In the late '90s, some folks considered an $80 sweatshirt a steal -- as long as it had a Tommy Hilfiger (NYSE:TOM) logo on it. But after peaking in 2000, today Tommy's brand has lost much of its fashion appeal.

The company's U.S. wholesale division is still in a tailspin, according to yesterday's preliminary fourth-quarter and year-end results. In late 2000, sales totaled $1.6 billion; after continued volume cuts by distributors like Dillards (NYSE:DDS) and Federated (NYSE:FD), 2005 U.S. wholesale revenues have dwindled to $684 million. Sales aren't Tommy's only problem. In September 2004, the company was subpoenaed for tax-related matters, such as the commission charges it levies on subsidiaries. The company is also reassessing its tax liabilities in New York and New Jersey. Because of these uncertainties, the annual and last three quarterly reports have been delayed.

These factors have knocked the wind out of Tommy's stock, but management hasn't given up. Capital spending will jump to 90 million next year as the company begins construction on 27 new retail stores. Meanwhile, by restructuring design teams and removing underperforming products, management is hoping to curb the sales decline of the struggling U.S. wholesale division. Even with high hopes, this division's revenues are still expected to drop another 30% in fiscal 2006.

Management does have few advantages, though. After being acquired in 2001, Tommy's European division has performed marvelously. Excluding foreign currency gains, European operations saw revenues surge 21% in fiscal 2005, almost a clean double from 2003's numbers.

If management can slow the U.S. sales slide and sustain its European success, Tommy might begin moving forward. With competing brands like Calvin Klein (NYSE:PVH) and Polo (NYSE:RL) posting solid growth, the current retail environment can only help the company's performance. The surge in stock price after yesterday's conference call gives management a much-needed vote of confidence, but there is still a long road ahead.

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Fool contributor Matt Thurmond admits to purchasing his share of Tommy clothes in the '90s. He never bought the stock, however, and owns no shares in any other company mentioned in this article.