Gadzooks' CFO Returns

DALLAS-Four years after a CFO’s exit, the top exec is back at the helm to lead Gadzooks Inc. out of bankruptcy. The specialty teen retailer plans to emerge from a Chapter 11 in the next two fiscal quarters.

Monty Standifer, who’s taken back the reins, did not return telephone calls for comment on his reappearance earlier this week at the retailer’s Carrollton headquarters. Gadzooks announced it will break out of bankruptcy by midyear, but it’s unclear if the plan’s on track. A company spokeswoman says Standifer is still at the assessment stage after being gone five years. Standifer was CFO from 1992 until 1999.

Gadzooks, operating 243 stores in 40 states, filed Chapter 11 in US Bankruptcy Court for the Northern District of Texas in February. Since then, its leaders pared 167 stores and pulled California from the roster plus eliminated more than 60 corporate positions. Just last month, the chain obtained a $5-million loan from Gryphon Master Fund, a Bermuda limited partnership, to buy seasonal merchandise and inked a deal with six investment companies to drum up $25 million in cash related to a back-stopped rights offering of common stock.

Gadzooks is no longer covered by analysts, but its former watchdogs say the chain’s replacement of a dual-gender lineup with teen-age girls’ fashions might not be the answer. “It’s not longer differentiating. Its stores are too small,” Steve Denault, senior research analyst for Minneapolis-based Northland Securities, tells GSR. But then again, the chain had to do something to stay alive. “It was either die a slow death trying to appeal to both genders or refocus,” he says. Gadzooks’ shops range from 1,200 sf to 1,500 sf, about three times smaller than a typical GAP store.

It remains to be seen if Gadzooks can be a strong competitor in a fast-paced, fickle market, explains Elizabeth Pierce, a specialty apparel analyst in Los Angeles for Houston-based Sanders Morris Harris Group Inc. “They took some pretty big gambles on their assortments when the skewed the mix,” she says.

Teen shoppers have “certain icon items,” Pierce says, “but I don’t believe they can have their entire wardrobe with icons. They will pay up for the icon, but won’t if it’s a commodity.” Not only are girls today more price savvy than ever before, but their trend demands prompt quick changes in the marketplace. She says what used to take years can move out of style in weeks as teens and pre-teens follow leads set by their starlet icons.

Gadzooks plan to emerge from bankruptcy is coming just as European retailers like H&M and Zara are making a push in the US. The added competition from the European fashion scene and the target market’s reputation for fast turns are sure to challenge Gadzooks’ new focus. “Because of these changing dynamics on the supply and demand side, is that going to change how they (teen retailers in general) do business,” Pierce says. “My experience is teen girls go everywhere. They aren’t loyal to anybody.”