NEW YORK — Hartmarx Corp. on Monday closed the books on a turnaround year and, it hopes, on a nasty accounting scandal involving its International Women’s Apparel division.
This story first appeared in the March 18, 2003 issue of WWD. Subscribe Today.
In doing so, the Chicago-based firm, best known for its men’s tailored clothing, named Steve Weiner chief executive officer of its International Women’s Apparel unit, succeeding Thomas Hall, who continues as president. Weiner retains his responsibilities as group president and chief operating officer of HMX Tailored. His duties at HMX Tailored will be relinquished by the end of the fiscal year in November as Hartmarx streamlines all men’s tailored clothing operations, except for Hickey Freeman, into a single operating unit.
Brian Evers, formerly chief financial officer of the Intercontinental Branded Apparel subsidiary, has been named cfo of IWA, succeeding Vanessa Ferizzi, who’s left the company, and reports to Hartmarx cfo Glenn Morgan. Aaron Hagen serves as cfo of men’s tailored operations in his capacity as senior vice president of Hart Schaffner & Marx.
The appointments and yearend earnings report follow, by six weeks, Hartmarx’s disclosure that it was delaying release of its operating results for the fourth quarter and year ended Nov. 30, 2002, in order to review IWA’s accounting records. At the time, Hartmarx ceo Homi Patel said that certain IWA transactions “did not appear to have been properly accounted for in IWA’s financial records for fiscal 2002 and prior periods.”
Following completion of an independent audit, Hartmarx said Monday that its earnings before extraordinary items for the year ended Nov. 30, 2000 had been restated as $6.7 million, $1.9 million less than originally reported, and the net loss for the following year, excluding extraordinary items, was $17.8 million versus the originally recorded loss of $13.9 million. IWA, the company said, is responsible for about 4 percent of corporate revenues, which totaled $570.3 million in 2002, and half of sales within its women’s segment, which also includes the Barrie Pace catalog.
“Even though the improper recording of accounts was discovered by our internal audit staff and appropriately reported, this was a significant setback at IWA, and we have taken action to ensure that such a situation is not repeated,” said Patel in announcing the restatements and concomitant appointments. Among these were the decision to have Evers report to Morgan and “more frequent periodic on-site review of the books and records of IWA and the company’s other subsidiaries by internal and outside auditors.”
Chief financial officer Morgan said Monday that he and other Hartmarx executives consider the internal investigation wrapped up. He said there are no other investigations into the matter by outside regulatory or enforcement agencies.
The news about the more recent past was more positive for Hartmarx, which reported net profits and earnings before interest, taxes and extraordinary items for both the fourth quarter and year ended Nov. 30, after coming up with red ink in both categories last year.
In the three months, net income reached $3 million, or 8 cents a diluted share, reversing a loss of $3.6 million, or 12 cents, in the 2001 quarter. On an aftertax basis, earnings in the most recent quarter were dragged down $800,000, or 3 cents a share, due to the retirement of senior unsecured notes last November. Earnings before interest, taxes and extraordinary items improved to $9.4 million from a loss of $1.7 million in the 2001 quarter. Sales receded 2.7 percent to $151.1 million from $155.3 million in the prior year. Income from licensing and other sources was essentially flat, rising to $971,000 from $968,000. Restructuring exacted a pretax toll of $3.1 million in the 2001 quarter and provided a $504,000 benefit in the comparable 2002 period.
For the full year, Hartmarx broke even with net income of $866,000, or 2 cents a diluted share, versus a loss of $17.9 million, or 60 cents, in fiscal 2001. Restructuring cost the firm $11.6 million pretax in 2001 and $366,000 in 2002. Earnings before interest, taxes and extraordinary items reached $21.1 million versus a $15.1 million loss in 2001. Sales backtracked 5 percent to $570.3 million from $600.2 million.
The fourth-quarter results allow Patel and his management team to proclaim themselves three-for-three in achieving the goals he established for last year — profitability and reductions in inventory and debt. He reiterated his previous expectation for this year of “a significant increase in earnings per share” even without improvements in the economy or retail markets.