Hartmarx Corp., on the verge of perhaps the biggest promotional coup in its 125-year history, is also facing a serious credit crunch that could threaten the company’s solvency.
This story first appeared in the January 20, 2009 issue of WWD. Subscribe Today.
As Barack Obama prepared to take the Presidential oath today and then attend the evening festivities clad in a Hart Schaffner Marx single-button, notch-lapel tuxedo, executives of the Chicago-based firm have been rushing to make new credit arrangements after a number of major banking partners cut the company’s credit lines.
“Our credit has been greatly restricted,” company president and chief executive officer Homi Patel said Monday from company headquarters in Chicago. “While we were not in violation of any covenant, our banks used their discretion to cut back the lines.”
Patel declined to detail terms of the company’s current credit lines or the extent of the cuts, but market sources told WWD that Hartmarx lost its overseas credit lines and saw its U.S. credit lines, held by Bank of America, Wachovia and JPMorgan Chase, among others, cut back severely.
Patel acknowledged that business at the venerable American manufacturer was challenged, citing a slowdown in its luxury division, which includes the Hickey Freeman and Bobby Jones brands, adding that fear in the marketplace led to the credit reductions. “The banks have been spooked,” he said.
He described the company’s current financial position as “very serious” and didn’t rule out bankruptcy as a possibility. “I won’t speculate on what will happen, but we are looking at all kinds of alternatives,” said Patel.
As the company works to line up new credit arrangements, Hartmarx will continue to ship spring goods and take orders during the fall market, which kicked off in New York this past weekend. “Business continues in a normal way,” said Patel.
The company has been in the public eye more than usual since Obama, the former Illinois senator, favored Hart Schaffner Marx suits during his campaign and since his November election victory. But the firm, which also markets a number of midtier tailored clothing licenses, contemporary sportswear brand Monarchy as well as several women’s wear labels, has battled a series of fiscal difficulties, culminating in its delisting from the New York Stock Exchange in November after it failed to maintain a market capitalization of $25 million over the course of 30 consecutive trading sessions.
Now listed on the Chicago Stock Exchange under the ticker HTMX, the company’s shares on Friday closed at 27 cents, up 8 percent on the day, for a market cap of $9.7 million. The high and low for the last 52 weeks are $3.40, reached on March 25, and 8 cents, on Dec. 4.
Through the first nine months of last year, the company lost $7.5 million, versus net income of $2.5 million in the corresponding period a year earlier, and saw sales decline 8.9 percent to $374.5 million. The company hasn’t yet released fourth-quarter or full-year results. It had $4.8 million in cash at the end of the third quarter with total debt of $155.9 million, up 16.1 percent from $134.3 million at the same point in 2007.
Sources said an announcement about the company’s plans could be made this week. In the event of bankruptcy, Hartmarx’s ties to union labor, one of the attributes that have made it attractive to Obama, could make a sale of the company or even selected assets problematic. Other tailored clothing producers said stores had been in touch with them to make contingency plans in the event Hartmarx is unable to deliver in the coming weeks. Among its marketing plans for the new year is the spring introduction of the Capitol Collection, inspired by Obama’s style.
One of the difficulties confronting Hartmarx is that its large and small retail accounts, feeling the sting of slow business and tight credit, have been slow to pay their bills.