FAO Schwarz Files for Bankruptcy

FAO Schwarz filed for Chapter 11 bankruptcy protection on Monday, the high-end toy retailer said.

Agreements with lenders will allow FAO Schwarz to continue operating the FAO Schwarz, Zany Brainy and Right Start divisions.

The company plans to close 70 under-performing stores by March. About 50 of the under-performing entities are Zany Brainy stores.

King of Prussia, PA-based FAO Schwarz will meet with major creditors and file a reorganization plan that will allow it to emerge from bankruptcy by the end of the second quarter, according to a company statement.

Analysts blamed the difficulties on the company’s inability to compete with discount stores such as Wal-Mart and Toys "R" Us.

FAO Inc. reported a net loss of $23.7 million for the third quarter of 2002, compared to a net loss of $9.9 million in the third quarter of 2001.

FAO Schwarz was bought by toy retailer Right Start Inc. for $55 million last year. The Right Start changed its name to FAO Inc. It had purchased toy seller Zany Brainy Inc. out of bankruptcy in 2001 for $100 million. FAO Inc. operates 253 retail stores nationwide.