WWD.com/business-news/business/li-fung-issues-profit-warning-6592620/
government-trade
government-trade

LF USA Exec Change Marks Turnaround Effort for Firm

The hope is Dow Peter Famulak will be able to complete the turnaround of Li & Fung’s U.S. operations this year.

A shake-up atop Li & Fung’s LF USA unit — which saw the baton passed to Dow Peter Famulak from Rick Darling — signals a renewed effort to turn around the company’s U.S. operations and, perhaps, a new approach at fashion’s most powerful sourcing firm.

On Friday, the company warned its 2012 profits would likely fall short of the prior year’s take of $681.4 million. Core operating profit is expected to fall 40 percent.

“Based on the preliminary review of the ongoing restructuring of LF USA’s business, including the reduction in the number of brands distributed in the USA which negatively impacted the company’s margin, the group’s efforts to improve the second-half results will not achieve an improvement in core operating profit,” Li & Fung said.

The rest of the company’s operations performed as expected.

The U.S. division has been a challenge for the Hong Kong-based Li & Fung, which flagged the unit’s slower-than-expected turnaround over the summer.

The hope is Famulak will be able to complete the turnaround of Li & Fung’s U.S. operations this year. He was quietly tapped as president of the division last month and is responsible for its day-to-day operations.

Famulak continues to be president of LF Europe, a role he took on in May. He is also president of the Direct Sourcing Group, a dedicated subsidiary servicing Wal-Mart Stores Inc., and president of LF Beauty, Li & Fung’s health, beauty and cosmetics business.

The switch moved Darling into a “non-operating role” at the company. A spokeswoman said Darling would now focus on business development for LF USA and LF Europe as well as key customer relationships with companies such as Wal-Mart.

Darling did not return a request for comment and a spokeswoman for Li & Fung in the U.S. declined to comment.

There have been rumblings for the past year that the U.S. division was troubled, following its many acquisitions.

Sources describe Darling as a personable executive who is good at seeing the big picture, with a strong suit in business development. They also noted that Famulak’s operations expertise would help him address issues that have cropped up as the company acquired a number of businesses over the past five years.

“When they bought companies, they just kept them as companies,” said one source. “It’s not one company Li & Fung, it’s Li & Fung a holding company of lots of little businesses.”

Although Famulak’s new position heaps on additional responsibilities, he is believed to be able to handle the added pressure.

Sources noted that Famulak could take the division in a new direction and speculated that LF USA may have overpaid for the companies it bought and fell short on back-office integration. Those individuals specifically cited the acquisitions front as the problem at LF USA, not its sourcing component.

LF USA made its big acquisition play under Darling’s rule, starting with the $330 million purchase of handbag firm Van Zeeland Inc. in 2008. Van Zeeland’s brands include Kathy Van Zeeland, B. Makowsky and Tignanello. It then acquired Kids Headquarters in 2009 for between $100 million and $140 million, footwear firm Jimlar in 2010 for reportedly $450 million and the Oxford Apparel Group division of Oxford Industries for $121.7 million that same year. In 2011, LF USA snatched up Beyond Productions, boys’ apparel firm Fishman & Tobin, and accessories firm Crimzon Rose, each at an undisclosed amount.

LF USA has also entered into a number of licenses over the years that include Jonathan Adler, Ellen Tracy, Vena Cava, Marchesa, Nautica dress shirts and Geoffrey Beene pant license, among others. That’s not including the licenses bought through acquisitions.

Sources said the company could trim back on a number of its licensed businesses.

“The days of the manufacturing-only model that Li & Fung was building on, these days are numbered,” said another source. “That’s a model that is costly and a lot of people of any size and scale don’t really need Li & Fung to do their manufacturing.”

Li & Fung coordinates production for brands and works with the factories, charging both sides about 6 percent off the top, a source said.

Darling’s position at Li & Fung gave him a high-profile position in the industry.

Darling is the current chairman of the American Apparel & Footwear Association. Kevin Burke, president and chief executive officer of the Washington-based trade association, said Darling would serve out his term, which ends in March.

“The industry has greatly benefited from his leadership as the chairman of our organization for the past two years,” Burke said.