Byline: Catherine Curan

NEW YORK — Norton McNaughton plans to take a $5 million special charge against earnings in its fourth quarter to cover costs of exiting unprofitable businesses, including the Modiano and Lauren Alexandra lines.
In addition, Norton will close its catalog division and liquidate inventory from the previously announced closure of its Norty’s retail stores. The company will also terminate its domestic piece goods cutting contract. Norton estimates elimination of these operations will reduce its annual sales by about $12 million. In the third quarter ended Aug. 2, the company earned $712,000 on sales of $48.2 million. Last year, it earned $1.5 million on sales of $220.8 million.
On Wednesday, following the announcement, Norton stock rose 1/16 to 5 1/2 on the over-the-counter market. On Thursday, it closed at 5 5/8, up 1/8.
The plan to cut back on various operations follows completion of the acquisition Wednesday of moderate women’s casual separates vendor Miss Erika, which posted sales of $90 million last year. The deal was completed for $24 million in cash.
Other efforts to improve profitability include focusing on its largest brands, including the Norton McNaughton line of career-oriented related separates, the Norton Studio collection of knit-based apparel and the Erika line.
Said Peter Boneparth, president and chief operating officer of Norton McNaughton, “After careful evaluation of the profit contribution from our operating units, we chose to focus our efforts on the largest and most profitable divisions and the future drivers of Norton McNaughton’s growth. We are optimistic that these recent initiatives will help streamline operations and improve profitability going forward.”
To finance acquisition of Miss Erika, Norton McNaughton entered into a $140 million secured term loan and revolving credit facility with Nationsbank Commercial Corp. and CIT Group/Commercial Services Inc. The credit will also be used for working capital. Norton will continue to factor its accounts receivable, as well as those of Miss Erika.

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