NEW YORK -- The Leslie Fay Cos., reorganizing in Chapter 11, reported improved operating results in the first quarter ended April 2 compared with a year ago.

The women's apparel manufacturer said a conscious decision to cut back on production to keep end-of-season inventory low helped boost profit margins and turn a $182,000 operating loss last year into a $2.7 million operating profit in the latest quarter.

Reorganization costs of $2.9 million, interest and financing costs of $1 million and taxes of $300,000 put the net loss at $1.44 million in the most recent quarter. Last year, the net loss totaled $4.3 million.

Sales in the period, reflecting the planned decrease in production, dropped 29 percent to $146.2 million from $206 million a year ago.

The company said operating earnings are in line with projections in its internal business plan and that sales have been strong at retail.

"We have been very encouraged by our recent success in implementing the initiatives in our three-year business plan," Michael J. Babcock, president and chief operating officer, said. "We are continuing to significantly reduce expenses and strengthen our gross margins."

The company said gross profits in the quarter grew to 27.2 percent from 24.6 percent last year.

In addressing the revenue downturn, the company cited the closing of its Spitalnick division in the third quarter of 1993, the licensing of the Hue mark and the closing of the Hue division at the end of 1993, in addition to the deliberate cutback in production.

As far as its cash position, Leslie Fay said it remained strong at the close of the first quarter, with borrowings under its $100 million DIP facility at zero. The company said it had on hand cash or cash equivalents of $48.1 million.

The turnaround in the first quarter was in stark contrast to the fourth quarter ended Jan. 1, when Leslie Fay lost $18.9 million from operations.

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