Financial Woes Roil the Waters for Swimwear Maker Sirena
Until two weeks ago, everything seemed to be going swimmingly at bathing suit maker Sirena Apparel Group Inc., with healthy sales, strong profit and new intimate apparel licenses aimed at diversifying an otherwise seasonal business.
But then Sirena--a 40-year-old company whose labels include Anne Klein, Rose Marie Reid, Hang Ten and Liz Claiborne, along with its own namesake brand--announced it had fired its two top executives for “accounting irregularities.” It said it would restate the financial results of the three quarters ending June 30.
Now, in addition to navigating the everyday turbulence of the apparel industry, the company faces concerned licensors, at least four shareholder suits and a Nasdaq-imposed halt in trading of its stock--all while getting ready to show and ship its new intimate apparel lines.
The company declined comment in detail on its latest troubles, but in an interview, Sirena President Douglas Arbetman said the company is doing well, with bookings and shipments that are ahead of last year’s strong showing.
“Going through some of the financial problems is a wonderful opportunity to focus on the company and see if we want to make changes, and what they are going to be,” Arbetman said.
The high-level ousters dismantled a respected management team installed in 1997 after Portland, Ore.-based American Industries Inc. increased its small stake in Sirena to 1.1 million shares. It now holds 1.7 million shares, 34.4% of its stock.
American Industries Chairman Howard H. Hedinger, a member of Sirena’s board, could not be reached for comment.
No successors have been named to Chief Executive Maurice “Corky” Newman, 65, who had led the company since 1997 at a salary of $530,000, and Chief Financial Officer Richard Gerhardt, 47, who was installed in November.
Newman, who first worked at Sirena in 1964 as vice president and national sales manager, has been a fixture on the Los Angeles fashion scene. He left 10 years later to assume posts at Cole of California, Calvin Klein Industries and Cherokee Group before ultimately landing as president of the CaliforniaMart in 1994.
Gerhardt joined the company in November after a career at several clothing manufacturers including Guess Inc. and Mark Fabrics Inc.
Neither Newman nor Gerhardt could be reached for comment.
Hailed for reinvigorating the CaliforniaMart, Newman arrived at Sirena after it had posted losses for two years. During his tenure at Sirena, the company struck a series of deals that appeared to move it forward.
It brought in new licensors and diversified the company by acquiring intimates maker Jezebel/Renee of Hollywood and then landing new intimates licensing deals with Hang Ten and Anne Klein. It also moved more of its manufacturing to Mexico.
Sirena, with 569 employees, posted fiscal 1998 sales of $51 million, up 16.7% from 1997. Net income increased to $2.23 million from a loss of $1.99 million in fiscal 1997. May Co., its biggest customer in fiscal 1998, accounted for 15% of its sales.
Exactly what went wrong at Sirena isn’t known. Sirena said it would take a charge for the write-down of inventory and the write-off of deferred expenses, as well as a $700,000 write-off from goods shipped to Loehmann’s, which filed for bankruptcy last month.
Arbetman told Women’s Wear Daily that the Loehmann’s charge stemmed from a shipment to the ailing discounter that had been made without approval from the company’s factor. Documents filed with the Securities and Exchange Commission show that Sirena is permitted to ship to retailers without approval from factor Heller Financial Inc., but then assumes any associated debt itself. A representative of Heller could not be reached.
The company’s president said he believed the Loehmann’s bankruptcy triggered the investigation that revealed the accounting problems.
He said that another part of the write-off comes from costs associated with Sirena’s move six weeks ago to new executive and design offices in Vernon. Those offices had previously been in South El Monte.
The company said it has appointed a special committee of the board of directors, headed by William J. Welch, to review Sirena’s financial results. Sirena’s results for fiscal 1998, which ended June 30 of last year, were audited by Ernst & Young.
Sirena began in 1959, when Arnold Seckler named his swimsuit company the Spanish word for “mermaid.” After changing hands several times, it went public in 1994.
As Sirena sorts things out, it faces a $1-million loan payment to Foothill Capital Corp. due July 1, under an April financing agreement between the two firms, according to an SEC filing.
As part of the agreement, Sirena must maintain a prearranged level of earnings, demonstrating, for instance, $1.3 million in earnings before taxes and depreciation and amortization for a three-month period ending June 30 and a net worth of at least $11 million for the quarter that ends the same date, according to company filings. Foothill could not be reached for comment.
Liz Claiborne expressed confidence in Arbetman’s ability to maintain strong sales. “We look forward to working together to grow our business in the future,” said Mary E. Belle, Claiborne’s licensing president.
Executives at Anne Klein declined to comment. Its license accounts for 18.3% of Sirena’s sales.
San Diego-based Hang Ten said its year-old partnership with Sirena has been a good one. Andy Voggenthaler, Hang Ten’s vice president of licensing, said Sirena had been aggressive in selling the line, Sirena’s monthly shipment reports to Hang Ten looked good and royalty payments came on time.
“We were all excited about it and it was exciting to see the progress they were making,” Voggenthaler said. “We really don’t know what’s going to happen. Hopefully it will all sort itself out.”
