Movie Star Inc.

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Movie Star Inc.

136 Madison Avenue
New York, New York 10016
U.S.A.
(212) 679-7260
Fax: (212) 684-3295

Public Company
Incorporated: 1935 as Industrial Undergarment Corp.
Sales: $102 million (1995)
Employees: 2,300
Stock Exchanges: American
SICs: 2339 Women’s, Misses’ & Juniors’ Outerwear, Not
Elsewhere Classified; 2341 Women’s, Misses’,
Children’s and Infants’ Underwear & Nightwear;
2384 Robes & Dressing Gowns; 5621 Women’s
Clothing Stores

The company incorporated in 1935 as Industrial Undergarment Corp. went through two name changes and two mergers before adopting the name of one of its merged partners, Movie Star Inc. Movie Star, in the 1990s, specialized in the design, manufacture, marketing, and sale of an extensive line of ladies’ sleepwear, robes, leisurewear, loungewear, panties, and day-wear. It also operated a chain of 25 retail outlet stores in Mississippi and Georgia. When the company hit a rough patch in the mid-1990s and lost a substantial amount of money, it restructured its operations and discontinued its men’s work- and leisure-shirt product line.

Stardust Inc., 1968-1981

Incorporated in 1935, Industrial Undergarment Corp. was one of many small firms in New York City’s garment district. Its change of name to Stardust Inc. in 1946 presumably reflected a conversion to women’s intimate apparel. By 1968, when the company went public, it was designing, manufacturing, and selling a diversified line of popularly priced women’s day wear and nightwear lingerie. Stardust’s subsidiaries at that time, all wholly owned, were Hazlehurst Manufacturing, Starcrest, Helen of Troy, Orocovis Manufacturing, and Orocovis Embroidery. It operated facilities in New York, Georgia, California, Miami, and Puerto Rico with a total of 255,000 square feet of space, of which 63,000 square feet were leased. Lewis Ratner was president of the company, which employed 1,100 people.

Stardust had sales of $14.4 million in the fiscal year ended June 29, 1968, $14.9 million in the fiscal year ended June 28, 1969, and $15 million in the fiscal year ended June 27, 1970. Net income was $734,771, $637,712 and $740,546, respectively. Long-term debt was $9.3 million in the latter year. Sales and profits continued at this general level through fiscal 1974, although dividends ceased after 1972. In 1975 Stardust’s sales plunged to $11.9 million, and it suffered the first of five losing years through 1980. By that year the company had disposed of its California, Miami, and Puerto Rican facilities and had closed one of its three Georgia factories.

In 1981 Stardust merged with Sanmark Industries, Inc., a private New York company with two Pennsylvania factories and nearly the same markets and manufacturing methods as Stardust. The exchange of 15 shares of Stardust stock for one share of Sanmark stock left Sanmark stockholders with 79 percent of the consolidated company. The David family held about two-thirds of the stock, and Abraham David, previously head of Sanmark, became chairman and president of the resulting Sanmark-Stardust, Inc.

Sanmark-Stardust, 1981-1992

Sanmark-Stardust was in appreciably better financial shape than Stardust. In fiscal 1980, just prior to the merger, Sanmark had $13.6 million in sales, compared to $11.3 million for Stardust, and net income of $910,000, compared to Stardust’s net loss of $656,000. Under a program of aggressive expansion, the sales volume of the consolidated company grew from $27.1 million in fiscal 1981 to $60.6 million in fiscal 1987. Net income, $919,000 in 1981, rose as high as $2.8 million in 1986. The company declared stock dividends in 1981, 1983, and 1985.

Sanmark-Stardust opened the Anne Leslie division in 1983 for the manufacture of robes and leisurewear and added a manufacturing plant in Lebanon, Virginia, the following year. In 1985 it acquired Claxton Manufacturing Co. of Claxton, Georgia, a panties maker, for about $7 million, and in 1987 it bought the major assets of Fountain Manufacturing Corp., a manufacturer of children’s jeans and other clothing for infants and toddlers, for $1.2 million. Sanmark-Stardust also bought Mark Trouser, Inc., in 1987, a privately held manufacturer whose products were being sold in better-priced department stores and specialty shops. Mark Trouser’s main brands were Cuteslumber, a line of infants’ and toddlers’ overalls, shortalls, jumpers, tops, slacks, and jeans; Pure Gold 13 boys’ fashion jeans and casual wear; and Mark of Fifth Avenue boys’ dress slacks.

In November 1987 Sanmark-Stardust bought a 64.5-percent interest in Movie Star, Inc. for $8 a share and began an $8-a-share tender offer for the remaining shares. The selling shareholders of Movie Star, which like Sanmark-Stardust was an intimate-apparel company, were primarily the family of the company’s founder—the late Milton Herman, including Irwin Goldberger, the chairman and Herman’s son-in-law, and Gold-berger’s two sons—and other members of management. Two months later, when the offer expired, Sanmark-Stardust reported that it had purchased about 97 percent of Movie Star’s outstanding shares, at a total cost of $6.7 million.

This acquisition further broadened Sanmark-Stardust’s scope. Movie Star, incorporated in 1946, was producing, in addition to women’s sleepwear, day wear, and loungewear under the brand names Movie Star, Cinema Etoile, and Cine Star, a line of men’s work and leisure shirts in its Irwin B. Schwabe division. By 1986 it had facilities in New York, six southern states, and Puerto Rico, plus 26 factory outlet stores. Its sales grew to $77 million in fiscal 1985, when its net income was $774,000, but it lost $2 million in fiscal 1986.

