Byline: Catherine Curan

NEW YORK — Norton McNaughton Inc. has agreed to purchase Miss Erika, a $90 million-a-year manufacturer of moderate casual separates, for $24 million in cash.
The deal is expected to be closed in the fourth quarter, and Norton McNaughton will record a one-time charge for the acquisition in that period.
Also on Thursday, Norton McNaughton reported a third-quarter 22.1 percent earnings gain fueled by cost controls.
Shares of Norton McNaughton rose 3/8 to close at 5 3/4 Thursday in over-the-counter trading.
In the quarter ended Aug. 2, Norton McNaughton earned $712,000, or 10 cents per share, against $583,000, or 8 cents, a year ago. Sales were essentially flat at $48.2 million against $48.3 million.
Gross margins declined to 22.3 percent of sales from 23.2 percent, but selling, general and administrative expenses dropped to 18.7 percent of sales from 20.1 percent.
In the nine months, Norton McNaughton lost $2.8 million after a $5.7 million pretax charge to cover severance payments, termination of certain lease obligations and establishment of reserves for certain contingencies, including the anticipated closing of the Norty’s retail stores. Sales slipped 3.6 percent to $142.7 million from $148.1 million.
In the year-ago nine months, the company lost $433,000.
Peter Boneparth, president and chief operating officer, said third-quarter results were in line with expectations. He noted that gross margins were down slightly, but overhead savings helped improve operating profits.
“We expect to benefit from ongoing overhead savings in the fourth quarter and beyond, but at present we are disappointed with holiday bookings,” he commented.
Boneparth said the company has cut production for fourth-quarter merchandise to minimize future markdowns and to aid margins.
In a telephone interview, Boneparth said that in the past Norton McNaughton was a “very sales-driven company.” He said, “Now we’re becoming much more of a profit-driven company.”
Boneparth declined to elaborate further on specific measures, except to say the company is closely monitoring expenses.
Boneparth also noted that beginning with Nov. 30 deliveries, Norton McNaughton will have a narrower assortment and has cut wholesale prices on average by 15 to 20 percent.
Norton McNaughton also said it has acquired substantially all the assets and will assume substantially all the liabilities of Miss Erika Inc. a privately held maker of moderate women’s casual separates.
Terms of the deal provide for a cash payment of $24 million at closing, with possible additional payments based on Miss Erika’s ongoing profits.
Norton McNaughton expects the acquisition to add to earnings per share in fiscal 1998.
New York-based Miss Erika designs, markets and contracts for the manufacture of women’s moderate separates, including knit tops and bottoms, sweaters, dresses and short sets. Sold mainly under the Erika label, the line is distributed through regional, department and specialty store chains.
Boneparth said the deal gives Norton McNaughton entry into new channels of distribution, noting that Norton McNaughton’s major accounts are Federated Department Stores and May Department Stores Co., while Miss Erika’s major customer is J.C. Penney Co. “They do a lot of business with small specialty accounts we don’t deal with. It’s a good blend and diversifies our distribution,” he said.
Boneparth said Miss Erika competes mainly with retailers’ private label programs. Retail prices for most Miss Erika products range from $14 to $40.
After the deal is completed, Miss Erika will operate as a separate subsidiary under the direction of Stuart Bregman, chairman and chief executive officer of Miss Erika, as well as Howard Zwilling, president and chief operating officer.
Bregman will also be a member of Norton McNaughton’s board.
Boneparth said the acquisition is part of Norton McNaughton’s plan to acquire companies that are accretive to earnings, have strong management teams and broaden Norton’s channels of distribution.
Norton McNaughton’s labels include Norton McNaughton, Maggie McNaughton, Modiano, Danielle Paige, DPS and Norton Studio as well as private labels Lauren Alexandra and Pant-her.