CEO SAYS DONNKENNY RESTATED NET ‘A WASH’
Byline: Sidney Rutberg
NEW YORK — A day after Donnkenny Inc. said its financial statements may need to be restated, its chief executive officer, Richard Rubin, said Friday the company is on solid ground.
In a phone interview following Thursday’s thrashing of Donnkenny’s stock in what appeared to be accounting irregularities, Rubin said, “Margins are up, inventory is down and we’re stronger than we’ve ever been.
“In 1993, we did a volume of $99 million. In 1997, we expect sales to be close to $400 million, and we have been profitable in every quarter since 1993. Earnings this year will be $1.30 a share plus, which is what analysts have been estimating.”
Rubin said the restatement of past results will have no effect on earnings. He explained that the changes involve the timing of revenue bookings. Revenue coming in just after the close of a fiscal period may have been booked in the earlier period. He said the periods involved were in 1995 and 1996, but stressed, “There will be no change in the total of reported earnings. Whatever is taken away from one period will be added to the other. It will be a wash.”
Referring to Donnkenny’s change in auditors from KPMG Peat Marwick to Deloitte & Touche, Rubin said Deloitte had been on a special project for Donnkenny and found controls were not tight enough and “we needed new people.” When Peat Marwick stepped out, Deloitte stepped in.
“Deloitte would not have taken the assignment if we were a troubled company,” Rubin said.
In explaining the change in chief financial officers and the reassignment of the company’s controller and assistant controller, Rubin said the financial infrastructure had not kept up with the company’s growth.
“There was a need to tighten up our financial controls,” he said. “Stuart Levy, who was once the chief financial officer of Polo Ralph Lauren, was brought in and given the assignment to bring in new people and beef up the financial controls. I tried to hire him a long time ago, but we couldn’t afford him because we weren’t big enough. Now we are.”
Rubin said the previous finance chief, Ed Creevy, has been placed on a leave of absence. Rubin stressed that Donnkenny’s situation is “nothing like Leslie Fay’s,” which went bankrupt following the disclosure that its books had been juggled to convert losses into profits.
After plunging 3 5/8 to 8 7/8 and trading as low as 5 3/4 Thursday, Donnkenny stock recovered modestly on Friday, up 1 to 9 7/8 on a volume of $2.2 million shares in over-the-counter trading. Volume on Thursday was nearly nine million shares, or about 30 times the average daily volume for the stock.
On Friday, Prudential Securities raised its rating on Donnkenny stock to “buy” from “hold.” Prudential analyst Jack Pickler, who follows the company, said he thinks the company is on track and, with the stock “at these prices, I think it’s a good buy.”
For the six months ended June 3, the company reported earnings up 27.9 percent to $5.5 million, or 39 cents a share. Sales were reported to be up 35.2 percent to $107.2 million. Third-quarter earnings are expected to be released this week.
Donnkenny manufactures women’s and men’s sportswear and markets children’s wear with various cartoon characters under licenses.