The maker of men's casual pants hopes it can recover from the holiday debacle that came close to shutting it down.
By MARK ALBRIGHT
Published February 20, 2004
TAMPA - After steering Tropical Sportswear Int'l Corp. back from the brink last month, leaders of the troubled apparel company Thursday offered shareholders no assurance that the worst is over.
"All I can promise is we've got people working smart and hard to turn this company around," said Michael Kagan, the 64-year-old chief executive who was lured out of retirement last fall to pick up the pieces.
About 30 shareholders, many of them employees, gathered for the annual meeting at the company's Tampa headquarters. In the company's good old days, roast beef and salmon pate were served. This time, it was doughnuts and danish from Sam's Club.
"I've been with Tropical since the beginning," said Fred Merritt, a retired menswear buyer for Sears, Roebuck & Co. "I sure hope they can turn it around."
The past 18 months have been a wild ride down for the maker of more than 50 brands of men's casual pants, including Farah, Flyers and Savane.
Five of the company's top executives have quit or been fired. Combined losses totaled $140-million during the same period. Now, thanks to Tropical's pocket change stock price - it closed Thursday at $1.53, down 2 cents - Wall Street values Tropical's market capitalization at only $17-million. That's barely more than the $16.4-million the company poured into a new headquarters building that it never occupied and now wants to sell.
What pushed Tropical to the edge was a botched holiday season in 2003. Tropical missed delivery dates to retailers, who promptly canceled the rest of their orders. That left Tropical's warehouses overflowing with millions of pairs of excess denim and khaki inventory that had to be dumped at a loss. The company fell into technical default on $70-million of its debt in January.
Fleet Capital renegotiated terms of a new $100-million credit line in January, but the bank tightened performance benchmarks that could trigger another default. Creditors would have first call if the company were forced into bankruptcy, while shareholders might not come away with anything.
The company, which manufactures products through contractors in Mexico and the Caribbean, has been downsized over the past year. After closing its last plant in Texas last year, Tropical on March 14 will lay off 65 people in Tampa at its last fabric-cutting facility in the United States.
Kagan outlined the company's strategy to get back on track now that it has cut $16-million in annual expenses over the past 18 months.
"We had to size the company to the amount of business we were doing," he said. Tropical sales dropped 17 percent to $387-million in 2003.
For a company that sells itself to retailers as the fastest to respond to market conditions, getting retailers to forget last year's holiday performance looms as the company's biggest short-term challenge.
The problem wasn't a lack of demand for its pants, which are priced from $40 a pair for the Savane brand to $9.98 a pair for Puritans sold at Wal-Mart.
"We had the orders, we just didn't execute," said Rich Domino, chief operating officer. "It was an operational failure."
Moving the last of the cutting to the Dominican Republic and Honduras is supposed to make Tropical faster by eliminating a step in the manufacturing process.
Tropical also is addressing marketing problems with Savane, one of its higher priced brands of casual pants. Department stores cut back on Savane last year after moderately priced chains such as Kohl's and J.C. Penney began carrying it.
Tropical hopes to win both types of stores with new advertising, price tags and a split personality for the brand that will debut at an apparel trade show in Las Vegas next week. Savane Dress Blues will be sold through department stores. Savane Plugged In, for casual khakis and denim, and Savane Unplugged, for microfiber dress causal wear, will be sold to moderately priced apparel chains.