The newly consolidated company now had 20 factories manufacturing most of its products. It lost $1.8 million on sales of $96.2 million in fiscal 1988 but earned $4.8 million on sales of $126.6 million in fiscal 1989 and declared a five-for-three stock split. During the next three fiscal years, net sales ranged between $117.7 million and $124.7 million, while net income ranged between $289,000 and $1.2 million. No dividends were declared after 1988.

Sanmark-Stardust’s rapid expansion had brought its long-term debt up to $28 million, and, in the soft economy of the early 1990s, it found it had no choice but to retrench. Six factories, including both remaining Georgia plants, were closed between 1990 and 1992, and additional downsizing measures followed.

Movie Star, 1993-1995

Sanmark-Stardust changed its name to Movie Star at the start of 1993. At the end of fiscal year 1993 (ending June 30, 1993) Movie Star sold its children’s ready-to-wear division to the manager of that division and others. Fiscal 1993 was a good year for Movie Star, with net income of $2.3 million on net sales of $120.3 million. Nearly $1 million of the profit came, however, from the sale of plant facilities. To combat certain unfavorable trends in retailing, which the company cited as “inventory tightening, chain consolidation, and pricing pressure,” Movie Star consolidated its eight divisions into four and streamlined its manufacturing. The consolidated divisions were Cinema Etoile for better-price sleepwear, loungewear, and day-wear; the Sanmark Group for similar innerwear categories at moderate prices and aimed at the mass market; Movie Star outlet stores; and Irwin B. Schwabe, the division for men’s work and leisure shirts.

In fiscal 1994 Movie Star’s net sales dropped to $103.1 million, and the company sustained a loss of $4.2 million. This figure chiefly reflected a $3.8-million charge taken for inventory markdown. During the calendar year the company restructured its Sanmark division, focusing entirely on larger, higher-margin private-label customers representing national and regional chains. This division formerly also had sold its products to mass merchants and lower-margin smaller accounts. The change in operations reduced inventory by more than $7 million. In fiscal 1995 the company closed the Taiwan office it had established in 1985 for a new international division and transferred the responsibility for monitoring the quality and progress of manufacturing of finished products purchased in the Far East to independent agents in the countries of manufacture.

Despite these economy measures, in fiscal 1995 Movie Star’s sales not only dropped to $102 million, its loss widened to $5 million. In September 1995 the company announced that it would discontinue the Schwabe division because of inadequate return on capital and would take a special charge to reflect the writedown of assets tied to the men’s-shirt business. Accordingly, it closed three shirt manufacturing plants in northern Mississippi and liquidated Schwabe’s other assets. This division had sales of $20 million in fiscal 1995, about half to one customer.

During fiscal 1996 Movie Star took other steps to restructure its operations. It consolidated its facilities, outsourced product from foreign manufacturers, and wrote down inventories. A new chief executive officer, Barbara Khouri, appointed in August 1995, concentrated on cutting costs and emphasizing Movie Star’s original and higher-margin products. She resigned eight months later, saying she had finished the task she set out to do, and was succeeded by Mark M. David, who had held the job before her.

Movie Star felt confident enough in its future, however, to open a new apparel division, Sun Works, in 1995. Sun Works was to focus on novelty apparel items with designs that when, exposed to sunlight, would appear in vivid colors. The first offerings in this line were to be T-shirts, followed by sweatshirts and baseball caps. By mid 1996 Sun Works T-shirts were selling nationally in over 700 stores. Movie Star also formed a partnership with GSR, Inc. to market the patent-pending process under the company name of SunMax and, with GSR, granted a license to Guilford Mills of North Carolina, the world’s largest warp knitter, to print fabrics with the SunMax technology.

Movie Star continued in the red during the first half of fiscal 1996 (the second half of calendar 1995). It lost $2.3 million on sales of $57.6 million over this six-month period and, in April 1996, had to negotiate a deal to avoid default on its debentures. Long-term debt was $22.5 million in September 1995. Total assets were $57.2 million at the end of fiscal 1995.

Movie Star’s Operations in 1995

In 1995 Movie Star was selling an extensive line of women’s intimate apparel, including sleepwear, robes, leisurewear, loungewear, panties, and daywear to discount, specialty, national and regional chains, mass merchandise and department stores, and direct-mail catalog marketers throughout the United States at prices ranging from $2 to $70. It also operated 25 retail outlets. National chains and mass merchandisers accounted for some 45 percent of sales, with Sears, Roebuck and Co. alone accounting for 22 percent, of which more than half were men’s work and leisure shirts. Sales of the company’s own manufactured goods accounted for 30 percent of the sales volume of the retail outlet stores, operating under the name Movie Star Factory Outlets, at discounted prices. These sales accounted for less than 10 percent of the company’s total revenues.

At the end of fiscal 1995 Movie Star owned manufacturing facilities in Petersburg, Pennsylvania; Lebanon and Honaker, Virginia; and two plants in Mississippi. It also owned a warehouse and distribution center on the Petersburg and Lebanon sites and vacant properties in Hazlehurst, Georgia, and Evansville, Indiana. It was leasing a manufacturing plant in Puerto Rico, five warehouses in Mississippi, its headquarters in New York City, and its 25 retail stores in Mississippi and Georgia. By the end of the fiscal year Movie Star had closed nine manufacturing plants in five years in an effort to lower its costs.

About four percent of its raw materials and 14 percent of its finished goods were imported, and about seven percent of its finished goods were assembled in the Caribbean and Central America during the fiscal year.

Mark M. David, chairman and chief executive officer of Movie Star, was also the chief stockholder in 1995, with almost 21 percent of the shares. Mrs. Abraham David held nearly 12 percent, and an employee plan held more than 10 percent.