NEW YORK — Donnkenny Inc., which has been scarred over the last two weeks by news of a possible accounting scandal and a lawsuit claiming insider trading, said late Friday that its 1996 earnings would be “significantly below” analysts’ estimates, which range between $1.30 and $1.40 a share.
Although the news came out after the market closed, Donnkenny’s stock fell 11/16 to 7 1/16 Friday on the over-the-counter market with 2.1 million shares trading hands.
The disappointing earnings forecast prompted Dillon Read & Co. to cut its rating on Donnkenny to “outperform” from “buy,” with the report citing “a lack of confidence in management.”
Dillon Read analysts Alison Malkin and Christopher Bither noted that Donnkenny on Nov. 8 indicated it was comfortable with Wall Street’s estimates of $1.30 to $1.40.
The analysts also noted that third-quarter earnings, which were released Friday, of 33 cents a share were well below their estimate of 48 cents a share.
Wall Street’s average estimate was 49 cents.
Dillon Read further said the stock is overvalued at current market prices.
The stock, which had a 52-week high of 21 3/8, fell 3 5/8 to 8 7/8 on Nov. 7 following reports of accounting irregularities, and on Nov. 12 a suit was filed in Manhattan’s Federal Court charging three Donnkenny executives with insider trading and withholding of material information.
The suit claims the three — including chief executive officer Richard Rubin — sold $13.5 million in company stock from June 1995 to August 1996 at prices ranging from $17.25 a share to $33.88.
Donnkenny’s earnings in the third quarter increased 9.5 percent to $4.6 million, or 33 cents a share, from $4.2 million, or 30 cents, a year ago.
Sales in the quarter rose 29.8 percent to $86.6 million from $66.7 million, with $13.9 million, or 70 percent, of the increase stemming from the acquisitions of Beldoch Industries in June 1995, Oak Hill Sportswear in July 1995 and Fashion Avenue Knits in September.
Excluding these acquisitions, the company stated, volume gained some 9 percent with “strong sales in all categories.”
Operating earnings in the quarter increased 13.6 percent to $9.2 million from $8.1 million.
In the nine months, earnings rose 12.5 percent to $4.6 million, or 33 cents, from $4.2 million, or 30 cents.
Operating profits gained 23 percent to $11.1 million.
Sales climbed 70.1 percent to $189.8 million from $111.6 million.
The acquisitions of Oak Hill, Beldoch and Fashion Avenue added a total of $66.1 million in sales.
Results for the year-ago period and the first two quarters of this year have been restated to reflect a shift in the calendar.
The company has changed its fiscal year from the first Saturday on or after Nov. 30 to Dec. 31.
While saying earnings for the year would be “significantly below” Wall Street estimates, Donnkenny noted that based on shipments, it “expects to be profitable for the fourth quarter and solidly profitable for the year.”
The firm, which makes women’s, men’s and children’s wear using various labels and cartoon characters, noted that as of Sept. 30, it had working capital of $84.1 million and stockholders’ equity of $72.9 million.