Southwest Cools its Heels and News on Other Financially Challenged U.S. Companies for May 8

The items below are taken from the Credit Manager’s Weekly Summary of Financially Challenged Companies. A full issue contains information on more than 200 companies. Please visit the insideARM bookstore for information on subscribing to the Summary.

Challenger Powerboats Inc., Washington, Mo., filed Chapter 7 following a string of losses, including $4.6 million in losses last year. The filing was made in the U.S. Bankruptcy Court in St. Louis. As of the end of last year, Challenger, had assets and liabilities of $6.4 million and $11.3 million respectively.

Aldi, the German-based supermarket operator, will expand in Florida, saying it will open thirteen stores in the Orlando area and a distribution center in Haines City. Aldi’s Florida expansion calls for adding about 400 jobs.

Avis Budget Group Inc., Parsippany, N.J., reported a first quarter net loss of $12 million. Revenue increased 6%–to more than $1.4 billion.

Bakers Footwear Group Inc., a St. Louis, seller of women’s shoes and accessories, reported its fourth quarter net income soared fivefold–to more than $7.3 million. Sales fell 11%–to $54.7 million. For the year, it lost $17.7 million while sales declined 9%–to $186 million. The quarter and year included gains of more than $4.7 million and $1.5 million respectively mostly from the disposal of property and equipment and impairments.

Countrywide Financial Corp.’s CEO of loan administration, Steve Bailey, admitted to a Senate panel that the Calabasas, Ca. mortgage firm had made certain errors, but he denied that his company’s employees tried to add on inappropriate fees for borrowers. In any case, Countrywide will reportedly take measures to improve its operations.

Drugstore.com Inc., a Bellevue, Wa. Internet drug company, reported a narrower first quarter loss of $2.7 million, down from a $3.8 million loss a year ago. Sales were up 10%–to $121 million. Also, the retailer predicted a loss of as much as $3 million for its second quarter. For the full year, Drugstore.com expects earnings of between a $3 million loss and a profit of $1 million, on sales of between $490 million and $500 million.

Fannie Mae’s shares rose sharply despite continued losses, on news that the loan company will raise $6 billion in new funding so that it can buy more loans and strengthen its balance sheet. Wall Street approval came despite Fannie Mae reporting a $2.2 billion loss in its first quarter, following a $3.6 billion loss in its fourth quarter. The company also warned that more losses could follow.

Great Atlantic & Pacific Tea Co., the Montvale, N.J. chain of supermarkets, reported a fourth quarter net loss of $61.5 million. Sales jumped 74%–to $2.2 billion. For the year, it lost $161 million on a 19% sales increase–to $6.4 billion. The quarter and year included charges of $645,000 and $436,000 respectively from the sale of certain Canadian operations. Results were also affected by a $184 million gain from the sale of Metro Inc.

Medtronic Inc., the Minneapolis, maker of medical devices, announced that it will reduce its payroll by 1,100 workers over the next year, particularly at its operations around the world where growth has slowed down. Some job cuts will be made up by hiring at other areas. All told, Medtronic has 39,500 employees.

MGM Mirage, the casino and hotel company, reported its first quarter net income declined 30%–to $118 million. Revenue slipped 2%–to $1.9 billion. Results were hurt by the temporary shutdown of its Monte Carlo resort and overall weakness in the economy. Recently, MGM said it would trim its payroll by more than 400 management jobs.

Playboy Enterprises Inc., the Chicago, adult entertainment firm, reported a first quarter net loss of $3.1 million. That compares with a profit of $1.5 million in the year-earlier period. Total revenue fell 8%–to $78.5 million, with revenue dropping across all of Playboy’s divisions.

Southwest Airlines Co. is cooling its heels for the time being, waiting for continued consolidation of the big legacy carriers before it makes further expansion moves. It’s felt that the big airlines might pare back on their flight schedules to reduce costs and in any case after the dust settles from mergers, both announced and expected soon, Southwest may find itself with ample opportunity to move in on locations abandoned by other carriers to boost its marketshare. According to one estimate, overall airline capacity is down at 3%, largely at airports where the big hub-and-spoke airlines such as United and US Airways compete against Southwest, which would then pick up the slack. Southwest could also move in on the turf of Frontier Airlines, the bankrupt Denver, carrier that could be forced to retrench as it restructures. Meanwhile, Southwest seems well positioned to expand, as it’s sitting on $3 billion in cash.

Tenet Healthcare Corp., a Dallas, hospital operator, reported a first quarter net loss of $31 million. Revenue rose 7%–to $2.4 billion. The results included $48 million in charges mostly from restructuring, impairment, litigation and investigations. The year-earlier quarter’s profit of $75 million was inflated by a large tax gain. And despite the loss, Tenet pointed to an increased number of admissions as evidence for success of its turnaround plan. The company, which has been dumping some of its poorer-performing operations to focus on more-profitable businesses, is still trying to overcome a series of business scandals from more than five years ago.

Wachovia Corp., the big Charlotte, N.C. bank, revised its first quarter loss upwards by 80%, now taking a loss of $708 million for the period because of a more than $300 million in writedowns on contracts in its life-insurance portfolio. Less than a month ago, Wachovia reported a loss of $393 million for the period. The quarter also included other writedowns of $2 billion from the credit crisis as the company also set aside $2.8 billion for bad loans. Wachovia warned that it will also incur at least $800 million in charges in its second quarter related to tax treatments of certain leveraged lease transactions.