CANDIE’S REVEALS SEC INVESTIGATION
Byline: Thomas Cunningham / Vicki M. Young
NEW YORK — Candie’s Inc. disclosed it is under investigation by the Securities and Exchange Commission as it filed its much-delayed results for all of last year and the first quarter of the current year.
Candie’s, which makes Candie’s footwear and Bongo jeans, also restated its results for 1997 and the first three quarters of 1998.
The SEC said Wednesday it can neither confirm nor deny the existence of the investigation. But the firm in a press release as well in a 10-K filing with the SEC said SEC staff have commenced a formal investigation into Candie’s actions in connection with the accounting issues. In an earlier filing, Candie’s said it believed certain documents previously given to Ernst & Young in support of some transactions in the past two years were not genuine.
After the irregularities were discovered, Candie’s chief financial officer, David Golden, was replaced by controller Frank Marcinowski. The company also appointed a special committee of the board to investigate the irregularities, and terminated the services of its accountant, Ernst & Young, replacing it with BDO Seidman.
The restated financials for the most recent year ended Jan. 31 released Wednesday revised net profits for the first quarter ended April 30, 1998 down to $382,000 from an earlier-reported $1.1 million, the second quarter to $1.4 million from $3.4 million and the third quarter to a $502,000 loss from a profit of $822,000.
For the full year, Candie’s lost $641,000, compared to restated income of $3.4 million, or 25 cents a diluted share, a year earlier. Revenues increased 28.4 percent to $114.7 million from restated revenues of $89.3 million in 1997. Earlier, Candie’s had reported net income of $4.5 million, or 33 cents share, and revenues of $92.9 million for the 1997 period.
Some of the restatements were related to barter transactions where Candie’s exchanged footwear for media time, Candie’s chairman and chief executive, Neil Cole, said in a telephone interview. Others were related to transactions with a sourcing agent, Taiwan-based Redwood, and accounting for Candie’s 1998 purchase of Michael Caruso & Co, owner of the Bongo trademark, he noted.
“The majority of the issues that caused the company to restate its fiscal 1998 results and its quarterly results for fiscal 1999 were due to timing differences with respect to revenue recognition and reserves that were earlier passed by Ernst & Young, but BDO Seidman took a more conservative approach,” he said.
For the first quarter of the current year, Candie’s reported a loss of $1.2 million. Revenues in the three months ended April 30 fell 9 percent to $21.3 million from restated revenues of $23.4 million a year earlier. The lower revenue was mainly caused by lower sales of its Candie’s footwear, the company said.
On the plus side, Cole said, Candie’s fragrance, licensed to Liz Claiborne, was a top seller at department stores for its fall launch, and its Candie’s jeanswear launch also was well received at retail, Cole said. Lower sales for Candie’s footwear came because the company was managing growth in other areas, he noted.
“We may have taken our eye off the ball, but we’re back on track now,” he said.
Shares in Candie’s, which first disclosed accounting delays in May, have been halted by Nasdaq since June. The shares, which last traded at $3.06, will remain halted until Candie’s provides certain financial information requested by the exchange, a Nasdaq spokesman said.
Several shareholder lawsuits have been filed concerning the alleged misstated financial reports. The plaintiffs in the suits against the company and certain officers and directors, which charged that the company’s financial statements caused the price of Candie’s common stock to be artificially inflated, are seeking class-action status. The cases are still pending.