Daily Trouble |
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<DAILY TROUBLE>
Tuesday, May 25, 1999
Candie's Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAND)") else Response.Write("(Nasdaq: CAND)") end if %>
Phone: 914-694-8600
Price (5/24/99): $3 1/16
HOW DID IT FIND TROUBLE?
Two years ago, pin-up gone MTV and sitcom star Jenny McCarthy was featured in a series of ads for Candie's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAND)") else Response.Write("(Nasdaq: CAND)") end if %> shoes. In one marketing shocker she was straddling a toilet in a bathroom stall. With the way the stock of the footwear maker has tanked recently, one would think a courtesy flush or two is in order.
On May 13, Nasdaq halted trading on the company's beleaguered shares until it files overdue financial statements. Candie's had an extension, but finally admitted that it would miss its already belated curfew.
With the company now warning Wall Street that it will also revise past quarterly income statements, the suddenly barefoot shareholders are looking for a way out -- if only Nasdaq would clear the exit.
BUSINESS DESCRIPTION
Candie's designs and markets young women's apparel, footwear, and accessories. Beyond its namesake brand, the company also markets products under Bongo, Candie's kids, and Crayons.
Use of the Candie's brand for perfumes and cosmetics is licensed to Liz Claiborne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIZ)") else Response.Write("(NYSE: LIZ)") end if %>.
FINANCIAL FACTS
Income Statement (pending revision)
12-month sales: $120.1 million
12-month income: $6.0 million
12-month EPS: $0.38
Profit Margin: 5.0%
Market Cap: $54.2 million
Balance Sheet
Cash: $0.1 million
Current Assets: $45.5 million
Current Liabilities: $17.4 million
Long-term Debt: $1.8 million
Ratios
Price-to-earnings: 8.1
Price-to-sales: 0.45
HOW COULD YOU HAVE SEEN IT COMING?
This appears to be another case of depeche mode. It's fast fashion, fickle tastes, and a once-hot shoemaker that saw that day coming.
Why else would Candie's have gone out of its footwear niche to buy Michael Caruso & Co., entering the denim realm with Bongo Jeans? In the Saturday Night Fever disco era, Candie's tasted success with its wildly popular stiletto-heeled Slide shoe. But Staying Alive was a song, not a fashion mandate. The Slide, like "The Hustle" and the leisure suit, eventually became nostalgic relics.
The shelf life of designer jeans has also proven to be limited. I've probably got a pair of Jordache and (Ooh la la) Sasson Jeans up in the attic somewhere if you want me to fetch them for proof.
Candie's is trying to milk the brand for what is left, through fragrance deals with Liz Claiborne and eyewear licensing with Viva International. That may also have tipped folks off that the Candie's craze was near an end.
WHERE TO FROM HERE?
Earlier this month Candie's announced that, while it expected fiscal 1999 revenues to climb 23% to $115 million (which meant that the fiscal fourth quarter would actually be coming in $5 million lower than fiscal 1998's fourth quarter), pre-tax income would plummet deeper than a Jenny McCarthy v-neck. From $5.7 million in fiscal 1998 to just $750,000, the results proved that the diversification and licensing deals might have improved the top line, but the margins were getting hammered.
While Candie's may explain the recent weakness by pointing to slow winter boot sales, it's quite possible that, like the "disco is dead" Slide, Candie's may be out of its second 15-minute helping of fame.
But the diversification, which might have tipped off some savvy fashion historians, might also be the company's saving grace. It is now a supplier above the ankle. Financially the company has a high hurdle to clear. Not only does it face a credibility problem with its poor past accounting, but as the class-action lawsuits mount this time, the shark attorneys really do smell blood.
Will Candie's survive? How low will it go once it complies with Nasdaq's reporting requirements and commences trading again? How much will the lawsuits chew away? The questions mount stiletto-heel high. Wall Street waits for Candie's.
-Rick Aristotle Munarriz
([email protected])
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