Pacific Stereo Troubles Add to Losses for Marantz
Executives at Marantz, the struggling Chatsworth home electronics company, thought the firm finally was out of the woods. Sales were up strongly and steady profits seemed just around the corner.
But, on May 13, Pacific Stereo, a major Marantz customer, filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code. It happened just as Marantz was about to release its financial results so, at the last minute, the company had to raise its bad debt reserve by $900,000. That move, intended to cover debts that the big stereo retailer might never pay, contributed heavily to Marantz’s first-quarter loss of $1.3 million.
“It’s just incredible,” said William Morris, chief financial officer at Marantz. “Everything starts going well and bang-o!”
Marantz’s first-quarter loss amounted to 55 cents a share, compared to a loss of $983,000, or 43 cents a share, a year ago.
Wasn’t Only Bad Break
But Pacific Stereo’s filing wasn’t the only bad break Marantz has had lately. It has suffered from the soaring value of the yen. The company makes 80% of its products--stereo equipment and videocassette recorders--in Japan. The increased value of the Japanese currency in relation to the dollar forced Marantz to raise its prices 3% to 5% on April 1.
Last week the company announced that it will raise its prices another 8% to 12% effective June 1, but that it would be as long as 60 days before the increases take effect because of previous commitments and back orders.
Marantz officials said they hope to reduce company reliance on Japanese manufacturing to 50% of production by the end of 1986.
The company may have yet another problem in lower interest rates. Marantz officials said sales are still strong, totaling $6.9 million in April, up 294% from a year ago. Many Marantz dealers, however, report an unexpected reduction in retail business, which they blame on consumers who buy cars and refinance homes while interest rates are low.
Marantz has had troubles for years. The 26-year-old company has had operating losses going back at least through 1979. Last year Marantz had a net loss of $1.6 million. It lost $138,000 the year before, a loss that would have been much higher but for $1.4 million in income tax benefits.
The company made a $1-million profit in the fourth quarter of 1985, and things seemed to be looking up. The rosy outlook was reflected on Wall Street, where Marantz’s stock closed at $14.75 on April 8, up from $3.50 on Dec. 31. It had eased to $10.625 by May 12, the day before the Chapter 11 filing, and then it dropped sharply. On Monday, it closed at $7.25.
