Frederick’s Burdened With Missteps, Debt

A series of high-level missteps, along with the pressure of massive debt payments, created the financial problems that led Frederick’s of Hollywood to file for Chapter 11 bankruptcy protection, according to details that were made available Tuesday.

Among the slip-ups at the legendary lingerie retailer: $9 million spent on new products that were then sold at a $5-million loss; $3 million spent on creative marketing consultants, “none of whom produced any tangible results” according to the filing; and $6 million spent on a custom-designed Phoenix warehouse that is four times larger than the company needs.

Adding to the confusion, the filing said, was a virtual revolving door to Frederick’s executive offices. The 54-year-old company is on its fourth chief financial officer since 1997.

And there remains the burden of nearly $55 million in bank debt, most of it incurred when the company was taken private for $70 million in 1997 by Chicago private investment firm Knightsbridge Capital Corp. Knightsbridge sold its stake in Frederick’s last month to a Newport Beach investment group, Wilshire Partners, for an undisclosed sum.

Frederick’s revenue also appears to have slipped. The company had sales of $146 million for the year ended July 31, 1999. The filing estimates sales of $140 million for the current fiscal year ending July 31. In 1996, the last year the company’s financial information was public, it had sales of $148 million. The company posted net income of $900,000 in 1999 but did not make public its 1998 or 1997 results. In 1996, it lost $840,000.

Separately, Frederick’s said Tuesday that it would receive temporary loans from Ableco Finance, a New York bank specializing in bankruptcy lending. It will use the borrowed money to pay for merchandise, employee salaries, marketing efforts and other business costs as it reorganizes its capital structure under court supervision.

Frederick’s managers, including Chief Executive Linda LoRe, said they expect to use the borrowed money to build stronger brands for the company’s bras, panties and other intimate attire.

LoRe said earlier that the bankruptcy is not expected to affect operations at Frederick’s nearly 200 stores nationwide.