Donnkenny, Inc.

views updated

Donnkenny, Inc.

1411 Broadway
New York, New York 10018
U.S.A.
(212) 730-7770
Fax: (212) 228-6036

Public Company
Incorporated: 1934 as Nadler Sportswear
Employees: 1,595
Sales: $210.3 million (fiscal 1995)
Stock Exchanges: NASDAQ

SICs: 2331 Women’s, Misses & Juniors’ Blouses & Shirts; 2335 Women’s, Misses & Juniors’ Dresses; 2339 Women’s, Misses & Juniors’ Outerwear, Not Elsewhere Classified; 2341 Women’s, Misses’ , Children’s &Infants ’ Underwear & Nightwear; 2369 Girls’ , Children’s & Infants’ Outerwear, Not Elsewhere Classified; 5621 Women’s Clothing Stores; 5641 Children’s & Infants’ Wear Stores; 6719 Holding Companies, Not Elsewhere Classified

Donnkenny, Inc., a holding company, designs, manufactures, imports, and markets a broad line of moderately priced women’s sportswear and sleepwear through its several subsidiaries and divisions. In addition, men’s, Women’s, and children’s sportswear and intimate apparel featuring various cartoon character images were being manufactured, imported, and marketed by the company.

Steady Growth to 1978

Based in New York City’s garment district, Donnkenny was a successor company to Nadler Sportswear, founded in 1934 by Murray Nadler and his brother Leon. This enterprise originally manufactured blouses only. After Murray returned from army service in World War II the firm began production of other sportswear items. In about 1957 it moved its manufacturing operations from New Jersey to Virginia. In that year it had net income of $115,338 on net sales of $3.3 million.

At the end of 1961 Donnkenny acquired the entire stock of six corporations, which became wholly owned subsidiaries. The consolidated company went public the next year, but 77 percent of the shares were held by Murray Nadler, president and chairman; Leon Nadler, secretary; and Glenn O. Thornhill, treasurer. Donnkenny was leasing three Virginia manufacturing plants and in 1961 had net income of $334,199 on net sales of $6.8 million.

In 1965 Donnkenny was producing a complete line of moderately priced misses’ and young women’s sportswear apparel, including blouses, pants, skirts, and jackets, with particular emphasis on casual wear. More than 80 percent of its sales were in the retail price range of $3.98 to $6.98. Styling and manufacturing emphasized coordination of separate items in the firm’s line, so that they could be worn in a variety of combinations as part of an ensemble. All of Donnkenny’s goods were manufactured by nonunion labor in the company’s five leased Virginia plants. They were marketed through more than 4,000 retail outlets, including department stores, specialty shops, and women’s apparel outlets throughout the country under the registered name “Donnkenny.”

Donnkenny acquired Dunwoodie Manufacturing Co., a producer of ladies’ blouses and tailored shirts, in late 1965. It enjoyed rapid growth in the mid-1960s, climbing from $11.6 million in net sales in 1964 to $22.8 million in 1966. Net income rose from $427,000 to $728,000 in this period. The company added permanent press, sold under the “Donny-press” label, to its line of cottons, woolens, corduroys, and synthetic fabrics. A sixth Virginia plant was opened in 1966. Designs were being turned out four times a year by the company’s own staff to conform to the selling seasons. Sales were supported by a national advertising program, including ads in many of the leading fashion publications.

Interviewed by the New York Times in 1971, Murray Nadler said it had become more difficult to anticipate consumer needs in the sportswear business in the past five years because of the growth in new lines and patterns. By the end of that year Donnkenny was operating two more Virginia factories and was turning out an average of 9,000 dozen garments a week, which were mainly selling at retail from $7 to $15 under the labels Donnkenny, Xtrovert, R.B.K., Kenny Classics, Melray, Durbin, and Dunwoodie. The company had recently inaugurated a junior division in sizes below eight for shorter girls and was importing knitted sweaters and skirts from the Far East. Forty-five percent of its 1970 sales were through department stores, 26 percent from major chains and discount houses, and 24 percent through specialty and women’s apparel shops.

Donnkenny passed the million-dollar mark in net income in 1970 and the $30-million mark in net sales the following year. Its growth continued unabated through the next several years, and it had 18 wholly owned subsidiaries by 1974. Revenues increased every year between 1973 and 1977, and record profits were reported for every year except 1974. Net sales totaled $82.2 million and net income amounted to $3.8 million in 1977.

