NORTH FACE SEES $38M LOSS, WARNS IT MAY GO UP FOR SALE
NEW YORK — The North Face warned that it expects to show a loss of $38 million for the fourth quarter and indicated it may be on the auction block.
The outdoor apparel and accessories maker, based in Carbondale, Colo., said its credit facility expires at the end of March and Deutsche Banc Alex. Brown has been hired to assist in exploring strategic alternatives.
Geoffrey D. Lurie, chief executive officer, called 1999 “a very difficult year for The North Face, and, notwithstanding significant operational improvements, we continue to face many financial challenges.”
The loss includes $23 million in charges stemming from shipping difficulties at the company’s new distribution center in Lenexa, Kan. Other charges include $5 million for increased inventory and warranty reserves, $4 million of interest and bank fees, a $3 million write-down of goodwill and $3 million in miscellaneous costs.
Lurie, a former turnaround expert at Mahoney Cohen, added, “Since becoming chief executive officer last November, my primary focus has been to improve the operations and execution of the company. Over the last few months, we have made progress in implementing new programs to address these issues. We have changed our distribution partner, consolidated our operating facilities, improved our information systems, streamlined our cost structure and strengthened our management.”
For the full year, North Face expects its pre-tax loss to reach approximately $75 million, compared with a pre-tax profit of $5.8 million in 1998.
North Face has been roiled by turmoil over the past year, including a failed buyout bid, an accounting scandal and a costly aborted move of its corporate headquarters. In early spring 1999, the firm was contemplating a buyout offer at $17 a share from Los Angeles investment bank Green & Partners and Jim Fifield, who resigned as chief executive in September.
But in March, North Face was shaken by an accounting scandal that caused the firm to restate earnings downward by $3.1 million in 1998 and $5.9 million in 1997, and the firm has encountered severe shipping problems throughout this year from outsourcing its U.S. distribution of products to a third-party distributor. North Face took a $3.8 million charge tied to the buyout offer after it was officially terminated in September, and also absorbed heavy severance charges as part of its management upheaval in the third quarter.
In December, North Face said that it would take a $3.5 million charge against earnings in the fourth quarter of last year and first quarter of this year in order to close its Carbondale headquarters and consolidate its corporate headquarters back in San Leandro, Calif. The adjustment came after the firm took charges of $2.4 million to relocate its headquarters to Carbondale in 1998.
Among the firms reported to have shown an interest in acquiring North Face this year have been Tommy Hilfiger Corp. and Columbia Sportswear. Columbia officials have denied they were exploring the possibility.