TNFI, North Face: how soon will its face turn south? (remember the
Film The Exorcist with Linda Blair?)
This puppy meets my definition of a financial blackhole. Operating
costs are totally out of control in a overly competitive business,
poor management. pathetic cash flows (negative operating cash flows
is 5X larger than accounting losses!) they would do the economy a
favor by closing the door ASAP. A good hedge is long NAUT short this
puppy (I am not long NAUT).
Suzanne at street.com made a terrific job. This puppy should trade
under $5 within six months and IMO should go out of business during
the coming slowdown.
Top Stories: North Face Ousts Operating Chief
By Suzanne Kapner
Staff Reporter
8/25/98 7:48 AM ET
Just five months after joining North Face (TNFI:Nasdaq) as chief operating
officer, James Reilly has left the rugged outerwear maker.
Christopher Crawford, the company's chief financial officer, confirmed that
Reilly "resigned" Aug. 14, although the company never issued a press release
or official announcement regarding his departure. "It was a case of two
chefs in the kitchen," he says, explaining that James Fifield, a North Face
board member, was named president and chief executive, in May, two months
after Reilly's arrival. "Reilly was hired with a certain level of
expectation as to his authority, but he never got into the thick of things."
Reilly was unreachable for comment.
"It's a huge disruption," says a financial executive who tracks the retail
industry. "Several people were looking to [Reilly] as a real bright light.
The company was impressed with him when he started as someone ... who has a
reputation of getting things to work and being good with people."
Disruptions at North Face's San Leandro, Calif., offices have become more
common since Fifield took command after replacing William Simon, who became
vice chairman. One of Fifield's first initiatives was to move a portion of
the company's headquarters to Carbondale, Colo., near his ski home in Aspen.
Some investors voiced concerns that the move, which was completed this
month, was an unnecessary expense. Along with the closing of a Hong Kong
sourcing facility, the move will cost the company between $6 million and $7
million, of which $4.2 million will be paid in 1998, according to the
company's most recent 10-Q filing.
Company observers also worried that North Face would lose key executives,
who balked at trading sunny California for rural (and sometimes desolate)
Carbondale. Crawford says all of the company's top executives except three
have moved. He, along with Sandy Wait, vice president of retail, will remain
in California. And Jack Boise, vice president of marketing, chose to leave
the company rather than relocate. An internal candidate has replaced him,
Crawford says. Of the lower level employees, Crawford says, the company is
seeing more than a 50% relocation rate, which he calls typical.
All the agitation doesn't concern Jonas Gerstl, a portfolio manager with Egs
Partners in New York, who is a North Face shareholder. Gerstl attended an
analyst meeting last Friday in Salt Lake City, where, he says, Fifield
endorsed a poll of First Call analyst earnings estimates of $1.50 per share
for the year ending December 1999, a 33% increase over the $1.13 a share
analysts are expecting this year.
But other industry watchers and short-sellers are questioning that growth.
Concerns have been raised about preshipping, which has backed up North Face
product on retailers' shelves. "I'd made a lot of calls to retailers and
found channel-stuffing," says the financial executive.
Ashley Devery, North Face's director of investor relations, says only that
product is shipped on schedule.
Another area of growth, footwear, could be hitting some snags. In May, the
company said it would design and manufacture a line of trail running and
trekking shoes, which should hit stores in February 1999. The early
reception from retailers at a recent footwear show was mediocre. They
complained that the line looks like Nike sneakers and lacks differentiation
and authenticity, says the financial executive, who attended the show.
Crawford, however, says "our largest customers want more than we can give
them." He adds that initial orders will be disclosed when the company
reports its third quarter, which ends September.
Then in July, North Face bought a majority stake in the Italian company La
Sportiva, which makes outdoor and mountaineering shoes. North Face intends
to grab market share by expanding into athletic retailers like Foot Locker,
a unit of Venator (Z:NYSE), at a time when sales at these companies are
slumping.
When Reilly joined the company, he was hailed for his experience in the shoe
biz, most recently as COO of Adidas America. In a May press release to tout
its footwear launch, North Face also noted that it recently hired Patrick
Seehafer, formerly the global product director of Nike's (NKE:NYSE) ACG
footwear line. Both Reilly and Seehafer, along with CFO Crawford, joined the
company before Fifield became CEO. Could Reilly's exit be a sign of internal
strife and a prelude to more departures to come?
While some investors say Fifield's no-nonsense manner is just what the North
Face needs, others, who've seen him brush off questions at investor
conferences, aren't so sure. At a Hambrecht & Quist conference in Napa
Valley earlier this summer, Fifield adopted a brusque manner with investors,
telling them what they could and couldn't ask, says one person who was
present.
In any event, Reilly's ousting leaves people who follow the company with
some questions. "It strikes me as strange," says the financial executive. |
