NEW YORK — The Warnaco Group Inc. turned a page Tuesday when it named Joe Gromek as its new chief executive officer, but market observers said the story of its turnaround effort is by no means over.
This story first appeared in the April 16, 2003 issue of WWD. Subscribe Today.
Sources said Gromek, who last served as chairman and ceo of Brooks Bros., will face two key challenges in his new post. One is to stem the company’s sales erosion and get Warnaco back on a growth track. The other is ensuring that the three executives brought in by former ceo and turnaround specialist Antonio Alvarez don’t bolt.
During Warnaco’s bankruptcy, Alvarez named three presidents to head up the company’s divisions: Tom Wyatt over intimate apparel, John Kourakos over sportswear and Roger Williams over Authentic Fitness. According to sources, both Wyatt and Kourakos had considered themselves in the running for the ceo position.
Now, all three will report to Gromek.
In a joint interview with Alvarez at Warnaco’s Park Avenue offices Tuesday morning, Gromek said: “I look forward to assimilating into the Warnaco Group and working with the division heads.”
Isaac Lagnado, president of the consulting company Tactical.org, said the division heads may be rethinking their options, following Gromek’s arrival.
“That’s a classic succession issue that you have in many companies,” he said. “If they are passed over, then the incentive for sticking around and being number two to a guy who may want his own crew and so forth becomes strong.”
Richard Murray, president of Wacoal America, the U.S. arm of apparel giant Wacoal Japan, said: “I’m shocked. I assumed Tom Wyatt would certainly be named ceo, or if not, John Kourakos would have gotten it.”
For his part, Kourakos said, “I just look forward to working with Joe.” Wyatt could not be reached for comment.
In the interview, Alvarez and Gromek contended that Warnaco, which emerged from bankruptcy in February, has put its financial house in order. Alvarez, who was named ceo in November 2001 following the resignation of chairman and ceo Linda Wachner, seven months after his turnaround firm (Alvarez & Marsal) began advising Warnaco, said the apparel company “has been fixed and is now growing.”
However, he declined to provide any numeric growth targets for the coming years, saying, “I don’t want to put any pressure on Joe.”
Warnaco has not shown financial growth in recent years. For the fiscal year ended Jan. 4, it reported a net loss of $964.9 million, deeper than the $861.2 million loss recorded a year earlier. Sales were also off 10.8 percent to $1.49 billion, well down from the peak of $2.25 billion reached in 2000. Operating results showed improvement, though still not a profit: Operating income came in at $87.3 million last year compared with $580.9 million.
While the company took strong cost-cutting measures while in bankruptcy and has greatly improved its debt structure, observers said it’s not out of the woods yet.
“They’ve done a yeoman’s job in putting things back together that were broken,” said Andrew Jassin, a partner in the Jassin-O’Rourke Group consultancy. “But I think they’re far from being in…the black.”
Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, said: “Warnaco was strong enough to have emerged from Chapter 11. Now, it’s a work in progress, and there will be a repositioning, a period of adjustment and getting well.”
Tactical.org’s Lagnado added: “A company like that has to grow…it needs an infusion of new design, spicing up of brands that are very matured. And that is not Alvarez’s job. That is Mr. Gromek’s.”
Alvarez’s time at Warnaco has been remunerative for him and his firm. According to filings with the Securities and Exchange Commission, Alvarez and his associates so far have earned at least $10 million in cash, notes and securities from its work on Warnaco. That total includes consulting fees paid to the company, salary and bonus payments to Alvarez, as well as the salary paid to James Fogarty, an Alvarez & Marsal managing director who currently serves as senior vice president and chief financial officer at Warnaco.
A Warnaco spokesman said the company is still seeking a successor to Fogarty.
Following Gromek’s start as ceo Tuesday, Alvarez will continue to be paid his salary of $125,000 a month for 15 days. After that, he will be paid $750 an hour for his consulting services to the company, according to the filings.
When a successor is named to Fogarty, he will also continue to receive a salary for 15 days and then will be paid $475 an hour for his consulting services. Alvarez said he will retain a seat on Warnaco’s board. Gromek has also been given a seat. Warnaco’s board is headed by a nonexecutive director, Stuart Buchalter, a California lawyer.
Gromek, 56, stepped down as chairman and ceo of Brooks Bros. in January 2002, following the company’s acquisition by Retail Brand Alliance. He had headed Brooks Bros. since April 1995. His work at Brooks Bros. got lukewarm reviews from some sources, who questioned whether his efforts to attract younger consumers were effective.
Prior to that, he was at Ann Taylor and also worked in merchandising capacities at Saks Fifth Avenue and Lord & Taylor, where he oversaw categories including jeans and innerwear.
Warnaco shares rose 57 cents to close at $10.12 in Nasdaq trading Tuesday. That put its market capitalization at $535.7 million, well off its peak of $2.8 billion reached in June 1998.