L.A. Gear Posts 1st Yearly Loss: $66.2 Million
L.A. Gear Inc., once one of the nation’s hottest footwear companies, said Tuesday that it lost $66.2 million during 1991, the company’s first annual loss since going public in 1986.
The company attributed the bulk of its deficit--including $21.2 million blamed on its defunct apparel design and marketing operations--to a 24.5% drop in sales plus efforts to reduce its shoe inventory through lower prices and sales to wholesale outlets.
Despite the loss, company stock closed Wednesday at $15.875, up 87.5 cents, on the New York Stock Exchange. Analysts say that L.A. Gear bought itself some time with recent changes in management but that it has a bleak future nevertheless.
“It appears that the Street was more than satisfied with the way the numbers came out,” said David S. Leibowitz, an analyst for American Securities Corp. in New York. “The thought process is that the worst appears to be over and that the opportunity is now here for some sort of turnaround which could make itself evident in the next few quarters.”
The 1991 loss contrasted with earnings in 1990 of $31.3 million. Net sales fell to $618.1 million from $818.8 million in 1990. For the fourth quarter of 1991, the company lost $38.2 million, compared to a $7-million loss during the final period of 1990.
The $21.2-million deficit attributed to the clothing operations included an after-tax charge of $11.9 million for an estimated loss associated primarily with the sale of remaining apparel inventories and warehouse rental costs.
L.A. Gear has undergone major restructuring since May, 1991, when Trefoil Capital Investors Inc. paid $100 million for a 34% stake in it. The most visible change was the resignation last month of founder Robert Greenberg as chairman and chief executive. Greenberg was replaced by Trefoil chief Stanley P. Gold.
In September, 1991, the company named Mark R. Goldston, a former marketing executive at rival Reebok International Ltd., its president and chief operating officer.
Two months later, L.A. Gear shed its clothing business, laid off 250 employees and said it planned to cut an additional 150 during 1992.
Despite all the adjustments, some analysts still say the future looks grim for the Marina del Rey-based company.
Poor product quality, the failure of its market overseas and tough competition can only lead to a slow death for L.A. Gear, said a Chicago analyst who asked not to be named.
“They’ve shown no proof whatsoever of being able to turn in profit,” he said. “Unless they can get taken over by someone who cares, they only have a 20% chance of succeeding.”
He explained that the company hasn’t been successful in the high-performance market, especially with its latest product, the “Catapult.” Many department stores find their customers returning the shoe because the sole falls apart, he said.
