Harry & David in Desperate Need of More Capital

Jan 19, 2011 8:26 PM  By

The holiday season was not a happy one for Harry & David Holdings, and the company said yesterday it will not be able to finance continuing operations without securing new capital and restructuring its obligations.

The parent company of food and gifts merchants Harry & David, Cushman’s and Wolferman’s released a statement that said it believes its cash on hand is sufficient to fund short-term operations, based on the its current working capital and anticipated working capital requirements and results of operations.

In a filing yesterday with the Security and Exchange Commission, Harry & David said it will “not be able to borrow under the $105 million revolving credit facility, as amended as of July 7, 2010, unless it is amended or the financial covenant noncompliance is waived.”

The company said it plans to have discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize. Harry & David has retained Rothschild as financial advisor and Jones Day as legal advisor to explore recapitalization alternatives.

When it reports financials for the second quarter, which ended Dec. 25, early next month. Harry & David is projecting net sales of about $262 million, compared to $267 million in the same period last year. Its adjusted EBITDA from continuing operations will be approximately $36 million compared to $67 million in the year-ago quarter.

For the 12 months ending Dec. 25, Harry & David said it expects to report net sales of about $416 million, compared to $443 million in the prior-year period, and negative adjusted EBITDA from continuing operations of approximately $17 million compared to positive adjusted EBITDA from continuing operations of $21 million in the year-ago period.

The company said in a release that “despite making product improvements, introducing new packaging, accelerating marketing initiatives, enhancing Harry & David’s website and taking cost-reduction actions,” it was forced to offer “significantly greater than expected discounts during the key holiday selling season.”