Financial Reporting
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Finlay files for bankruptcy
By Michelle Graff
August 06, 2009
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| Fine-jewelry retailer Finlay is the latest jewelry chain to file for Chapter 11 bankruptcy protection. |
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New York--Finlay Jewelry Inc. has filed for Chapter 11 bankruptcy protection, becoming the latest retail jeweler to fall prey to the economic crisis, court documents show.
In the voluntary petition filed on Wednesday in the U.S. Bankruptcy Court for the Southern District of New York, Finlay Chairman Arthur Reiner stated that at a special meeting of the board of directors held on Wednesday, the group determined that "it is desirable and in the best interests of the company, its creditors, employees and other interested parties that a petition be filed by the company, seeking relief under the provisions" of Chapter 11 bankruptcy protection.
"Although today is a difficult day for all of us at Finlay, we have arrived at this decision after careful analysis and believe it is necessary given the continued challenging economic environment that has resulted in our current business condition," Reiner said in a company statement. "As we consider the next steps for our company, we thank our employees, vendors and customers for their ongoing support."
Though Finlay initiated a formal process in June to explore a sale, as it stands now, the process "has culminated into the debtors' entry, pending court approval, into an agency agreement with the Gordon Brothers Retail Partners LLC, pursuant to which Gordon Brothers will serve as an agent for the liquidation of substantially all of the debtors' remaining assets, subject to higher and better offers received at auction," court papers say.
The company holds assets of $332 million and liabilities of $385 million. In the filing, the company estimates that it has between 10,001 and 25,000 creditors.
Finlay's top five unsecured creditors, according to court documents, are: U.S. Bank National Association of New York, with a claim of $40.58 million; Vaishali Diamond Corp. of New York (partially secured), $2.72 million; Royal Jewelry Mfg. of New York (partially secured), $2.01 million; Richline Group of New York (partially secured), $1.81 million; and B.H. Multi Com Corp. of New York (partially secured), $1.26 million.
Court papers state that Finlay currently sells "a broad range of moderately priced jewelry" at about 77 department store locations and operates 106 standalone jewelry stores doing business as Bailey Banks and Biddle, Carlyle and Co. Jewelers and L. Congress (Congress Jewelers).
As jewelry sales have tumbled, Finlay, like so many other luxury retailers, has been struggling to keep its footing.
Its retail empire has been greatly reduced since 2008 when the licensed department store business represented the bulk of Finlay's 658 locations and 64 percent of its total sales. The loss of the licensed departments due to department stores taking jewelry operations in-house, closing stores through consolidation or opting to go with a competitor "greatly reduced Finlay's revenue base and materially affected the debtors' business and financial condition during the last several years," court documents state.
Finlay was also stung by the reduction of the amount of credit available in the jewelry industry and general economic conditions, including unemployment, the housing crisis and inflation, court papers say.
In February, the New York-based company announced that it was getting out of the business of running the licensed fine-jewelry departments of department stores such as Macy's and The Bon-Ton Stores, a niche the company had filled since the 1960s. It also announced it was closing a number of its underperforming standalone specialty jewelry stores.
The plan at that time called for the company to shift focus to running the strong stores among the three chains it has acquired over the years: Carlyle and Co., which it acquired in 2005 for about $29 million; Congress Jewelers, a chain of Florida stores it purchased in 2006 for $6 million in cash and the retirement of about $10 million in debt; and the upscale Bailey Banks and Biddle chain, which it acquired from Zale Corp. in late 2007 for $200 million.
The road has been a rocky one for Finlay since that February announcement.
In April, Finlay announced it was shuttering its North Carolina offices and service center in June and laying off all 90 employees in an effort to consolidate all operations in New York. North Carolina was home to the company's Carlyle and Co. operations, which include the brands Carlyle and Co., J.E. Caldwell and Co. and Park Promenade Jewellers.
Several days later, a Securities and Exchange Commission filing showed that Finlay was losing two top executives, Executive Vice President and Chief Merchandising Officer Leslie A. Philip, who was set to retire at the end of May, and Executive Vice President and Chief Operating Officer Joseph M. Melvin.
Melvin was scheduled to retire on June 30, but that was later pushed to Aug. 15.
Most recently, Finlay was making headlines for its inability to make payments on its loans, including a missed $1.7 million interest payment to holders of its 8 and 3/8 percent senior notes.
In an odd twist, the company's specialty units showed growth in 2008. In Stores magazine's latest list of fast-growing retailers, Finlay Enterprises took the No. 8 spot and, according to an accompanying article in the magazine, a publication of the National Retail Federation, Finlay scored its spot on the list solely on the growth of sales in its freestanding locations, not at its leased department store business.
According to the article, the department store unit sales are not included in Hot 100 retailer compilations, but Finlay's specialty stores--Bailey Banks and Biddle, Carlyle and Co. and Congress Jewelers--showed a sales increase of 38.4 percent.
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