Troubled Private Firm, 1978-1985

Financially speaking, Donnkenny was a very conservative company, paying for expansion from its own earnings rather than taking out loans or mortgages. That all changed in November 1978, when it was acquired by the investment house Oppen-heimer & Co. for $27.5 million in a leveraged buyout that privatized the company. Of this sum, only $3.5 million was equity, with the rest senior and subordinated debt. Minority shareholders were bought out; insiders, principally the Nadler (46 percent) and Thornhill (12 percent) families, received shares in a closed-end investment company holding a portfolio of tax-exempt municipal securities. Murray Nadler, Thornhill, and three other company officers kept their jobs, receiving substantial raises in salary, deferred compensation, and profit-sharing incentives.

The deal soured for Oppenheimer, which in August 1981 dismissed not only the management but the office staff, right down to the switchboard operator. In a lawsuit the investment banking firm charged that it had overpaid for Donnkenny because the management had cooked the books and diverted profits, accusing the firm’s accountants and a Thornhill-con-trolled company of “racketeering activity,” “breaches of fiduciary duty,” and a conspiracy “to systematically defraud and loot” the company. Among the charges were that, during the negotiations to buy out Donnkenny, Nadler and Thornhill secretly began arranging to contract out work from the company’s two dozen manufacturing subsidiaries to the Thornhill-con-trolled company and other plants owned by Thornhill. In addition, the investors’ representatives on Donnkenny’s board of directors allegedly were given doctored figures to conceal siphoned off profits.

The Donnkenny investment group, which included Security Pacific Bank, installed Al Paris as president. Control of Donnkenny passed to Odyssey Partners, a spin-off headed by several of Oppenheimer’s founders. It was announced in April 1982 that the company’s parent, Donnkenny Holding Co., and Donnkenny, Inc. itself had been recapitalized under favorable terms of bank and institutional debt and that the Paris Group, which included other Donnkenny managers, had acquired majority ownership of the holding company. In 1985 this group transferred its holdings back to Odyssey, restoring it to full ownership of the firm.

Frazzled Donnkenny ended 1985 with the biggest loss in its history—$12.5 million. At this time the firm had ten plants in the South and about $85 million in annual sales, according to its management. Richard Rubin, a ten-year sales veteran who was vice-president in 1985, got the job of turning the company around. It returned to profitability in 1986, and Rubin was rewarded with the titles of chairman and chief executive officer as well as president.

Thornhill won vindication in 1985, when a Virginia jury awarded him $1.28 million in damages against Donnkenny for breach of his employment contract and “willful, malicious, wanton and oppressive conduct.” This verdict appeared to end Donnkenny’s $8 million suit against Thornhill, which was transferred to Virginia from New York because the jury decided he was improperly fired despite the company’s allegations of misconduct.

Prosperity in the 1990s

In 1989 Donnkenny was acquired by Merrill Lynch In-terfunding Inc., and Donnkenny management was involved in another leveraged buyout that added $58.7 million to the company’s debt. Its managers included Rubin, who took a 28 percent share; Merrill Lynch Interfunding took 66 percent. In 1991 Donnkenny announced plans to go public, selling about 40 percent of the shares. Merrill Lynch Interfunding planned to keep another 40 percent and Rubin kept 17 percent. The estimated proceeds of $27 million were to be used to reduce debt. Donnkenny reported sales of $108 million in fiscal 1991 and earnings of $2.7 million.

Donnkenny did not go public until June 1993. By the end of the year its stock had risen about 50 percent over the initial offering price, and it had worked off 54 percent of the debt it had assumed in the 1989 buyout. The company’s core business was still women’s sportswear and sleep wear, with more than 90 percent of its garments produced at ten Virginia plants. Its fastest selling line, however, was Mickey & Co., consisting of Disney-licensed clothing for men and children as well as women. Lewis Frimel sleepwear and intimate apparel, also featuring cartoon characters, were produced under the Warner Brothers/Looney Tunes label.

The Donnkenny of the mid-1990s was aggressively expansion- and acquisition-minded, with the stated intention of tripling its sales to $456 million by 1998. In 1994 it signed a licensing agreement to produce a better-priced sportswear and knitwear line under the label of the noted designer Arnold Scaasi, with distribution confined to department and specialty stores. These stores were also to carry a new line of natural fiber, moderately priced coordinated women’s sportswear and related separates under the J.G. Hook label.

