NEW YORK — The North Face and Mossimo, two California-based brands in significant transition, logged sharply higher losses in the first quarter.
Mossimo, which in March abandoned its move to department stores and agreed to become an exclusive brand for Target, widened its loss to $9 million from $1.6 million a year ago. The quarter included $4.1 million in write-downs of property, equipment, lease obligations and severance.
North Face, which in April agreed to be acquired by VF Corp., saw its losses spread to $19.4 million from $5.5 million. Gross margins eroded to 33.3 percent of sales from 45.5 percent due to discounts given on liquidation sales of excess inventory, though these liquidations increased sales by 11.5 percent to $57.1 million, according to North Face’s 10-Q.
The bottom line reflected a $1.3 million fee for a credit line extension, higher interest costs caused by increased borrowings and $2.4 million in higher distribution costs, including start-up costs for a new third party distributor hired in January 2000
The San Leandro, Calif.-based firm said its credit problems stemmed from shipping difficulties encountered when it outsourced its U.S. distribution of products to a third party distributor in July 1999. Late shipments significantly reduced sales, profits and its borrowing base.
VF agreed in April to acquire North Face for $25.4 million, or $2 a share. VF has also bought the Chic women’s jeans brand and agreed to acquire the Eastpak backpack business this year.
Mossimo, of Irvine, Calif., said that excluding the write-downs, it would have lost $4.8 million in the quarter, largely due to selling, general and administrative expenses at 57 percent of sales. Gross margins were 23 percent. Sales shot up to $18.1 million from $8.3 million.
As reported, the Target deal carries a cumulative three-year sales guarantee, as of February 2001, of $1 billion.
The firm will license the Mossimo name and help design the line.
“In a very short period, our working relationship with Target has exceeded our highest expectations,” said Mossimo Gianulli, chairman, president and chief executive, in a statement, while also noting the restructuring is on plan.
“By yearend, our plan is to reduce the work force by 90 percent, close our showrooms, signature retail stores and outlet stores, and terminate our sourcing, production and sales operations,” Mossimo said.