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Starter Corporation (NYSE: STA)
370 James Street
New Haven 06513
Chairman, President and CEO: David A. Beckerman
Revenues (FY 1997): $350.2 million
Net profit (loss) (FY 1997):
($36.9 million)
Employees: 1,000
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Business New Haven
8/24/1998
By: BNH
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Every sports team can have an off season, but with management and player changes a comeback is always possible. The New Haven-based Starter Corp. is in a slump, but will the changes management is effecting serve to improve the bottom line or force this player off the field?
Founded in 1971, Starter is a licensee of authentic and official sportswear for sports teams, leagues, colleges and the U.S. Olympic Committee. Its products include outerwear, “active-wear,” team bags, polo shirts and hats. The company also sells its own line of Starter branded items and non-licensed products.
The year 1993 was a banner year for the company, with net sales in excess of $359 million and a net income before extraordinary items of $28,568,000, a margin of eight percent. The company also went public that year at a price of $21.50.
Such were the salad days. Since then Starter has fallen on hard times, a consequence of increased competition, skyrocketing licensing fees and high costs in general.
Today Starter stock trades in the $2-$3 range, closing at 2, down 1/16, on August 10. In the years since 1993, stockholder equity has eroded to a level of about $52.1 million as of June 30, 1998.
This represents a 47-percent decrease in stockholder equity from the 1993 year-end level of $98.2 million. As of the year ending December 31, 1997, the company was in a deficit-retained earnings position of $15.6 million.
The results for 1997 were distressing. Sales fell to $350.2 million, compared to $406.0 million for 1996. The company incurred an operating loss of $24.2 million and net loss of $36.9 million ($1.33/share) for 1997, compared to operating income of $8.3 million and net income of $1.9 million (seven cents/share) in 1996.
Although sales were down 14 percent for 1997, SG&A increased nine percent because the company had made acquisitions of Starter Benelux and Galt Sand Co. in order to position itself for further growth. However, with the reduction in sales the company found itself with increased fixed SG&A.
Thus late 1997 became a time for Starter to play defense. The company worked to reduce its expenses, including streamlining by eliminating management positions. Starter is also planning to expand its licensing, branded lines, and private-label businesses as well as developing new labels.
Plans include reducing its product mix in licensed products from the current 95 percent to 75 percent within three years, with the remaining 25 percent designated for branded business.
Results for the first half of 1998 show a slight decrease in sales to $117.0 million vs. $120.0 million for the first half of 1997 (ended June 30). However, second quarter 1998 sales of $58.0 million were virtually level with second quarter 1997 revenues of $58.3 million. This was a result of strong sales of NHL and NBA products in the quarter.
Starter management hopes that its cost-cutting and marketing efforts will begin to kick in in earnest during 1998. Operating losses were 12 percent higher for the first half of 1998, at $11.9 million, compared to first half 1997 losses of $10.6 million.
When comparing second quarter 1998 operating losses of $6.0 million vs. $6.3 million for the 1997 period, the company showed a five percent improvement. A small indication that perhaps management's efforts are having a positive effect.
Net loss for the first half of 1998 was $15.4 million, or 55 cents per share, compared to a net loss for the first half of 1997 of $7.8 million, or 28 cents a share. However, the 1997 figure includes an income-tax benefit of $5.2 million.
Although the second quarter net loss of $8.4 million at first glance appears to be double the 1997 second quarter net loss of $4.7 million, the 1997 figure includes an income tax benefit of $3.1 million.
The second quarter is historically slow for the company and it is unknown what future impact that the present NBA lockout will have on the sale of licensed products. Any long-term improvements may not hit the bottom line until Starter's playing season begins in earnest in the third and fourth quarters. There is no telling what the score will be until the season progresses, so this remains a waiting game for now.
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