Bull Won’t Hotdog It : Merrill Lynch Sees Stake in Cycle as an Investment, Not an Entree to Surfwear

The Merrill Lynch bull won’t start sporting baggy surf trunks and shades. And steer horns probably won’t be plastered all over surfboards at the Wedge and the Huntington Beach Pier.

In fact, Merrill Lynch, Pierce, Fenner & Smith’s purchase of part of an Irvine-based surfwear company is unlikely to be touted much at all.

“We have no grand scheme to do surfwear,” Milan Resanovich, a Merrill Lynch senior vice president, said Wednesday. “We found a well-managed company that has been reasonably successful, and we thought it would make a good investment. It’s that simple.”

The brokerage house’s executive was referring to Merrill Lynch’s recent acquisition of a major chunk of Cycle Industries. Merrill Lynch Interfunding Inc., a company subsidiary, now owns a sizable portion of Cycle’s assets--including Off Shore Sportswear, a surfwear manufacturer--and holds licenses to produce Hobie and Catchit T-shirts.

Terms of the acquisition were not disclosed.

Others Own Interests in Cycle

The interest in Cycle was bought from Steve MacBaisey, Cycle’s founder and chief executive. MacBaisey, Cycle employees and Ex-Sto Capital, a New York investment banking house, also own interests in Cycle.

Merrill Lynch said it is now the largest single shareholder in the firm, although it has less than a controlling interest of 51%.

Merrill Lynch’s financial backing of Cycle is one of more than 40 such investments. The subsidiary owns interests in a diversified group of companies, including wholesale and retail distributors and garment manufacturers, Resanovich said.

So far, the brokerage house has no specific plans, other than for Cycle to “grow and prosper. Right now, that expansion will come from internal growth rather than acquisitions,” Resanovich said.

MacBaisey, who will continue to run Cycle under a 4-year management contract, predicted that sales will double in 1989. That’s a tall order, considering that Cycle--a silk-screener and manufacturer--now prints more than 1 million T-shirts each month, according to MacBaisey. The garments are sold under the Off Shore, Catchit (T-shirts), Hobie (T-shirts), Team Gear and Lineshots labels.

Some of that sales increase should result from changes that MacBaisey has made in the last year at Off Shore, one of Cycle’s best-known labels.

When MacBaisey bought an interest in Off Shore 14 months ago, the 16-year-old company had been slipping in influence in the surfwear industry for the last few years. But since then, he said Wednesday, Off Shore has rebounded.

‘A Better Product’

“We brought on new management, new merchandise, more advertising and a better product,” MacBaisey said.

The result is that “Off Shore has more than doubled its sales in the last year, and 1989 will be more than double those in 1988,” he predicted.

For Cycle, overall retail sales now total between $75 million and $80 million, MacBaisey said.

One tactic MacBaisey said he does not plan is to sell garments through such major discount outlets as Walmart and Sears.

“Off Shore, in particular, is sold only to better department and better specialty stores, such as Nordstrom,” he said.

MacBaisey said he will “never” sell through lower-cost, mass-merchant stores.

While Burbank-based Hobie Apparel--which licenses its T-shirts to Cycle--is doing well in such chains as Mervyn’s and J.C. Penney, MacBaisey said Cycle would probably start another brand if it decided to start selling to major discount retailers.

Target Is Tony Stores

Manufacturers of beach clothes traditionally steer clear of discount operations if they plan to continue to be handled by such tony stores as Nordstrom.

That same reasoning may explain why Catchit--a recently bought maker of board shorts and other surfwear--also doesn’t plan to move into discount stores.

Mitch Fine, president of S&S; Marketing and one of three investors who bought Tustin-based Catchit last month, said the manufacturer could expand to J.C. Penney and possibly Mervyn’s. But “we’re not going into discounters--certainly not Walmart, K mart or the Price Club,” he said.

Catchit is sold now mainly through surf shops and small retailers. The company had revenue of $8 million to $9 million last year, Fine said.

“We’re going to upgrade our design, advertise a little bit more, go (into) some retailers we haven’t in the past and expand our sales force,” Fine said. “We’d like to be a little bit more aggressive . . . and make Catchit a better-known name.”

Fine said he believes MacBaisey--as Catchit’s T-shirt sub-licensee--”can be a tremendous help” in helping to merchandise Catchit.

CYCLE INDUSTRIES AT A GLANCE Headquarters: Irvine Employees: 350 Products: T-shirts, sweat shirts, swimwear, shorts, lightweight jackets, accessories Annual sales: $75 million to $80 million Source: the company