IDEX Online Research: Whitehall - Under Siege

Whitehall Jewellers continues to remain in the news . . . mostly for the wrong reasons. It is bad enough that its financial results are disappointing; sales have been trending down for the past five years and losses are mounting. In addition, the company has been challenged by a number of other factors – many beyond its control – that have diverted management’s time, energy, and focus from its core jewelry business (Full analysis here: www.idexonline.com/pdf_files/IDEX_Online_Research-Whitehall_Feb_06.pdf). 

The bottom line question is this: Will Whitehall survive long term? 

IDEX Online Research examines the challenges which have interfered with Whitehall’s day-to-day business of selling jewelry. While we are unwilling to sound the death knoll for Whitehall, we can say this: it will take longer and cost more to bail Whitehall out of this life-or-death situation than anyone can imagine. Thus, the question about Whitehall’s long term prospects can only be answered by its new owners – whomever they end up being. Will these new owners have sufficient money and patience to nurse this sick company back to health? 

Here is the legacy of challenges that Whitehall and its potential new owners will face, as they attempt to dig the company out of its current quagmire:

·        Whitehall’s sales productivity is sub-par by almost every benchmark used to measure retailers’ financials.

·        Whitehall’s profitability has evaporated; the company has been unprofitable for the past three years.

·        Whitehall stopped accruing for income taxes in the third quarter of 2005, saying that it was unsure if it would ever generate enough profits to offset the accrued tax-loss carry forwards. This could lead to a “going concern” opinion by its accountants; this means that that the auditors will question whether the company has long term sustainability. 

·        Whitehall has a capital crisis. Last fall, the company said it was seeking an infusion of capital to keep it afloat.

·        Management has mentioned bankruptcy as an alternative to give the company time to reorganize.

·        Turmoil among the board and top management has taken its toll, especially in 2005.

·        Legal investigations by the SEC, the New York Attorney General’s office, and Capital Factors diverted management’s time and energy from day-to-day operations. In addition, the company spent millions defending itself, only to end up paying a hefty fine to stop the investigations.

·        Amidst all of these challenges, the company has attempted to reposition itself as a more upscale jeweler. The only problem is that someone forgot to tell its store employees.

·        Whitehall has announced plans to close roughly 20 percent of its store base. It will be difficult for management to scale back its support infrastructure enough to generated needed efficiencies to support a smaller store base, in our opinion. 

·        Finally, who will end up owning the company? Whitehall has two suitors; the board has vacillated between choosing one over the other. The decision should be based on more factors than simply who is offering the most money; unfortunately, the board does not seem to be evaluating those other factors. 

Click here, or go to www.idexonline.com/pdf_files/IDEX_Online_Research-Whitehall_Feb_06.pdf for full analysis ‘Whitehall: Under Siege’ by Ken Gassman.