CHIC BY HIS RESTRUCTURING, PLANNING TO CUT 1,100 JOBS
NEW YORK — Chic by HIS Inc. plans to lay off 1,100 employees, or 22 percent of its work force, as part of its restructuring, according to its recently released 10K filing.
The layoffs, expected to be completed by April 1, were originally announced on Feb. 15, but the number of employees affected was not given. At that time, the manufacturer of jeans for the mass market said it would take a $15 million charge to cover the closing of facilities and disposing or abandoning of certain property and equipment.
The restructuring stems from a downturn in Chic’s U.S. business, which showed an operating loss of $16,000 in its year ended Nov. 4, according to the 10K. In the prior year, the U.S. division logged an operating profit of $8.4 million. Domestic sales last year inched ahead 0.3 percent to $277.9 million from $276.9 million.
In contrast, Chic’s European business remains solid, with operating profits rising 7 percent last year, to $8.5 million from $8 million. Sales, boosted by aggressive advertising, advanced 27 percent to $98.2 million from $77.3 million.
Gross margins in the U.S. collapsed to 11.7 percent of sales from 19.3 percent, while margins in Europe held fairly steady at 40.3 percent versus 41.4 percent.
Chic said its operating loss in the U.S. stemmed from the need to use expensive outside contractors to meet strong demand at the year’s start, and manufacturing inefficiencies caused by production slowdowns in its second half.
Orders slowed in 1995, following a dismal back-to-school season that drove some major retail chains into bankruptcy, according to Chic.
As of Nov. 30, Chic’s domestic backlog was down 41 percent to $128.5 million from $218.2 million a year earlier.
The company said its factories operated at approximately 40 percent of capacity in its first quarter ended Feb. 3 as a result of weakness by many of its customers in the discount segment.
Most of Chic’s customers were mass merchandisers, with Kmart accounting for 23.2 percent of total sales in 1996, and Target, 14 percent. In the U.S., Kmart and Target combined to account for 50.3 percent of Chic’s sales.
In its 10K, Chic said it is in the process of closing one of its 18 factories as part of its restructuring. The restructuring is expected to improve productivity and save $3.6 million over the next 12 months.
In its annual report, Chic said it is “cautiously optimistic” about its U.S. business for 1996, noting its depends greatly on the retail climate. The company noted that Chic is the number-one women’s jean brand in the mass market, and its HIS men’s brand is now in all Kmart and Target stores. The company recently introduced a HIS for Her brand for the women’s market.
Chic is more optimistic about Europe, where its jeans are sold under the HIS brand. European backlog as of Nov. 30 was ahead 25.9 percent to $37.9 million from $30.1 million. Chic pointed out that it has the best-selling women’s jeans in Germany, and the leading market position in the Czech Republic and Slovakia.
Chic’s licensing business continues to grow, with Chic estimating that its licensees shipped an estimated $115 million in merchandise under the Chic or HIS labels in 1995, up from about $100 million the prior year.
Licensing revenues in 1995 increased to $5.8 million from $4.9 million. The company said it generally receives royalty payments of 5 percent of sales by licensees.
At the time of the announced restructuring, Chic said it breached a financial covenant under its agreements with its note holders and this triggered a default under its bank agreement. The company obtained waivers to these agreements with its note holders and bank lenders and amendments to certain covenants in such agreements.
Chic had 5,000 employees at yearend, mostly in Tennessee.
The company lost $13.7 million in its first quarter ended Feb. 3 after the $15 million restructuring charge. Excluding the charge, earnings slid 13.8 percent to $1.2 million, or 13 cents a share — Fairchild News Service