CHANGES NEGOTIATED IN DKNY JEANS DEAL; FALL BOW IN JEOPARDY
NEW YORK — DKNY Jeans has apparently hit a snag.
Donna Karan’s jeanswear line — being made under license by Designer Holdings Ltd., the same company that makes Calvin Klein’s CK Jeans — was scheduled to be in stores this fall.
Maybe not.
A statement from Designer Holdings Monday, citing “unexpected difficulties” between it and Donna Karan International said there would be a delay “in the design, production and shipment of some portions” of the line and added that the companies “are negotiating an amendment to their previously announced licensing agreement.”
It did not spell out what the “difficulties” might be, nor did it explain what “some portions” meant. It also did not detail any aspect of the amended negotiations.
The only official of either company to respond to a reporter’s questions was Steven Ruzow, president and chief operating officer of Donna Karan, who said late Monday that his company was “in constant communication” with Designer Holdings.
“The situation is changing from minute to minute,” he said, “but I’ve spoken with them 10 times today on the phone. This will take a few more days to resolve, but both sides are working very hard.”
Asked if any DKNY jeans would be in stores this fall, Ruzow said: “It all depends on these negotiations.”
He would not elaborate further.
Designer Holdings declined comment beyond its statement.
Whatever the reasons for the delay, Designer Holdings stock suffered a 2 1/8-point drop Monday. The stock, traded on the New York Stock Exchange, closed at 11. The company went public in May at $18 a share and went as high as $34. Karan’s stock, also on the Big Board, gained 1/8 to close at 12 7/8, slightly more than half its June initial offering price of $24.
Until Monday’s surprising announcement, it was thought that this fall would signal DKNY Jeans’s entrance into the competitive — and potentially lucrative — arena being contested by other designer denim powerhouses such as Polo Jeans, Tommy by Tommy Hilfiger and CK Jeans.
Karan, of course, has offered jeans as part of the DKNY collection for years, but the licensing deal with Designer Holdings, signed last September for a 30-year period, was regarded as the step that could put her on par with the majors.
DKNY jeans accounted for 43.2 percent, or $117 million, of the DKNY apparel business in 1995. At the same time, CK Jeans were bringing in $460 million — a figure that went to $625 million last year — and Ralph Lauren’s Polo Jeans was projecting $300 million within three years.
The reason for the latest announcement was a subject of widespread speculation Monday. One financial analyst — who declined to be named — attributed the delay to Karan’s fine-tuning of the jeanswear lines, as well as to concerns over expenses involved with the production.
However, another analyst, Laurence Leeds Jr. of Buckingham Research, said concerns that the deal was on shaky ground were unfounded and that the stock market overreacted.
“There has been a colossal market reaction to the potential delay of the Donna Karan launch of six months,” he said. “I don’t understand why this is happening to the degree it is. The line isn’t ready to go out. If it’s not ready for fall, then it will be launched in the spring. Even with the delay, I think Donna Karan is a plus.”
Leeds also noted that Designer Holdings’ CK business is “very strong.”
“If there was no Donna Karan involved in this at all, the stock would still be worth 50 percent more than what it is being sold for now,” he said.
When Designer Holdings clinched the Karan license in September, it had two of the most powerful names in the designer industry in one house. It was also considered a coup because Karan had been notoriously reluctant to enter any kind of licensing agreement.
Designer Holdings’ chief executive officer Arnold Simon had a successful record with CK Jeans, which he took from $120 million in 1994 to $625 million last year.
The Karan jeanswear license — one of the company’s few licensing agreements — was projected to hit wholesale volume of $85 million to $95 million in its first season.