A $23.4 million impairment charge on its namesake brand drove Rafaella Apparel Group to a wider net loss in the second quarter and a loss on an operating basis.
The company also disclosed that it incurred severance charges of $1.1 million in the third quarter to cover the departure of chief operating officer Husein Jafferjee and chief information officer Jason Epstein, who was also vice president of strategic planning.
For the three months ended Dec. 31, the New York-based apparel firm reported a net loss of $26.4 million compared with a year-ago loss of $2.9 million. The losses for both periods include $1 million for dividends accrued on redeemable convertible preferred stock. The operating loss was $23.6 million versus operating income of $1.7 million in the 2007 quarter.
Sales were down 4.4 percent to $40.7 million from $42.6 million.
For the six months, the loss, including impairment, grew to $17.3 million from $1.5 million. Sales were down 0.4 percent to $89.6 million from $90 million.
Cerberus Capital Management acquired Rafaella in 2005, a deal financed by public debt that requires disclosure of financial results to the Securities and Exchange Commission.
Chief executive officer Christa Michalaros said during a bondholder conference call, “The single largest challenge is holding onto current bookings.”
Rafaella has been keeping its inventory management “super tight,” as well as implementing cost-cutting initiatives, she said. The firm has reduced head count 20 percent, eliminated marketing initiatives and suspended 401(k) contributions. She emphasized that the company is “spending only on must-haves” deemed necessary to meet the firm’s goals.
In its 10-Q filing with the SEC, the company said it had incurred severance costs of about $1.1 million in the current third quarter. In a separate SEC filing last month, the company reported that Jafferjee and Epstein were no longer with the firm.
Despite its cost-cutting, the company continues to be listed among the apparel firms on the lookout for attractive acquisition opportunities.
In its 10-Q, the company said its provision for sales returns, discounts and credits charged to earnings was $9.8 million, offset by authorized deductions of $9.5 million.
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