National Lumber Begins Talks on Restructuring : Building Supplies: Increased competition and a slowdown in the local housing and home-repair markets have hurt sales.
Citing reduced sales and cash flow difficulties, National Lumber & Supply Inc. said Friday that it has initiated talks with its principal secured lender to restructure the company’s debt.
The company also said it has called a March 26 meeting with its major suppliers to discuss the struggling home-improvement retailer’s attempts to reorganize. The meeting is apparently designed to quell supplier’s concerns about the firm’s financial condition.
“We are conferring with our principal secured lender and have called a meeting with suppliers to work cooperatively in restructuring the company’s debt,” said a statement by Melvin Jaffee, president and chief executive officer of National Lumber.
The debt discussions and supplier meeting come as National Lumber is trying to develop a plan to improve operations. The company recently hired an investment banker, Wedbush Morgan Securities, to help it raise money for the restructuring.
Fidelcor Business Credit Corp. of Century City, the principal secured lender to National Lumber, confirmed that restructuring talks are under way. The amount involved could not be determined.
A top Fidelcor official said that the lender is open to proposals that might solve National Lumber’s debt troubles and that National Lumber is not in danger of defaulting on loans.
Jaffee said increased competition and a slowdown in the local housing and home-repair markets have hurt sales and “significantly decreased” cash flow, which affects the company’s ability to pay its bills for ongoing operations.
The company, which operates 21 do-it-yourself hardware stores in Southern California, has fared poorly in recent years as it faced increasing competition from larger chains, including Home Depot and HomeClub.
National Lumber lost $4.4 million on sales of $108 million in the three quarters ended Oct. 31. It lost $2.3 million on sales of $117 million in the same period in the previous year. It has not yet announced fiscal 1990 results. The firm lost $4.6 million in fiscal 1989.
The losses have raised concerns among the firm’s suppliers, some of whom have reportedly been reluctant to make shipments without cash-on-delivery payments. A company spokesman said about 100 supplier representatives are expected to attend the meeting.
Jeffrey Kilpatrick, president of Newport Securities, said the meeting with suppliers is probably designed to quiet the fears of some of the company’s important creditors. He said the acknowledgement of cash flow problems is significant.
“That’s a very dangerous cycle, if you can’t pay your suppliers on time,” Kilpatrick said. “They become less eager to ship you goods. You can’t make a profit if you don’t have product in the store.”
Jaffee said the company has already taken several steps to reduce costs. He noted that the company has closed its central warehouse--a move projected to save $3 million a year--and has started a self-insurance program.
“These actions have already resulted in significant expense reductions,” he said.
Jaffee had previously said the firm was renovating its stores to accommodate new displays for more upscale products, and offering in-home sales and installation of doors, windows and kitchen products.
Jaffee said in late February that these and other steps should help the firm return to profitability by the end of July. The company was founded by his father, Sol, in 1942.
