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Wednesday, August 6, 1997
Mossimo
HOW DID IT FIND TROUBLE? After a hot IPO last year, Mossimo got all dressed up with nowhere to go -- but down. Fashion is fickle. Investors are worse. When the company's hot February debut went from $18 to $50 by last summer, the clothier company could apparently do no wrong. Since then, however, those signature Circle-M logos on the rear of Mossimo shorts have been replaced with "Kick Me" signs. From killer shorts to a thriller for the shorts, waning popularity for its menswear and falling margins have found the stock falling off the runway. BUSINESS DESCRIPTION California's Mossimo designs, sources, and markets a lifestyle collection of contemporary men's activewear and men's and women's sportswear bearing Mossimo trademarks. While the company has two namesake stores in Southern California, it mostly distributes its products to department stores, specialty retailers, and sports and activewear stores. FINANCIAL FACTS Income Statement 12-month sales: $101.3 million
12-month income: $2.4 million
12-month EPS: $0.16
Profit Margin: 2.4%
Market Cap: $125.6 million
Balance Sheet*
Cash: $1.9 million
Current Assets: $45.4 million
Current Liabilities: $12.0 million
Long-term Debt: $0.1 million
(*As of Mar. 31, 1997)
Ratios
Price-to-earnings: 52.3
Price-to-sales: 1.2
HOW COULD YOU HAVE SEEN IT COMING?
Risa Kaplan (TMF Style), who reigns over the Fool's retail industry message folder, wrote about Mossimo earlier this year. She noted how the company carved a niche in casual activewear then decided to dress up its product line. "Rumors abounded on 7th Avenue in New York that he wanted to be the next Giorgio Armani," she wrote back in March. "Mossimo tried to take a name that was known for casual wear and upscale it. Generally, the formula for success has been to have an expensive name and then market T-shirts and caps (like Emporio Armani, Calvin Klein Sport, and DKNY) for people who can't afford the top of the line but want to have the status." While the company tried to exploit its brand by expanding into everything from womenswear to sunglasses, the only thing that it did was blur the reality that sales for its high-margin men's activewear was falling. This didn't seem to trouble giddy investors last summer. It wasn't until September 23rd that they saw that the Emperor had no Mossimo clothes. The stock was disrobed by more than $10 over the next two days as Wall Street digested the company's warning that quarterly profits would be lower than expected. Mossimo blamed a change in suppliers and bad purchasing decisions. Bad purchasing decisions? By whom? The company or the shareholders? WHERE TO FROM HERE? Every quarter since has been a disappointment. Sales, which had been inching higher last year, are now flat despite the many new product lines. Earnings continue to erode as its highest-margin segment, men's activewear, continues to wear down. The analysts are certainly jaded. After all, they've had their Circle-M's handed to them over the last year. They now think Mossimo is good for just three pennies a share in earnings this year and $0.27 a share in 1998. The analysts have downgraded and moved on. Even the CFO has left; in May he went back to his old post at Deloitte and Touche. With the bleak outlook, it is hard to see how Mossimo can return to last year's highs -- or even half of those highs. No need for Mossimo shades with these gray skies. Until management makes some serious alterations in strategy, investors might want to pass on this clearance sale. -Rick Aristotle Munarriz (tmfedible@aol.com)
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