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Hartmarx's disappointing loss leads to job cuts

by Meaghan M. Norman
Oct 02, 2008

Hartmarx Corp., the Chicago-based apparel maker and retailer, posted a very disappointing third quarter loss and poor projections for fourth quarter earnings, indicative of slumping sales due in part to low consumer confidence.

The company swung to a net loss of $2.4 million, or 7 cents per diluted share, in the third quarter ended Aug. 31, from net earnings of $542,000 or 1 cent per diluted share a year earlier.

Revenues declined 8.3 percent to $124 million compared with $135.2 million. All figures fell well below analysts’ estimates.

Howard Halpern, an analyst at Taglich Brothers Inc. in New York, said the surprising financial downturn negatively affected the estimate.

“It was a 7 cent loss and my estimate was a penny loss. General market conditions, which included a combination of factors, resulted in higher-than-expected losses.”

As a result of the slowing economy and net losses, the company will be reducing inventories and expenses to leverage better sales. There will be administrative cuts including the closing of a sewing plant in Missouri affecting approximately 150 employees.

Chairman and CEO Homi Patel wrote in a statement, “In this extremely uncertain economy, we are committed to reducing expenses further and improving operational productivity and cash flows, despite its adverse impact on current year revenues and earnings.”

The company's current prediction of fourth quarter revenues is from $115 million to $125 million. This would be  a 24 percent to17 percent drop from last year’s fourth quarter revenues of $151.2 million.

Hartmarx markets business, casual and golf apparel under its own brand and under licensing agreements with Burberry, Tommy Hilfiger, Perry Ellis and other brands. Its merchandise is considered to be discretionary spending and that is a leading cause for drooping sales, said chief financial officer Glenn Morgan in an interview.

Some retail stores are cutting prices or increasing their promotional activity to entice customers to spend money, but Morgan said that is not the answer to revive the retail industry.

“There are promotions going on, but it isn’t the price that is driving the consumer. Whether it’s us or autos, if something is discretionary, chances are consumers are holding back."

He went on: “With this current meltdown, consumers read the paper so there is nothing to make the consumer feel optimistic. But an agreement on a rescue plan, the outcome of the election or a rise in portfolios could be catalysts for there to be less uncertainty for the consumer.”

In the nine months ended Aug. 31 Hartmarx lost $7.4 million, or 21 cents per diluted share, compared with a loss of $2.5 million, or 7 cents per share, in the year-earlier period.  Revenues fell to $374.5 million from $411.2 million.

Hartmarx stock closed Thursday at $1.35, down 39 cents.