NEW YORK — A change in accounting principle pushed The Warnaco Group Inc. $670 million into the red for the first quarter of 2002, but the bankrupt manufacturer saw its losses diminish during each month of the quarter.
This story first appeared in the June 17, 2002 issue of WWD. Subscribe Today.
According to a statement of operations contained in a Form 8-K filed with the Securities and Exchange Commission Friday, for the three months ended April 6, the bankrupt firm saw net revenues fall 17.8 percent to $410.3 million from $499.2 million a year ago.
The company, which filed Chapter 11 on June 11, 2001, actually posted an operating profit of $17.3 million, but an accounting rule change regarding the amortization of goodwill and other assets required that the company write off $664.8 million, contributing to the loss. Reorganization costs in the quarter also accrued to $16 million.
Excluding the charge and other expenses, the company would have posted earnings before interest, taxes, depreciation, amortization and reorganization costs of $36.9 million.
For the four weeks ended April 6, Warnaco reported a net loss of $270,000 on net revenues of $169.6 million. The company posted an operating profit for the month of $8.1 million and EBITDAR of $17.4 million. Reorganization expenses in the month of March came to $6.2 million.
Further breaking down the quarter by months, for the four weeks ended March 2, Warnaco reported a net loss of $1.1 million on revenues of $117.5 million. The company reported a February operating profit of $6.5 million and EBITDAR of $10.6 million. The company took no reorganization charges that month.
In January, when the accounting charge was applied, Warnaco reported a net loss of $654.7 million on revenues of $84.6 million. The company also posted an operating loss of $3.3 million. The cumulative effect of the accounting charge slashed $646 million from the bottom line, while EBITDAR equalled $1.1 million. The company also had $4 million in reorganization costs.
The future of Warnaco’s various operations remains up in the air more than one year after its Chapter 11 filing, with some sources saying that the firm’s ample roster of licensing agreements and the current soft condition of the apparel marketplace make sell-offs of its various divisions complex.
However, last month, Warnaco chief executive officer Tony Alvarez said the company may not need to sell any divisions after all, and felt pretty confident about the progress he’s made in turning the company around and the team he has built around him.
“Today, we still are in the process of entertaining offers for certain divisions, but the important thing is we’re doing so well, the stand-alone alternative is a real viable possibility, given the phenomenal results of the last six months,” Alvarez told WWD. “It doesn’t mean we won’t evaluate offers,” he added. “But we’ll evaluate it in contrast with the divisions, if we keep them.”
Alvarez attributed Warnaco’s success to better inventory control; improvements in liquidity; reducing backend problems in intimate apparel and Authentic Fitness; strong sell-throughs in sportswear, and the overall strengthening of its management team.”