JOSEPHINE CHAUS OPENS WALLET AGAIN TO EASE FIRM’S LOSSES
NEW YORK — Josephine Chaus has done it again.
Staring at a loss of $29.7 million in the fourth quarter, Chaus — for the second time in the last fiscal year — reached deep into her own pocket and put $14.4 million back into Bernard Chaus Inc.
Half of that money will cover the expenses of signing Andrew Grossman, the new chief executive officer of the women’s sportswear company.
Chaus said restructuring efforts are in place and she expects to see
improvement in the bottom line in the first half of calendar ’95. Bookings are 40 percent ahead of a year ago, the company said.
Grossman — former president of Jones Apparel Group, who, as reported, has signed on as chief executive officer for the troubled apparel maker — will join Chaus on Wednesday, a month ahead of his previously scheduled starting date of Nov. 1. Grossman takes over the title of ceo from Chaus, but she remains as chairwoman.
The other half of the $14.4 million infusion will provide an increased letter of credit for additional working capital.
In the third quarter, Chaus provided a $3 million letter of credit to support the company’s credit facility.
Based on the shape of Chaus’s balance sheet as of June 30, the end of the fourth quarter, the Chaus contribution is sorely needed. Working capital dropped to $3.3 million from $40.9 million a year earlier and stockholder equity dropped from $33.2 million to a deficit net worth of $13.6 million.
Chaus went public in July 1986 at $17 a share. In that transaction, Chaus and her late husband, Bernard Chaus, each sold 2.25 million shares in the offering, raising total proceeds of $71.8 million. The two also got $14.6 million of the $23.9 million in proceeds going to the company as reimbursement for taxes the couple paid on company earnings while the company was an S corporation. An S corporation is taxed as though it were a partnership. On Friday, Chaus’s stock, traded on the New York Stock Exchange, closed at 4, up 1/8.
The company blamed the loss in the quarter on inventory reduction, lower sales and promotional allowances to accelerate and increase sell-through at the retail level. The loss also reflects a $7.2 million provision to reduce expenses and improve and control inventory position. Chaus said it has reduced overhead, centralized certain functions, consolidated and closed office space, and closed four retail outlets.
The loss in the quarter compares with a loss of $9.2 million a year earlier. Sales in the latest quarter slumped 34 percent to $36.1 million from $54.7 million.
In the year, the loss widened to $46.8 million from $11 million a year earlier. Sales declined 12.5 percent to $206.3 million from $235.8 million.
“Our restructuring plan is in place and the costs associated with it are behind us — and we have a solid business strategy going forward,” said Josephine Chaus in a statement.
She cited “renewed enthusiasm everywhere” for the company’s products, merchandising and for its revamped management team, including Grossman.
“We have a greatly improved product line, and there is strong momentum for regular bookings as a result of better merchandising and design,” she said. She said the restructuring will allow the company to reduce costs and maintain inventory controls on a sustained basis, noting that fourth-quarter inventories were down 45 percent against the year-ago period.
Chaus predicted that the restructuring, which began in the second half of fiscal 1994, will have a “positive impact on its results beginning in the second half of fiscal 1995.”
The company has received continued support from the Bank of New York, which has waived non-compliance with financial covenants for the period ending June 30.
Analyst Edward F. Johnson, at Johnson Redbook Service, said the loss in the quarter was greater than expected, but he expects Chaus will be able to turn a profit in its fiscal year, which ends next June.
The 40 percent hike in backlog is “a good sign, and they’re looking for great things from the new ceo,” Johnson said. Johnson was not surprised that Chaus made the substantial infusion into the company.
“That’s been expected,” he said. “She wants to keep the business running.”
“She’s a champ,” said analyst Peter J. Siris, at UBS Securities, who was particularly impressed with her focus on the company following the sudden death of her husband, the company’s founder, in May 1991.
“As bad as the numbers are, she deserves a lot of credit,” Siris said. “Most people in the world would go bankrupt and start again. She keeps plugging.”
Besides putting a substantial amount of money into the company, Siris said Chaus has “kept the Chaus name relatively clean” by not selling to chains and discount stores. “There’s not a lot of good moderate apparel resources out there,” Siris added.
— Fairchild News Service