FAO Inc. (King of Prussia, Pa.) has said that sales in its retail stores and through its catalogs and Internet sites had been disappointing and significantly below expectations.
The company stated that it had not observed the improvement in sales it had anticipated from its initial holiday marketing efforts, which commenced last weekend. Assuming a continuation of the trend observed in the past week, it believes it will not have adequate liquidity to operate its business normally in November and that liquidity in December would depend on whether the sales trend improves through the holidays.
In the near term, FAO said it was asking certain of its vendors to reduce shipments and most vendors to extend payment dates to the first of the year. It has also requested an overadvance from its lenders, which could lead to its lenders issuing a notice of default.
Last week, FAO said it was engaging an investment banker to assist it in raising capital. In light of current circumstances, it now says it has expanded the assignment to include a review of strategic alternatives, including a sale of the company, but it pointed out it has made no assurances that any alternatives would be available or, for that matter, acceptable.
FAO, formerly The Right Start (which changed its name after acquiring FAO Schwarz in 2002), operates about 142 stores under the Zany Brainy, Right Start and FAO Schwarz banners. It declared Chapter 11 bankruptcy protection in January of this year, but emerged in April.