3 Creditors Try to Force Mossimo Into Bankruptcy
Ailing apparel designer Mossimo Inc. said Wednesday that a trio of its creditors has filed a petition to force the Irvine company into a bankruptcy liquidation.
The filing, made Tuesday in U.S. Bankruptcy Court, is the latest blow to a once-highflying company that has been beset by financial troubles. In a bid to salvage its operations, the firm, which had harbored dreams of being the next Ralph Lauren, recently signed a licensing deal with Target Stores. And earlier this week, the company announced a layoff of 90% of its workers.
The bankruptcy petition filing was made by three Los Angeles-area manufacturers--Pacific Apparel Resources Inc., Caeco Enterprises Inc. and Wilmar Concepts.
Mossimo said in a terse statement late Wednesday that the three firms were “alleging claims against the company.” But Mossimo did not elaborate, and neither Mossimo officials nor the three creditors could be reached for comment.
Mossimo said management was evaluating the petition, which is aimed at forcing liquidation so that creditors’ claims can be paid and to void any preferential treatment that Mossimo may give to some creditors over others. Mossimo could contest the petition at a hearing, which is expected within two months.
The so-called involuntary bankruptcy filing adds more uncertainty to Mossimo’s fate. It was unclear how it might affect Mossimo’s recent deal with Target, which guaranteed the company minimum royalties of about $27.8 million in the first three years, in exchange for the rights to Mossimo’s name and its sportswear being sold exclusively in the Minneapolis-based chain’s stores beginning next year. Founder Mossimo Giannulli would earn at least $8.5 million in the first year of the Target deal.
Giannulli had built his firm, originally a beachwear maker, into a multimillion-dollar enterprise. But the company stumbled as it tried to make a leap into high fashion.
And lately, Mossimo’s losses have been mounting while its cash reserves have dwindled.
The company said this week that it is still seeking financing to help carry it through until the Target deal becomes effective in February.
Mossimo also said this week that its line of credit is expected to be “substantially eliminated” by next month. It said it is renegotiating the credit line and seeking additional financing to cover anticipated shortfalls.
Target this week declined to comment when asked whether it would be willing to provide financing to help bridge the gap for Mossimo. The chain operator could not be reached for comment Wednesday.
Mossimo announced this week that it will lay off about 90% of its 100 workers and close its posh South Coast Plaza boutique and its outlet store in Ontario as part of the massive restructuring linked to the Target deal.
Mossimo said it lost $9 million in the first quarter on sales of $18.1 million. That compared with a loss of $1.6 million on revenue of $8.3 million in the comparable period last year.
The most recent loss included a $4.1-million restructuring charge. The company also revealed in its latest financials that its cash on hand had slipped to $316,000 at the end of the first quarter from $473,000 at the end of 1999.
Mossimo has been trying to recover in recent years. In January 1998, the company hired turnaround pro John Brincko, who began a series of cost cuts, including moving the company into a much smaller headquarters in Irvine. In late 1998, Mosismo hired former Tommy Hilfiger Inc. Chief Executive Edwin Lewis.
When the Target deal was announced, Lewis resigned without taking any compensation for the 16 months he had worked for Mossimo.
The bankruptcy filing was disclosed after the close of U.S. markets. Mossimo’s stock was off 13 cents to $1.94 a share on the New York Stock Exchange.