Armed with a new $85 million bank loan, Donnkenny made two important acquisitions in 1995, purchasing Beldoch Industries Corp. for about $15 million and the sportswear division of Oak Hill Sportswear Corp. for about $14.6 million. Beldoch held the license for all Pierre Cardin women’s wear in the United States and was manufacturing sweaters bearing the Cardin name. It also marketed other knitwear for women. Oak Hill’s sportswear unit marketed women’s sportswear, knitwear, sweaters, and shirts under the Victoria Jones and Casey & Max names. Donnkenny planned to open almost 1,200 Mickey & Co. concept shops in J.C. Penney stores by August 1996.

As part of Donnkenny’s diversification strategy, Rubin emphasized in a 1995 WWD interview that he was focusing on “middle America,” or, in his words, “women who can’t afford to spend more than $100 for an outfit.” He said the company’s licensed cartoon endeavor accounted for 60 percent of business and was expected to grow at a rate of 25 percent. In 1994 Donnkenny signed a license to market apparel featuring the Felix the Cat cartoon character, and in 1995 it introduced Sleepy Heads, a nylon pajama pouch cut to look like the profile of a cartoon character, for the Lewis Frimel/Flirts and Mickey &Co. lines.

Net sales rose from $126.5 million in fiscal 1992 (the year ended December 5, 1992) to $210.3 million in fiscal 1995 (the year ended December 1, 1995). Net income rose from $4.5 million in fiscal 1991 to $9.8 million in fiscal 1994, and then fell to $5.8 million in fiscal 1995.

Donnkenny in 1995

Donnkenny Classics, the company’s core products, primarily for women over 35, included year-round pull-on stretch gabardine pants and skirts and coordinated gabardine jackets and blouses, plus tops, blouses, pants, skirts, and jackets in styles varying from season to season. The D.K. Gold division produced private-label related sportswear. The Beldoch subsidiary manufactured and imported women’s knitted sweaters sold under the brand names Beldoch Popper and Knitmakers. In addition, it had the right to manufacture, import, and sell women’s sportswear in the United States with the Pierre Cardin trademark and was manufacturing sweaters under this trademark. Beldoch also intended to manufacture knitwear under the Alberoy name in the fall of 1996.

The Lewis Frimel/Flirts product line (acquired in 1977) consisted of women’s and girls’ sleepwear and sportswear and, since fall 1993, panties and boxer shorts. Licensed images on this product line included characters in the Garfield and Peanuts comic strips, Looney Tunes characters, and classic Muppet characters. The Mickey & Co. line included boxer shorts, T-shirts, sweatshirts, sweaters, toppers, leggings, jackets, underpants, underpants sets, and sportswear imprinted with various Disney characters. In 1996 Donnkenny was licensed rights, which it sublicensed, to sell this product line in China. Donnkenny also was designing and/or manufacturing custom products for private labels such as Polo/Ralph Lauren, Tultex, and Cross Creek.

In fiscal 1995 about 51 percent of the products Donnkenny sold were manufactured in the United States, of which a majority were manufactured at the company’s Virginia facilities or West Hempstead, New York. The remainder of its products were produced abroad and imported, principally from China, India, Guatemala, Turkey, and Bangladesh. Donnkenny was shipping orders to about 27,000 stores in the United States. In fiscal 1995 specialty retailers accounted for about 36 percent of net sales, department stores for about 23 percent, chain stores for about 23 percent, mass merchants for about eight percent, catalogue customers for about five percent, and other customers for about five percent. J.C. Penney accounted for 15.5 percent of net sales.

At the end of fiscal 1995 Donnkenny was operating nine Virginia, two Mississippi, and two New York facilities. It also had a small administrative facility in Hong Kong. The principal showroom was in New York City; the others were in Atlanta, Charlotte, Chicago, Dallas, Denver, Elmont, New York, Los Angeles, Minneapolis, and Seattle. Corporate headquarters were in New York City. The company planned to operate a Charleston, South Carolina, facility by the mid-1990s. Donnkenny also operated 14 outlet stores to market out-of-season and irregular merchandise. These were situated primarily in Virginia, with additional locations in Alabama, Florida, North Carolina, Pennsylvania, and Tennessee.