The next chapter in the FAO Schwarz/Right Start/Zany Brainy/ Noodle Kidoodle saga may be Chapter 11.
FAO Inc., the name adopted by Right Start when it bought the fabled toy retailer FAO Schwarz, said last week that it may have to declare bankruptcy if it can't renegotiate new borrowing restrictions that its bank, Wells Fargo, recently put into effect. Right Start bought 169 Zany Brainy stores last year, not long after Zany Brainy had bought out Noodle Kidoodle. Both Zany Brainy and Noodle Kidoodle have book sections in their multimedia offerings.
The announcement of possible bankruptcy followed the release of dismal sales and earnings figures for the third quarter. During the period, sales rose to $83.3 million (mainly because of the addition of newly acquired FAO Schwarz and Zany Brainy), but the net loss was $23.7 million, up from $9.9 million in the same period a year earlier. And sales at stores open at least a year were down 19.7% companywide and off 25.1% (to $49.6 million) at Zany Brainy.
The company blamed "restrained consumer spending and a weak economic environment" for the sales drop throughout the company. In addition, Zany Brainy's results were hurt by "aggressive promotions and sales events"; a "re-merchandising" program; and the installation of some 98 Right Start boutiques in Zany Brainy outlets.