NEW YORK -- Bernard Chaus Inc., buried by heavy markdowns, reported a loss of $8.5 million in the second quarter ended Dec. 31 and said it expects to show continued losses in its fiscal year.

The company also said that it is currently negotiating with its banks to modify certain covenants of its bank agreement and expects these talks to be successful.

The loss in the quarter compares with earnings of $126,000, or 1 cent a share, a year earlier.

Sales dropped 17.7 percent to $50.7 million from $61.6 million.

In the six months, Chaus had a loss of $10.2 million against a profit of $2.5 million, or 13 cents a share, a year earlier. Sales fell 4.4 percent to $120.3 million from $125.8 million.

Chaus's stockholders equity has been sliced by 50.8 percent to $22.9 million as of Dec. 31, 1993, from $46.6 million a year ago. Chaus stock closed Friday at 2, unchanged on the New York Stock Exchange.

Josephine Chaus, chairman and chief executive officer, said the company was forced to reduce prices as a result of the poor apparel climate.

"Price pressure by consumers put pressure on our department-store customers and in turn, on our company, to reduce prices in order to promote our product," she said. "Our strategy to reduce our inventory increased the proportion of sales that were made below standard prices and at the same time, increased the discount from the standard selling price."

Chaus said the company cut inventories by 11 percent to $34.5 million from the year-ago period.

The company has reduced operating expenses and downsized operations in order to bring the business back to a break-even level. Chaus said the company now is concentrating its marketing efforts on item classifications in department stores, reducing the styles in its line and maintaining lower price points.

She said Chaus's department-store customers are supporting these efforts, and while improvement is expected "we no longer anticipate that our efforts will produce a bottom-line improvement for the fiscal year." In the year ended June 30, 1993, Chaus posted a loss of $11 million.

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