Byline: Vicki M. Young

NEW YORK — Shares of Warnaco Group took a beating Monday, dropping 39.06 percent on the first day of trading following Friday’s announcement that the company has suspended its cash dividend and was downwardly revising its operating earnings guidance.
Shares of Warnaco closed on Monday at $2.43, down $1.56, on the New York Stock Exchange. A company spokesman said Monday that the company does not comment on its stock price.
As reported, the company said Friday after the market closed that it expects to report an “operating loss, before charges and investment gains,” in the 25 cents to 30 cents a diluted share range for the 2000 fiscal year and in the 45 cents to 50 cents range for the third quarter.
The company, which is expected to report third-quarter results around Nov. 2, said the revised outlook takes into account “reduced revenues from sales to retailers as a result of the difficult business environment affecting the apparel industry in general, increased interest expense upon completion of the financing transactions and additional markdowns in connection with further inventory reductions.”
Warnaco also said it will take an after-tax charge in the third quarter of between $50 million and $60 million in connection with additional operating initiatives being implemented.
Linda Wachner, Warnaco’s chairman and chief executive officer, said in a statement Friday that the company expects to return to “profitability in 2001.”
Neither Wachner, who was travelling, nor other Warnaco officials could be reached Monday.
The announcement came at the same time that Warnaco said that all of its lenders had agreed to the refinancing agreement disclosed back in July, which at the time was pegged at $2.9 billion. On Friday, according to Warnaco, the revised lender commitments were reduced to $2.56 billion.
The arrangement, expected to close by Oct. 6, provides Warnaco with additional liquidity for operations, with no material debt maturing until August 2002. The amended facilities will be secured by assets owned by Warnaco and its subsidiaries. As part of the lending agreement, Warnaco said it will suspend future cash dividends on the company’s common stock, but will make its previously declared cash dividend of 9 cents per share of common stock on Thursday for holders of record as of Sept. 6.
Observers said the refinancing could be perceived as good news for Warnaco because the $2.56 billion deal is “no mean feat, considering the difficult business environment facing apparel companies,” one executive said.
To be sure, the reduction in the lender commitments also means that Warnaco would be paying less in fees that it otherwise would have to pay on a higher credit line, even if that additional availability is not used.
An analyst for a mutual fund investment firm, however, painted a different picture of the financial situation. He told WWD Monday, “This is what happens with a company that has had a number of financial problems. The bank lenders get very concerned about their credit exposure to the company. They did not pull out, but placed amended covenants to ratchet down the $2.9 billion to $2.56 billion. The banks also were concerned about their financial position. That’s why the company isn’t paying its dividends because the banks don’t want any money going out the door except to pay down bank debt.”
As for the stock hit on Monday, the mutual fund analyst speculated that some of the sell-off was due to institutional investors that had holdings in funds requiring investments only in companies that pay dividends. “Once the dividend is suspended, the position held is sold off immediately,” the analyst said.
Warnaco stock, assuming around 52.7 million in outstanding shares, had a market capitalization of $128.4 million at Monday’s close. About a week ago, when shares were at $4.31, the market capitalization was around $227.3 million. The mutual fund analyst said that the reduction in capitalization could put Warnaco onto the radar screen of a “whole new class of investors, such as value investors, who otherwise wouldn’t look at the company.”
Dennis Rosenberg, equity analyst at C.S. First Boston, in a research note Monday wrote that the revised guidance is due to “lower than expected sales of Calvin Klein intimate apparel and jeans, as well as weak sales of Warnaco’s other intimate apparel brands.” As reported, Warnaco is embroiled in a legal dispute with Calvin Klein Inc. over alleged trademark infringement claims.
The C.S. First Boston analyst also wrote, “We expect sales to decline further next year as there appears to be no catalyst to reverse the weakness in Calvin Klein or reason to anticipate a recovery in Warnaco’s other intimate apparel brands, given the weak department store environment for these products.”
Harvey Robinson, senior equity analyst at The Chapman Co., said even though the intimate apparel and sportswear manufacturer has shuttered some underperforming outlets, he anticipated that additional units will be closed down the road. He explained, “I anticipate the need for more outlets to be shut because this has been a tough market. We’ve seen consolidation at retail.”

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