Spiegel: From Bad to Worse

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The Spiegel Group continued its downward spiral last week as the company reported a 24 percent plunge in May sales and Nasdaq delisted its Class A common stock.


The stock was delisted because Spiegel is two months late in filing its annual 10-K statement with the Securities and Exchange Commission. The company intends to submit the information as soon as it reaches an agreement with its bank group to restructure its existing credit facilities, said Debbie Koopman, vice president of corporate and investor relations at Spiegel, Downers Grove, IL.


"In February we announced that because of our 2001 financial performance, we were not in compliance with certain loan covenants, and as a result we would be working with our bank group to restructure our existing credit facilities," Koopman said. "We've also announced that we are planning to sell our credit card operations, but that is an ongoing effort, and they are not related."


Koopman would not provide a time frame when asked about the sale of the credit card business.


Spiegel's bad-debt levels started to soar two years ago as the company targeted the sub-prime market -- consumers with troubled credit histories who are willing to pay high interest rates. The losses drained capital at Spiegel's federally insured bank, First Consumers National Bank, Beaverton, OR. Two weeks ago, the Office of the Comptroller of the Currency criticized the bank's record-keeping and ordered Spiegel to develop a plan to sell or liquidate the bank.


"They have 30 days [as of May 15] to file a disposition plan to sell, merge or liquidate the bank," said Eric Beder, an analyst with investment bank Ladenburg Thalman & Co., New York.


In January, the credit card unit's accounts receivable portfolio had a delinquency rate of 16 percent, Beder said, adding that the loss of the credit card unit could cut the size of Spiegel's catalog business in half.


"That's a worst-case scenario because it assumes that every credit card dollar disappears," he said.


So far, Spiegel's efforts to fix its problems haven't worked. Last year, it sent a hardcover spring/summer catalog to its best customers. For its fall/winter big book, the company updated its apparel and home furnishings items, adding more business and relaxed apparel and a new line of urban modern furniture. Last month, it closed a call center in Kansas City, MO, and eliminated 670 positions.


Meanwhile, bad debt and merchandising problems remain the company's biggest issues.


"Eddie Bauer hasn't had a positive comp since April 2000," Beder said.


For the year through May 25, total sales at Spiegel were $873.9 million, down 16 percent from $1.04 billion for the same period last year. May sales were $169.9 million, down 24 percent from $223 million last year. E-commerce sales fell 3 percent, and total direct sales declined 27 percent. Sales were down 23 percent at Eddie Bauer, 29 percent at Newport News and 22 percent at Spiegel Catalog.


Though Spiegel conceded that "customer demand was weak," it attributed some of the decline to lower catalog circulation this year, fewer Eddie Bauer promotions and credit restrictions at Newport News and Spiegel Catalog.


The company said its majority shareholder -- Germany's Otto family -- is expected to continue to provide financial support, including making timely payments to all vendors. The Otto family owns the Otto Versand mail-order empire.


"I'm assuming they have significant heft. They keep [details regarding] that close to the vest," Beder said. "The delisting is a short-term problem. They must revitalize the Eddie Bauer and catalog divisions."


Beder said improvements at Eddie Bauer are expected before the holiday season. The catalog division is another story.


"You'll start to see better numbers [for Eddie Bauer] in the second half [of the year]," he said. "In some cases, a majority of sales in catalog were in credit card, so there is a big hole they will have to fill. Without knowing what happens to the credit card business, it's impossible to predict a turnaround for Newport News and Spiegel."


The delisted shares are non-voting shares Spiegel sold to the public in 1987. The Otto family holds all of Spiegel's voting shares, which do not trade.


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