Apparel makers have had an up-and-down year, and we're not just talking hems. The volatility has been on Wall Street, where lately fashion has been less in vogue with investors than it was a few months ago.
Earlier this year, when the stock market was surging, such big-name labels as Bernard Chaus, Leslie Fay, Carole Little and even the maker of Fruit of the Loom underwear figured that stock in their companies might be as appealing as some of the stock in their showrooms.
After all, Liz Claiborne Inc. had knocked the socks off Wall Street since going public five years ago. And European garment makers and retailers like Benetton and Laura Ashley had seen marketplace magic in the last year.
But just as styles can lose favor in a hurry, so did apparel stocks.
Consider what happened this summer to two companies with well-known brands. Heeding a sizzling market for new stocks in general and apparel issues in particular, garment maker Bernard Chaus Inc. went public in July--netting nearly $72 million for the 35% share sold by Bernard and Josephine Chaus, the husband-and-wife founders and owners.
But just three weeks later, the fervor had cooled, and old-line dressmaker Leslie Fay Cos. got doused in an offering of 5 million shares on Aug. 1. The stock closed below its initial price of $18 on the first day out and hasn't performed well since.
"There is a much less attractive market now than just a few months ago," said Herman Gordon, an attorney for Leslie Fay, who is also a director. "If I were advising a client in an apparel company about whether to go public, I'd tell him to wait."
The apparel companies' experience indicates what a crapshoot the stock market can be, particularly when it comes to initial public offerings.
A company that might seem a sure bet when it files a registration statement with the Securities and Exchange Commission can later turn up snake eyes with fickle investors.
And in the case of the apparel firms, good, steady performance doesn't seem to be a saving grace.
"All of these stocks have gone down without regard to the performance by individual companies," Gordon said. "It has to do with the mechanics of the market rather than the performance of particular apparel companies."
Earlier this year, apparel stocks drew attention in the investment community after having materially outperformed the market since the start of 1985, analysts say. The companies' earnings were growing but not nearly as fast as the stock prices.
"People were willing to pay many times book value for the privilege of owning an apparel company," said Jay J. Meltzer, an analyst with Goldman, Sachs & Co. in New York.
As a result, garment companies in need of cash to expand operations or pay off debt were coming out of the woodwork. In many cases, these were companies that over the last few years had converted to private ownership through leveraged buyouts that had loaded them up with debt.
In fact, the move to market bucked an apparel industry trend during the first half of the decade toward consolidation and private ownership.
Among the companies that went private were Leslie Fay, sweatsuit maker Pannill Knitting and jeans makers Levi Strauss and Blue Bell. Blue Bell was recently acquired by publicly held VF Corp.
"The reason companies went public (this year) was that there was a window of opportunity," said Brenda J. Gall, a vice president at Merrill Lynch in New York who has helped put together several apparel offerings. "There was a lot of investor interest in the group."
Reap Big Profits
Such a climate enables apparel executives to reap big profits for selling relatively small stakes of the companies they've built. Meanwhile, they can retain firm control.
Overseas, two companies with strong U.S. presences also scored big on public markets.
More than $100 million went to the Benetton family of Treviso, Italy, after an offering on the Milan Stock Exchange that left them with nearly 90% of the company.
Late last year, Laura Ashley Holdings, another manufacturer and retailer, went public on the London Stock Exchange, providing a $55-million windfall to survivors of Laura Ashley, who died two months before the offering. The Ashley family and its holdings still control 72%.
To be sure, apparel companies have accounted for only a fraction of this year's initial public offerings on U.S. markets.
Through August, 542 offerings in an array of industries had raised nearly $13 billion, eclipsing an annual record of $12.95 billion set in 1983, according to the Institute for Econometric Research in Fort Lauderdale, Fla., which publishes the New Issues newsletter.
But the garment makers were a high-profile group because their products deck the closets of so many Americans.
Moreover, there is an interesting common element in many of these companies, which are run in highly distinctive fashion by relatives of the founders or by the husband-and-wife teams that started the businesses.