L.A. Gear Says Loss in Quarter to Top $4 Million : Retail: The athletic shoe maker cited the recession, which has prompted discounts on slow-selling merchandise.
Sneaker maker L.A. Gear startled Wall Street on Monday by projecting a fourth-quarter loss of $4 million to $6 million, its first red ink since becoming a public company in 1986.
The stock of the Marina del Rey firm, the nation’s No. 3 sneaker manufacturer, was the biggest loser and third most actively traded issue on the New York Stock Exchange. It closed at $10.50, down $2.875, as 1.63 million shares changed hands.
L.A. Gear also disclosed that the anticipated quarterly loss “may constitute a technical default” under the company’s agreement with its banks. But an L.A. Gear spokesman and several analysts said they expect the company to resolve the issue quickly through negotiations with its lenders, discounting the possibility that loans would be called in.
Still, analysts said, the outlook for the once-highflying company is dimming as the popularity of many of its shoes fades. “Their chief problem is getting products that the public wants,” said Gary M. Jacobson, an analyst with Kidder, Peabody & Co.
L.A. Gear’s image has been tarnished in recent months by, among other things, the failure of its much-ballyhooed line of fashion sneakers promoted by pop singer Michael Jackson. Its efforts to expand from the fashion shoe business into the athletic or “performance shoe” market also have stumbled.
One of the company’s most embarrassing moments came last month when, during a regionally televised college basketball game, the L.A. Gear sneakers being worn by a Marquette University guard fell apart, sending the player tumbling to the floor.
The Marquette team--one of 15 across the country equipped with L.A. Gear sneakers under a recent promotion campaign--reportedly had problems with at least 30 pairs of shoes supplied by the company. However, the Marquette men’s squad and those at such schools as USC and Loyola Marymount are continuing their affiliation with L.A. Gear, which said it is working out the problem.
In a news release, L.A. Gear blamed its fourth-quarter loss largely on the recession in retailing, which has prompted the company and many other suppliers to discount slow-selling merchandise. L.A. Gear also said its profit margins have been narrowed by the growing percentage of its business coming from foreign markets, where its earnings are thinner.
Robert Greenberg, chairman and chief executive, said in the release that “we are cautious in our outlook for at least the first half of 1991.”
Among other moves, the company said it plans to cut costs by reducing its inventory and operating expenses. A spokesman said there might be “selective” job cuts at the company, which now employs 1,600 and whose work force, the spokesman said, already has dwindled “slightly” in recent months.
Although L.A. Gear said it is “extremely difficult” to accurately forecast its profits in coming quarters, a number of analysts Monday slashed their earnings estimates for the company.
At Shearson Lehman Bros., analyst Josie Esquivel cut her official profit projection for 1991 to about $20 million, down from $48 million. She said that even her reduced estimate was “optimistic.”
“We don’t see any kind of turnaround, if there is a turnaround, until the third quarter,” Esquivel said.
Instead of a loss, analysts in recent months had projected earnings of about $1 million to $2 million for the fourth quarter ended Nov. 30. The projection marked a deepening of the slump that began two quarters ago, when L.A. Gear’s earnings started falling from the equivalent quarters in the previous year.
L.A. Gear said that in the fourth quarter, its revenue was about $190 million. In the same quarter a year earlier, the company posted a profit of $11.6 million on revenue of $166 million.
LINCOLN SINKS DEEPER
The $109-million third-quarter loss will make its bailout even costlier. D3
L.A. Gear’s Falling Earnings L.A. Gear’s net income by quarter millions *Fourth quarter projected loss of $4 million to $6 million
