NEW YORK — Shares of Mossimo Inc. took a beating Friday, dropping nearly 12 percent after the company reported a 61 percent swoon in third-quarter net income.

This story first appeared in the November 10, 2003 issue of WWD. Subscribe Today.

For the three months ended Sept. 30, net income descended to $630,000, or 4 cents a diluted share, from $1.6 million, or 10 cents, in the year-ago quarter. Excluding a tax loss carryforward, net earnings were $1.1 million, or 7 cents a diluted share, compared with pretax income of $1.4 million, or 9 cents.

The Santa Monica, Calif-based fashion licensing firm said that revenues from license royalties and design service fees for the quarter declined 2.6 percent to $4.2 million over $4.3 million. Royalties and fees attributable to its licensing arrangement with Target fell to $3.7 million from $3.9 million. The company explained that, although its year-to-date sales with the giant discounter are ahead 4 percent, higher sales early in the year caused a reduction in fees during the most recent quarter.

Mossimo’s results were released after the close of the markets Thursday. In Friday trading on the Nasdaq, shares shed 65 cents, or 11.8 percent, to close at $4.85 in trading volume that was more than four times its daily average.

Some of the selling might have been attributable to the apparent misinterpretation of company guidance, which was provided on a pretax basis.

Mossimo Giannulli, chairman and chief executive, said in a statement that results were in line with expectations. “We remain focused on enhancing our design and merchandising initiatives and we are optimistic about our prospects for the future,” he said.

In March 2000, Mossimo entered into a multiproduct trademark license and design services agreement with Target Corp. As a result of the agreement, the company now operates as a licensor and a design studio and no longer manufactures, sources or directly markets its products. It has a similar pact with Hudson’s Bay Co. that covers its Zellers stores.

For the nine months, income receded 53.4 percent to $3.9 million, or 25 cents a diluted share, versus income of $8.3 million, or 53 cents. Revenues slipped 2.2 percent to $16.9 million from $17.3 million. Included in the 2002 revenue was nonrecurring revenue of $1.5 million, which had been previously deferred by the firm pending results of a royalty audit that was completed last year. Excluding the nonrecurring revenue, the company reported a 7 percent increase in revenue.

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