St. John Knits, ‘Made in U.S.A.’--Mostly

Upscale clothier St. John Knits Inc., which takes considerable pride in its “Made in U.S.A.” label, said Tuesday it will open a manufacturing plant in Mexico later this month to cut labor costs.

Initially, the 50,000-square-foot plant just outside Tijuana will make only hardware such as buckles and buttons for the company’s women’s clothing, St. John officials said. Later this year, the Irvine-based company plans to begin manufacturing jewelry in Mexico as well.

Eventually, the plant’s size could double and other parts of the clothing could be made or assembled there. But Chief Financial Officer Roger Ruppert said he doubts that St. John’s core knit product will ever be fully manufactured in Mexico.

“One of the cachets about St. John Knit clothing is it says ‘Made in the U.S.A.,’ ” Ruppert said. “Right now, when St. John says ‘Made in the U.S.A.,’ it means it is 100% made here in Southern California. You can stretch that a little bit and still be made in the U.S.A.”

Ruppert said St. John could decide to make the knitted pieces in Irvine and assemble them in Mexico, or use the Mexican workers to attach sequins to dresses, a labor-intensive process.

Currently, St. John jewelry is made in Santa Ana. In the coming years, the work done in the Mexico plant could decrease the production volume in Santa Ana, Ruppert said.

In addition to manufacturing apparel, St. John also operates 16 retail boutiques and eight outlet stores. Its clothes are sold in high-end department stores, such as Saks Fifth Avenue, Nordstrom and Neiman Marcus.

The company’s Griffith & Gray line is made in Italy, Ruppert said.

The Federal Trade Commission has deemed that when a product is labeled with an unqualified “Made in U.S.A.” claim, “it should contain only a de minimis, or negligible, amount of foreign content.”

St. John also said Tuesday that as part of a plan to expand its retail base, it will open a “mega-store” at South Coast Plaza in Costa Mesa by Christmas. St. John and Amen Wardy Home products will be sold under one roof in a 15,000-square-foot space currently occupied by Barneys New York. Barneys, which filed for bankruptcy reorganization more than two years ago, is closing its store in July.

St. John has a 51% interest in Amen Wardy and has said it will increase its involvement with the company, which has been losing money since it opened the first store in August.

Also on Tuesday, St. John reported higher earnings for the second quarter but, as expected, failed to meet analysts’ expectations because of flaws in some merchandise that was pulled from racks and repaired.

St. John’s profit rose 10%, to $9.7 million, or 57 cents a share, from almost $8.9 million, or 52 cents a share, a year earlier. Sales rose 17%, to $69.8 million, from $59.6 million, a year ago.

Sales at its boutiques open a year or more rose 13% in the quarter.

Analysts had expected sales to rise 18%, and earnings to grow to about $10.4 million, or 61 cents a share.

St. John’s stock fell to a 52-week low of $38.63 on May 29 after the company announced it would not meet analysts’ expectations for the first time since it went public in 1993.

The company lost valuable production time when its executives discovered flaws such as crooked pockets and loose buttons in clothing at retail stores. The imperfect pieces were recalled and repaired over a two-month period.

St. John officials said they are working to resolve the quality control problems and already have changed the way they inspect garments. St. John hired 351 people in the second quarter.

For the first six months of 1998, St. John earned almost $19 million, or $1.11 a share, a 17% gain over the $16 million, or 95 cents a share, reported during the same period last year.

Sales for the six-month period were $138.6 million, a 20% jump over last year’s $115.7 million. Same-store sales rose about 12% for the first six months.

St. John shares closed Tuesday at $38.69 a share, down 25 cents, in New York Stock Exchange trading.