California Apparel News

Licensing heavyweight the Warnaco Group Inc. announced earlier this week it would voluntarily petition for protection under Chapter 11, citing an economic downturn, heavy competition and weak retail environment as the leading sources of financial troubles.

The Warnaco Group Inc. manufactures such well-known brands as Warner’s lingerie, Calvin Klein jeans and underwear, ABS by Allen Schwartz, Polo by Ralph Lauren women’s and girls’ sportswear, Authentic Fitness, Cole of California and Speedo swimwear, among others.

News of bankruptcy isn’t altogether a surprise to some financial sources who, in previous months, have wavered on their predictions for the company’s future.

Some sources said they thought Warnaco’s lenders would keep the company afloat for their own investment purposes, while others said the company’s strategy of selling designer-label merchandise in mass quantities to department stores has failed to help the company meet its overall projections.

Other sources said the company began to rely heavily on its sports and swimwear divisions—paying less attention to its intimate apparel and other divisions.

According to Richard Hastings, an analyst at Global Credit Services, “There are a lot of risks associated with doing very seasonal and fashion sensitive things like swimwear.”

Hastings said part of Warnaco’s problems started when it began to “stray from their core merchandise mix—which was initially intimate apparel—and now the company’s merchandise mix has changed dramatically.”

For the fiscal year ending Dec. 30, 2000, the company’s sportswear was 54.5 percent of total sales, while its intimate apparel was 35.9 percent. “Five years ago intimate apparel was 75 percent of the company’s sales and swimwear was only 20.2 percent,” Hastings added.

The company’s Chapter 11 filing also comes after a series of business setbacks, which include legal disputes and violations of credit agreements, as well as the rapid decline in its stock value. Trading of the company’s stock was suspended on the New York Stock Exchange last week, closing at 39 cents per share. The company’s stock was at its highest in 1998, when shares were valued at $44.4375.

The New York City-based manufacturer employs 21,000 worldwide and distributes to more than 50,000 accounts, which include department and specialty stores and mass-merchandise stores in the U.S.

According to the court filing, the company estimated approximately $3.1 million in debt, claiming assets valued at $2.4 billion. U.S. Bankruptcy Court in Manhattan approved a $600 million debtor-in-possession financing agreement from a group of banks, including Citibank, J.P. Morgan Chase and the Bank of Nova Scotia, Warnaco officials said.

Warnaco’s 37 subsidiaries also filed the petition. A.B.S. Clothing Collection Inc., Authentic Fitness Corp.; Calvin Klein Jeanswear Co. and CKJ Holdings Inc. were among the subsidiaries that filed.

Los Angeles-based ABS Clothing Collection Inc. and Authentic Fitness in Commerce, Calif. are two West Coast companies under the Warnaco umbrella.

“Now that there’s a new infusion of finance I think things will be business as usual,” said ABS Clothing Collection Inc. CEO and creative director Allen Schwartz, whose divisions ABS by Allen Schwartz and Allen B. have been manufactured and distributed by Warnaco for the past two years. “This new funding could give [Warnaco] a second chance at a new beginning.”

Stanley Silverstein, Warnaco’s general counsel, said the financial assistance will allow the company to continue its business while it spends the next 120 days developing a new business strategy. “It’s much too premature for us to predict when the reorganization plan will ultimately be effective,” he said. “The good news is that we have the support of the banks that have provided us with a financing facility that will give us operating liquidity to continue the restructuring that we began in 2000.”

Hastings observed: “Warnaco’s management has some breathing room now so it certainly gives them some optimism about time to review their issues and come up with other workable solutions.”

The company said its international subsidiaries in Canada, Mexico, Europe, Latin America and Asia will not be affected by the filing.