LESLIE FAY PULLS PLUG ON THEO MILES LABEL; LAURA POMERANTZ OUT
Byline: Arthur FriedmanWith contributions from Anne D'Innocenzio
NEW YORK--The financial woes at Leslie Fay Cos. claimed two more victims Wednesday. Less than two years after the much-troubled company, now reorganizing in Chapter 11, launched Theo Miles as a major challenge to better-price sportswear giants such as Liz Claiborne and Jones New York, the omnibus label is being discontinued. With the move, Laura Pomerantz, executive vice president of the company and chairwoman of Theo Miles, said she will leave the company in late November, after 18 years. She will remain on the firm's board. In a telephone interview, Pomerantz, who is the wife of Leslie Fay chairman and chief executive officer John J. Pomerantz, blamed the company's financial problems for the failure of Theo Miles and explained her reasons for leaving. "I feel like a minister without a portfolio," she said. "Theo Miles was launched just before the company filed Chapter 11, and the company could never dedicate the proper resources to promoting the label. We had to pull the advertising, and we didn't invest in things like proper fixtures and displays. "I still believe the concept was right, but when you compete against the big boys like Liz Claiborne and Jones New York, you have to be able to compete with all your resources, and we weren't able to do that because of the Chapter 11. I also recognize the need to focus resources on Leslie Fay's core business." She also noted that it was time to commit to fall 1995 piece goods, and the company wasn't financially ready to do so. When it was launched in January 1993, Theo Miles was projecting a volume of $500 million within five years. While the company doesn't break out divisional volume, Pomerantz said: "We were on track, I'll tell you that." Industry sources said the division generated only about $50 million in the past year, and suffered from severe markdowns and returns. Although some sources added that the collection of traditional sportswear, knits and dresses missed the mark in terms of design, Pomerantz didn't agree. "The line had some pretty good selling in specialty stores, although department store business was disappointing. But that was because it wasn't promoted properly," she said. However, Pomerantz admitted that last fall's collection was "too safe and that was a mistake." It resulted in poor fourth-quarter selling. She said fall activity at retail has been "decent" and that the current spring line, which opened about one month ago, is doing well. While retailers acknowledged that Theo Miles performed slowly, they expressed shock when they learned of the closing. "I am very surprised. The line was going through a lot of growing pains, but I though they would give it more time," said one buyer, who wanted to remain anonymous. "The line was having problems with styling and quality, but for spring 1995, I definitely saw an improvement, both in price and look." She said knits were strong, but the Collection area was weak. "I am in shock," said another buyer, who also wanted to remain anonymous. "It had been a struggle in terms of recognition of the label, but it seemed that there was light at the end of the tunnel." She added that Theo Miles had drastically reduced price points by 25 percent for fall 1994. The buyer also pointed out that just last week, the retailer held a Theo Miles trunk show in one of its suburban stores, which was "a real success." "When they first launched the line, they were touting it as having a bridge look with better prices," she said. "But they never delivered on their promise." The company said it will honor all holiday and spring orders for Theo Miles, and will make efforts to place as many people from the unit within other Leslie Fay divisions. The company also said it anticipates taking a charge in the fourth quarter in connection with the discontinuance of Theo Miles. The 46-year-old Pomerantz said she's leaving the company altogether because "I felt it wasn't proper to uproot other executives who have been doing a good job." "It was the right thing do to," she said. "Theo Miles was my project. This also gives me a chance to smell the roses and spend more time with my family. I've worked my entire adult life. Before Leslie Fay I was with Burdines for 3 1/2 years, and before that I was a stock-option broker. It's time to go on and pursue other things, maybe something outside the industry." In July, Pomerantz received a new contract putting her salary at $500,000, plus incentive bonus options. A company spokesman said it has not been determined how much she might receive in a possible severance package. Michael J. Babcock, president and chief operating officer of Leslie Fay, agreed that the company's financial problems led to the demise of Theo Miles. "Theo Miles was launched in 1993, virtually on the eve of Leslie Fay's Chapter 11 filing and during one of the most difficult women's apparel markets in history," Babcock said. "Under those circumstances, the progress made by Theo Miles was notable. But given the limits of the company's resources and the need to concentrate on those core businesses with the greatest near-term potential, we concluded that our capital and human resources should be focused on our other lines of better sportswear." Less than one month after Theo Miles was introduced, Leslie Fay announced that a massive accounting fraud had been overstating profits. The overstatment, it was eventually figured, came to $81 million over a three-year period through 1992, turning profits in 1991 and 1992 into losses. Two months after the disclosure of fraud, the company was forced into bankruptcy court when its credit dried up. Two separate investigations cleared top management--including John and Laura Pomerantz--of any prior knowledge of the scandal. Earlier this year, the company was involved in a bitter strike by the ILGWU after it said it was closing its domestic production facilities, primarily located in the Wilkes-Barre area of Pennsylvania. The strike was settled when the company agreed to convert one facility into a fast-turn dress factory, maintaining about half the work force. The 47-year-old company manufactures dresses, suits and sportswear under the Leslie Fay, Nipon Boutique, Nipon Studio, Kasper for ASL, Nolan Miller, Castleberry, Outlander and Andrea Gayle labels. Of those, Nipon, Kasper, Castleberry and Outlander are better-price lines. Arthur Levine, who is chairman of Leslie Fay's Sassco Fashions unit, which makes the Kasper suit, dress and sportswear lines, has said he would like to buy Sassco back from Leslie Fay. The company has said it does not want to sell the unit, since it is reportedly the most profitable area of the company and the largest volume generator, with sales estimated at $350 million for 1994. According to sources close to the company, Levine has the financing in place, but creditors are torn over whether to cash in on the sale of the division, which would cut the volume of the firm in half. In a related development, which the company said was "intended to focus...resources and enhance profitability," the Leslie Fay Dresses and Sportswear division is being split into two operating units. Under the new structure, John Ward will have responsibility for all of the dress lines, including the Leslie Fay Dress, Nipon Boutique, Nipon Night and Andrea Gayle brands. Ward joined Leslie Fay in 1989 as chairman of Andrea Gayle. He was chairman of the combined Leslie Fay Dresses and Sportswear division. Richard Kramer, who was president of Theo Miles, will become president of the Leslie Fay Sportswear Group, responsible for the firm's Leslie Fay, Nipon Studio and Outlander sportswear labels. Kramer joined Leslie Fay in June, arriving from Liz Claiborne, where he was president of the Collection portion of its sportswear division. "These restructuring initiatives will enable us to intensify our focus on the businesses with the most potential for profit and place Leslie Fay in the strongest position possible," said John Pomerantz.
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