Mossimo Yields Half His Stake to Lure CEO

In a bold move to turn around his long-struggling company, fashion designer Mossimo Giannulli said Tuesday that he has given up half his stake in Mossimo Inc. to snag an industry veteran for the company’s top post.

Giannulli relinquished 35% of Mossimo stock--worth $15.6 million before Tuesday--to the company, which sold options on the stake to former Tommy Hilfiger Corp. Chief Executive Edwin Lewis, who will take the same job at Mossimo.

The move means that Giannulli is giving up controlling interest of the 11-year-old Irvine company he founded in his Balboa Island apartment as a volley short and T-shirt maker.

Mossimo soared to dizzying heights on Wall Street in 1996 as a budding fashion star. The Mossimo logo was splashed on clothes favored by the young and hip, earning the designer a Hollywood following and a reputation as a cocky innovator.

But the company came crashing back to earth last year when it stumbled trying to make the leap to fashion’s big leagues too quickly.

Industry analysts said the 48-year-old Lewis could be the cure for the company’s ills.

Lewis “has a great reputation, he’s the real deal,” said Salomon Smith Barney analyst Faye Landes. “He was very instrumental in setting up Tommy Hilfiger in its current extremely successful incarnation.”

Lewis will head Mossimo’s daily operations while the 35-year-old Giannulli will remain the top designer. Giannulli said Tuesday that he has no qualms about giving equal control (each now owns about 35% of the company) to Lewis, whom he began wooing six months ago.

“I’m pleased as I can possibly be to give him half of what I started because we’re going to realize this thing together in a very big way,” Giannulli said.

Lewis, who plans to move to Southern California from Maryland, declined to detail his plans for Mossimo.

“I think we need a lot of infrastructure and organization,” he said. “Today is the first day. I can just tell you my job is to run the business end of this and Moss is the design and marketing end. We’ll divide our efforts here.”

Investors clearly liked the idea, as Mossimo shares soared 92%, or $2.75 a share, to $5.75 in New York Stock Exchange trading. The company was the eighth-biggest percentage gainer in U.S. markets. Volume was heavy, with nearly 1.1 million shares exchanging hands. The average daily volume for the past three months was 62,136.

The announcement paid off immediately for both men, whose stakes in Mossimo nearly doubled in value, to $29.9 million apiece on Tuesday.

Giannulli will relinquish another 1 million shares under conditions of an employment contract with Lewis, the details of which the pair declined to discuss.

Giannulli said he and Lewis will have equal voting power, regardless of who owns the larger number of shares. Both will have a seat on the company’s five-member board, which Giannulli will still chair. Neither man will take a salary.

Lewis left Hilfiger in 1996 to pursue “personal interests,” which included piloting his airplane, sailing and bird hunting. Before that, he was president and chief executive of Ralph Lauren Womenswear.

Industry insiders said they were impressed by Giannulli’s ability to land an executive of Lewis’ caliber.

“I think it’s probably the single most proactive positive thing Moss has done for his company in five years,” said Dick Baker, chief executive of Irvine-based Ocean Pacific Sunwear Ltd. and former president of Tommy Hilfiger Womenswear. Lewis “was literally a major factor in bringing Tommy Hilfiger to the department stores.”

Baker said Lewis has the expertise to create and execute an image for the Irvine company.

“That, to me, was the missing ingredient at Mossimo,” he said. Lewis “understands product, he understands image and he understands the department store game.”

Still, Baker and others were stunned Tuesday to learn of the pairing of two men, each of whom entered the industry as young adults. Giannulli started his business in 1987 at the age of 24, and Lewis said he was just 23 when he was hired as one of Ralph Lauren’s first five salesmen.

While Lewis was making his name on the East Coast, Giannulli was burning up Southern California.

“He was hot,” said Jerry Sullivan, editor of California Apparel News in Los Angeles. “It was obviously Giannulli’s creative strength that took the company to its heights, and there were some obvious shortcomings from an administrative or executive standpoint that dragged it down.”

Mossimo has lost nearly $30 million the past seven quarters, and has seen its stock price fall from $50 in mid-1996 to $1 in September.

As his company struggled, Giannulli early this year brought turnaround specialist John Brincko on board as chief executive. But last month, Mossimo announced that Brincko’s contract--which wasn’t intended to be permanent--would not be extended past the end of the year.

The company said the belt-tightening under Brincko boosted its gross profits and reduced operating expenses.

“It looks as though Brincko was brought in to stop the bleeding, and the company is now looking for a full recovery under Lewis,” Sullivan said.

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Mossimo Seeks a Cure

Beset by financial difficulties, including five consecutive red-ink quarters, Mossimo Inc. has named apparel executive Edwin Lewis as its new chief executive. The company’s stock rocketed after the announcement. Here’s how the company has been performing, sales and earnings in millions:

*--*

Net sales Net earnings 1996 2nd qtr. $26.5 $3.97 3rd qtr. 31.9 2.30 4th qtr. 28.5 0.55 1997 1st qtr. 26.0 -0.50 2nd qtr. 19.2 0.05 3rd qtr. 17.1 -4.81 4th qtr. 12.5 -13.48 1998 1st qtr. 15.6 -1.67 2nd qtr. 12.2 -6.08 3rd qtr. 11.0 -3.44

*--*

Stock Price Rebounds

Mossimo stock closed at $5.75 Tuesday, nearly doubling in price. The shares have ranged from a high of $7.63 to a low of $1 over the last 52 weeks. Weekly closing prices:

March 6: $4.75

March 13: $6.50

March 20: $5.63

March 27: $5.38

April 3: $5.38

April 10: $5.13

April 17: $4.88

April 24: $4.69

May 1: $5.38

May 8: $5.00

May 15: $4.94

May 22: $4.75

May 29: $4.81

June 5: $4.13

June 12: $3.81

June 19: $3.88

June 26: $4.00

July 3: $3.94

July 10: $3.75

July 17: $3.50

July 24: $3.00

July 31: $2.88

Aug. 7: $2.63

Aug. 14: $2.75

Aug. 21: $2.75

Aug. 28: $2.19

Sep. 4: $1.88

Sep. 11: $1.75

Sep. 18: $1.06

Sep. 25: $2.06

Oct. 2: $3.13

Oct. 9: $2.81

Oct. 16: $2.75

Oct. 23: $3.06

Oct. 30: $3.06

Nov. 6: $3.81

Nov. 13: $3.25

Nov. 20: $2.75

Nov. 27: $2.69

Tuesday close $5.75

Short History

Mossimo Inc., founded by Mossimo Giannulli in 1987, met financial success early but has endured a number of setbacks in recent years. Some significant dates in the company’s history:

1996

February: Company goes public and closes at $25 in New York Stock Exchange debut.

June: Shares reach highest price, $50

October: Shares fall to $23 on warning that third-quarter earnings will not meet analysts’ expectations; unexpectedly high production costs blamed.

1997

April: First-quarter loss of nearly $500,000 is company’s first losing period; share price falls below $6.

May: Mossimo begins a restructuring that includes pay cuts and the elimination of jobs.

1998

March: Turnaround specialist John Brincko named president/CEO after company reports fourth-quarter loss of $13.5 million; he succeeds Giannulli, who continues to serve as chairman.

November: Company decides not to renew Brincko’s contract, which expires Dec. 31.

December: Edwin Lewis named chief executive, is given half of Giannulli’s stake in the company with options to add 1 million shares.

Sources: Bloomberg News, Times reports; Researched by LOIS HOOKER/Los Angeles Times