By  on December 26, 2000

NEW YORK -- Duck Head Apparel Co. Inc. warned that disappointing sales and special expenses would widen second-quarter operating losses to a range of $975,000 to $1.2 million -- possibly twice as steep as year-ago losses of $594,000.

On Thursday, the stock lost almost a quarter of its value, dropping 63 cents to close at $2 in a punishing day on the American Stock Exchange.

The Winder, Ga.-based company also named Kurt Salmon Associates Capital Advisors Inc. as financial adviser to a special committee the board recently created to explore the firm's strategic alternatives. KSA will make a recommendation to a special committee formed for the purpose of exploring such changes.

In a statement, Bob Rockey, chairman and chief executive of Duck Head, said the company believes KSA is "the best fit for Duck Head in evaluating the wide range of potential alternatives."

The forecasted losses include approximately $325,000 in expenses related to the recent proxy contest in which investor Bettis Rainsford had sought to replace the company's current board of directors. He later withdrew his proxy solicitation after the board removed a poison-pill provision and reversed other actions which Rainsford had characterized as being "hostile to the best interests of the shareholders."

The contest put pressure on more than second-quarter earnings, though. Rockey said that it was "extremely costly to the company from both the direct financial impact of defending it and from the heavy toll on management's time."

Rockey said the expected shortfall will result from these charges and disappointing sales, which he attributed primarily to "poorer than expected retail sales at several of our major accounts where Duck Head business is heavily dependent on replenishing retail sales and in our own outlet stores."

The second quarter, which ends Dec. 30, could also include the financial impact of any share repurchases under a 1 million share right exercisable at the end of the quarter by Rockey and the company's new president and chief operating officer, Bill Roberti, who holds one-quarter of the right.

While the repercussion on the firm's share price depends upon the Dec. 30 closing price, Duck Head noted that, if the quarter closed at Wednesday's closing price of $2.63 a share, the right would effect an approximately 93 cent per share charge.The firm pointed to some positive signs in the quarter, though, noting that interest expense will fall dramatically to $150,000 compared to $2.1 million a year ago. Gross margins and cash balance are expected to show signs of improvement as well.

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