NEW YORK — A year ago today, The Leslie Fay Cos. was regarded as one of the giants of the apparel industry. Today, after a gut-wrenching year of scandal, red ink and bankruptcy, it is a company struggling to reestablish itself.
Why Leslie Fay’s books were cooked, why bogus entries inflated its profit figures over a three-year period, remains a mystery. What is clear, however, is that the 47-year-old company has to do something to put the luster back on its reputation. What it hopes will be a significant factor in bringing that about is a three-year business plan now being completed under the direction of John J. Pomerantz, its embattled chairman and chief executive officer.
Pomerantz said he will formally present the plan to the company’s board and its creditors at the end of February. It will serve as a foundation for Leslie Fay’s reorganization plan required under Chapter 11. The firm has been operating under Chapter 11 since April, forced into the courts after its credit dried up following the accounting fakery that came to light on Feb. 1, 1993.
In a telephone interview, Pomerantz revealed some of the details of the revamping that he’s been orchestrating, along with Michael Babcock, president and chief operating officer, and John Dubel, who joined the firm in April as chief financial officer.
It includes substantial downsizing, a realignment of marketing, merchandising and production duties among four executives and still another shift in the firm’s storehouse of labels.
It was exactly a year ago today that the world of Leslie Fay was rocked by the announcement it had discovered false accounting entries that had significantly inflated its profits. Pomerantz and Babcock said they had no prior knowledge of the irregularities. Leslie Fay’s audit committee, made up of outside directors, hired Arthur Andersen & Co. to conduct an investigation. Andersen, the company said, came to the same conclusion, absolving “top management” of any implication in the plot. The report has not been made public.
Donald F. Kenia, corporate controller, was suspended as soon as the scandal broke and Paul F. Polishan, who was chief financial officer, was suspended about a month later. Kenia was fired in March and Polishan was dismissed in September.
Leslie Fay later asked the bankruptcy court to appoint an examiner to review the Andersen investigation, and last week the court named attorney Charles Stillman to carry this out. His report is due in mid-March.
The year of turmoil appears to have taken its toll on Pomerantz, once one of SA’s most visible and gregarious executives, a man who took a leading role in many industry functions and charity events. Once easily available to the media, he has become much less accessible, although he did agree to be interviewed for this article.
Pomerantz — whose father, the late Fred Pomerantz, started Leslie Fay in 1947 — declined to discuss the emotional cost of the affair or talk about the investigation itself.
“There have been so many things to do that I couldn’t be as visible as I used to be,” he said. “I’m not used to this, but once the plan is completed and presented, I expect to be more visible.”
Pomerantz emphasized that he has been working with retailers to maintain long-standing relationships and establish new channels of distribution. He declined comment, however, when asked whether the firm is eyeing more moderate markets, such as the national chains, as many apparel companies have already done in the face of retail consolidations.
When the Arthur Andersen report was completed in September, it showed that the false entries in Leslie Fay’s books resulted in an $81 million overstatement of earnings for the three years 1990-1992, Leslie Fay said. The restated 1992 results showed a $65.6 million loss on sales of $772.1 million.
Last week, the company reported a pre-tax operating profit of $1.8 million for the third quarter ended Oct. 2, on sales of $200.7 million. Pomerantz said the operating profit was indicative of the progress being made in “reducing expenses and improving our financial performance.”
This expense reduction has resulted in slashing the firm’s employees from 3,500 to 2,500 and cutting $40 million out of annual expenses. The firm has also centralized its manufacturing and sourcing to take better advantage of economies of scale and eliminate redundancies created by multiple divisions.
Leslie Fay added, however, that its financial performance continues to be negatively impacted by poor apparel market conditions, as well as by costs incurred as a result of its Chapter 11 case and investigations of its accounting irregularities. This resulted in a net loss in the third quarter of $8.5 million.
For the nine months ended Oct. 2, the firm showed an operating loss of $13.6 million on sales of $538.5 million. After the bankruptcy and other costs, the firm posted a net loss of $46.3 million.
The company said it expects fourth-quarter results to be hurt by one-time restructuring charges, inventory markdowns and other reorganizational items.
Still, Babcock, who joined the firm as chief operating officer in September 1992, said in a statement: “We are optimistic about Leslie Fay’s outlook in 1994. We are entering the new fiscal year with clean inventories, a leaner and stronger organization and strong support for our merchandise from our customers.”
Pomerantz said senior management has been repositioned to make the company more efficient. Leslie Fay’s divisions, he said, have been realigned under three top executives.
John Ward, who was named chairman of Leslie Fay Dresses and Sportswear in June, will also be chairman of a new Nipon Brands division.
Nipon Brands, formerly the Albert Nipon unit, will be made up of three collections: Nipon Studio, an upper-moderate career sportswear line, which opened for spring, and the reintroduction for fall 1994 of Nipon Boutique and Nipon Night. Nipon Boutique will feature better-price dresses and separates, and Nipon Night will include better-price eveningwear.
Robert Salem, formerly vice president of marketing for the Leslie Fay division, has been given the new post of vice president of sales for Leslie Fay Sportswear and Nipon Studio.
Salem, who joined Leslie Fay in 1990, reports to Catherine Bandel, who last week was named president of sales and marketing for the Leslie Fay and Nipon Brands divisions. Bandel, formerly president of SK & Co., a division of Bonaventure Textiles U.S.A., reports to Ward.
Alisa McNees, formerly vice president of sales and marketing for the Dana Buchman division of Liz Claiborne, has been named vice president of sales, Nipon Boutique and Nipon Night, reporting to Bandel.
“We are pleased that we continue to attract such talented and seasoned apparel executives,” said Pomerantz. “We see this as a vote of confidence in the actions we are taking to return the company to profitability. Under the leadership of John Ward, this new management team will enable our Leslie Fay and Nipon divisions to deliver a consistent style, quality and value to our customers.”
Pomerantz also said the Andrea Gayle dress label will be reintroduced for fall at the “entry-level moderate price point,” after being dropped last year. Ward will also oversee that division.
Pomerantz said his wife, Laura Pomerantz, who is executive vice president of Leslie Fay, will continue to oversee the Theo Miles division, the better-price omnibus label that was introduced last year, and will also head a new Outlander Studio division of better-price casual sportswear, as well as the Castleberry knits division. The Outlander label was discontinued last year when it and several others were merged into Theo Miles.
Pomerantz said the Theo Miles label, for which the company projected a first-year volume of $130 million to $140 million, was doing “fairly well” and still showed a lot of potential, although he declined to cite figures.
Arthur Levine remains as chairman of the Kasper for A.S.L. division, which includes Kasper Suits, Dresses and Sport collections, and is also in charge of the Albert Nipon Suits bridge-price line and Nolan Miller designer-price collection.
In December, the company also reinforced its production management, naming three vice presidents of manufacturing and a vice president of materials purchasing, each reporting to Donald Ochs, who in October joined the firm as senior vice president, worldwide sourcing and manufacturing.