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Refinanced, Leaner He-Ro to Expand its Core Lines

NEW YORK -- After a string of bad news, lots of red ink and four postponements, The He-Ro Group finally got to hold its annual meeting this month, giving company officials an opportunity to express confidence about the company's...

NEW YORK — After a string of bad news, lots of red ink and four postponements, The He-Ro Group finally got to hold its annual meeting this month, giving company officials an opportunity to express confidence about the company’s future.

Chairman William J. Carone told the audience of about a dozen people that the firm had completed the restructuring of its debt by reaching a definitive agreement with Delta Asia Financial Group of Hong Kong to repay an outstanding $3.2 million loan over the next 13 months.

With the financing now in good shape, the firm plans to expand the offerings in its core eveningwear labels, he said. The company wants to be “the very best evening and special occasion dress house there is,” he said.

The postponements of the annual parley for the fiscal year that ended May 31, 1993, were due to the sudden death last September of Herbert Rounick, He-Ro’s chairman and founder, and to problems with financing. Along with this, the company went through a considerable downsizing late last year.

As part of the agreement with Delta Asia, until payment is made in May 1995, the loan will be secured by a pledge of 1.3 million newly issued shares of He-Ro common stock. Upon repayment in full, all of these shares will be returned to the company. As reported, He-Ro restructured its debt with its domestic lenders in January.

Carone, who as an outside chairman continues as senior vice president of Rosenthal & a factoring firm here, said, “With the financial issues behind us…we are positioned for a return to growth and profitability.”

Carone said 1993 was a difficult year for He-Ro due to a decline in profit margins, higher manufacturing overhead and an increase in markdowns.

He said the board analyzed the business following Rounick’s death and, as reported, embarked on the consolidation, closing many divisions, including bridge-priced licensed ready-to-wear collections sold under the Oscar de la Renta, Bill Blass and Bob Mackie labels. It has now refocused its business on three areas — its licensed Black Tie by Oleg Cassini collection, its Niteline in-house line and its retail outlet store operation.

Allan R. Bogner, president and chief operating officer, said starting with the upcoming fall season, the company is expanding its product mix in each of its collections beyond the traditional beaded dress business that had been the main concentration in the past.

“We believe we can better leverage these strong brand names to increase our market share in the stores,” he said.

Bogner said that while the company continues to manufacture most of its merchandise in China, there is a contingency plan to shift production into other Far East countries if China loses its most-favored-nation status.

He said fiscal 1994, which ends May 31, will be a transition year, but strategic moves and appointments “should begin to be reflected in the 1995 fiscal year.”

As part of the restructuring of its top executives, He-Ro has named Sam D. Kaplan chief financial officer, a position that had been vacant since Richard Woolwine left in November. Kaplan, who had been corporate controller since 1991, reports to Carone.

In the six months ended Nov. 30, He-Ro reported a loss of $22.9 million after a charge of $17 million related to the downsizing. That compares with earnings of $3.3 million, or 49 cents, a year earlier. Sales in the half sank 38.2 percent, to $60.4 million from $97.6 million.