nine states and five Congress stores in southwest Florida.

The closure of any Bailey Banks and Biddle locations could have an adverse impact on rival Zale Corp., which sold Finlay the chain in late 2007 but, as part of the deal, remains liable for the leases, as previously reported by Zale.

Further implementation of Finlay's strategic plan "will result in a significant reduction in our sales from over $750 million from our two business segments in 2008 to a go-forward specialty-jewelry-store business that is expected to achieve annual sales in the range of $150 million to $200 million," the release states.

Like so many retailers, Finlay endured a tough 2008, recording an 11 percent drop in same-store sales in 2008 and a net loss of $107.3 million due to a variety of factors, up from a net loss of $10 million in 2007.

Total sales for the company were $754.3 million, a 5.2 percent increase over 2007 due to the acquisition of Bailey Banks and Biddle.

The company expects 2009 to be equally as challenging.

"The current banking and credit crisis, the high unemployment rate, continued home foreclosures, the rising cost of basic necessities and the reality that the U.S. has entered a recession created a highly challenging retail environment during 2008 that we anticipate will continue through 2009," the filing states.

Also complicating the retailer's situation is a changing of the guard at the top.

Chairman and Chief Executive Officer Arthur Reiner's contract expired on Jan. 31, and he is now an "employee at will," according to the filing, and the company also has two other top executives set to retire in the coming months.

"Accordingly," the filing states, "our go-forward management team is in transition. Moreover, once the go-forward management team is established, there is no assurance that its members will be able to successfully implement our strategic plan."

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