Gitano cites production, not demand, for 4Q dip - apparel manufacturer

Discount Store News, April 24, 1989 by Kenneth M. Chanko

Gitano Cites Production, Not Demand, for 4Q Dip

NEW YORK -- Other than a minor fourth quarter blemish--a decline in sales and earnings--top officials of The Gitano Group painted a rosy picture of the company's future to a sizable contingent of Wall Street analysts.

Haim Dabah, president of Gitano, ran through the impressive numbers for 1988--a 36.2 percent jump in net income to just under $23 million and a 26.9 percent rise in sales to $464.5 million--before launching into Gitano's plans for the future.

Yet Dabah also took time to assure the analysts that the women's wear manufacturer's fourth quarter stumble was a one-time occurrence. Dabah laid blame for the 12.9 percent decline in fourth quarter net earnings, along with the 4.9 percent drop in net sales, to "our inability to integrate our manufacturing, established in mid-1988, into Gitano's operations as quickly as initially expected. Frankly, the problem was caused because we did not have effective management controls in place."

He added that the manufacturing shortfall resulted in "approximately 90,000 dozen below plan, or over $11 million in lost sales."

Later in the meeting, Isaac Dabah, vice chairman, elaborated by admitting that Gitano had taken its eye off the ball, getting momentarily sidetracked with the purchase of the Gloria Vanderbilt name as well as the acquisition of The Children's Place retail chain late last year.

Haim Dabah ticked off the six steps Gitano has taken to fix the problem: . Changes in personnel; . The establishment of central production coordination for all manufacturing in Edison, N.J., with divisions no longer dealing with the factory directly; . A new chief financial officer for Noel Manufacturing, reporting directly to the corporate chief financial officer, was added in February; . The acquisition of Gitano's single minority partner's 30 percent interest in the Guatemala manufacturing facility and the subsequent restructuring of plant personnel; . The installation of reporting procedures to monitor weekly production and efficiency levels; . Refocusing on the manufacturing of basic styles in large quantities for long production runs to increase efficiency.

To prove that the fourth quarter dip was a supply problem and not a demand problem, Dabah revealed that "our mid-March booking backlog was $189.7 million, compared to $122 million in 1988, an increase of 55 percent."

Dabah also told those at the gathering that Gitano will be offering select lines under the Gloria Vanderbilt name for holiday 1989, but that production won't really get underway until later in the year for "a big spring 1990 line."

At least through spring 1990, the Vanderbilt products will not be offered to discounters, Dabah said.

He told analysts that Gitano's new private label division will not only supply product for retailers, it will also develop the image, hang tags and labels, and help market the product to the consumer.

Dabah added, "While the contributions of Gloria Vanderbilt and the private label division to 1989 revenues and earnings will be modest, we do anticipate significant performance for the 1990s."

The net cost of The Children's Place acquisition was "somewhat over" $20 million, while the assets acquired included a current working capital of about $15 million.

He also told analysts that Gitano "is very excited" about its shop-within-a-store at discounters and mass merchants.

"We expect to expand testing of this concept at two or three other chains before year-end".