L.A. Gear, as its slogan says, might really be unstoppable. Trouble is, lately, it's been barreling in the wrong direction.
The sneaker maker lost as much as $6 million in the last quarter, and its inventory remains overloaded with slow-selling lines.
Some retailers--worried that L.A. Gear's image has been tarnished because so much of its merchandise now is for sale at discount stores, swap meets and even from the backs of trucks--are reluctant to give shelf space to its $100 Catapult basketball shoes.
The launch of the Catapult line hit another minor snag over the weekend when CBS and NBC balked at airing L.A. Gear's TV commercial for the sneakers. On Wednesday, however, an NBC spokeswoman said the network would run it without any changes.
Meanwhile, during the past year the Marina del Rey company has squabbled with celebrities hired to push its sneakers. It also has been sued by shareholders, investigated by federal customs officials and, most recently, forced to reach a new agreement with its lenders.
A small but growing number of analysts suggest that L.A. Gear--still the nation's No. 3 athletic shoe firm--could be on an irreversible slide.
"They'd be hurting even without the recession," said Josie Esquivel, an analyst with Shearson Lehman Bros.
L.A. Gear--which leaped to prominence by capturing and promoting the idea of the casual Southern California lifestyle--is learning about the fickleness of consumers who a year ago snapped up the company's fashion sneakers. And in trying to make its first big splash in expensive "technical" men's sports shoes with Catapult, the company is facing skeptical retailers and entrenched competitors.
But company executives say the concerns about L.A. Gear's future are nonsense. "I stub my toe, and the whole world attacks. Didn't anyone hear that it was a bad Christmas at retail?" said Robert Y. Greenberg, the blunt, gravelly-voiced former hairdresser who is L.A. Gear's founder, chairman and chief executive.
L.A. Gear executives note that the company skyrocketed from an $11-million firm to a $900-million-a-year business in five years, and that its revenue climbed 50% in the fiscal year ended Nov. 30, despite the weak retailing climate. Gains came largely in foreign markets and in sales of men's and children's sneakers.
Even with the recently projected fourth-quarter loss of $4 million to $6 million--L.A. Gear's first red ink since going public in 1986--the company expects to show a yearlong profit of at least $32 million. Also, its net worth remains more than $200 million.
"We're not going away," said Kevin Ventrudo, chief financial officer.
Greenberg says L.A. Gear is suffering from the recession and unavoidable growing pains after a four-year span in which it was, according to Forbes magazine, the most profitable company among nearly 1,200 major U.S. firms surveyed.
Although Wall Street analysts currently are urging investors to stay away from L.A. Gear stock, most say the company can bounce back strongly if it comes out with a few new hit products and curbs its expenses. The stock peaked at $50.375 in May. On Wednesday, though, it closed down 50 cents at $9.75, near its 52-week low of $9.
No one has been hit more directly by L.A. Gear's earnings decline over the past three quarters than Greenberg, the company's biggest shareholder with nearly 19% of its stock. Greenberg's pay--which is tied to company profits--has been capped at $5 million, but he says he made substantially less than that last year because of the slump.
To give itself a needed lift, L.A. Gear kicked off a new advertising campaign with a television commercial for the Catapult basketball sneakers that aired on ABC during the Super Bowl on Sunday. It features Utah Jazz star Karl Malone.
NBC and CBS initially declined to run the ad, taking issue mainly with Malone's concluding line: "Everything else is just hot air." It apparently was considered a swipe at Nike and Reebok, L.A. Gear's two biggest competitors, which both sell popular shoes with air chambers for roughly the same price.
But on Wednesday NBC said that, after reviewing the tape, it decided that the line was simply "a figure of speech" and not a competitive claim that needed to be backed up with documentation.
The company says retailers are excited about Catapult, but there are signs that many sporting goods merchants aren't eager to remove the likes of Nikes and Reeboks to make room for the new L.A. Gear sports shoes.
Analysts say Catapult isn't a make-or-break product for L.A. Gear. Still, they add, the company's efforts to expand in the men's sneaker market would be set back significantly if the shoes flop.
Working against Catapult are the slowdown in the sneaker business and in retailing generally, the crowded field of high-end sneakers and the company's reputation as mainly a fashion shoe manufacturer.