In an effort to cut costs, Los Angeles apparel designer Guess Inc. has licensed out its fledgling children's clothing line.
The company will maintain the operations of its 12 children's retail stores and keep the manufacturing of its primary lines men's and women's apparel in-house.
Company officials said some of the 20 people who work in the design and manufacturing of the children's clothing will be transferred to other Guess operations while others will be laid off.
In the past few years, several apparel makers have exchanged the lower margins of licensing for reducing overhead costs associated with manufacturing their own products.
In the case of clothing designer Cherokee Inc., the company licensed its entire business and now simply manages its brand from a small office in Van Nuys.
That saved the company from bankruptcy, a fate that befell local apparel companies Bugle Boy Industries Inc. and CL Fashions, parent of Carol Little, in the past six months.
"During all this time, the line has been performing well," said Carlos Alberini, president and chief operating officer of Guess. "But we think with somebody who could concentrate on that particular business kids the opportunities for expansion and growth are significant and that would allow us to focus on what we do best and what has been the origins and roots of the company, the men's and women's business."
But for Guess, licensing out its children's line is not an indicator that it will become a sole brand manager. Licensing accounted for only 5.6 percent of total revenue during the first quarter 2001.
Guess had licensed its children's line until 1999, when problems with its contractor forced it to bring everything back in-house. This time, the company hopes to concentrate fully on the manufacturing of its main lines.
"Now they have many challenges in front of them and don't want to take their eye off the ball," said Margaret Whitfield, managing director and apparel analyst at Tucker Anthony Sutro Markets in New York. "This is a turnaround situation. In their case, they probably are a company more likely than not to develop something internally."
New York-based Designer Classics LLC will make the Guess children's wear. It already makes the Baby Guess line and is the former manufacturer for the children's clothing line at Walt Disney Co.
Guess reported net income of $2.1 million (5 cents per diluted share) for the first quarter ended March 31, down from $14.4 million (33 cents) in the like year-earlier quarter.
First-quarter revenues were $160.5 million, vs. $178.4 million in the first quarter 2000.
To counteract slipping profits, Guess laid off 250 people so far this year. It also reduced the number of stores planned to open this year from 25 to 17, which decreased capital expenditures from $40 million to $25 million. It has 215 stores in the U.S. and Canada, made up of kids, full-price retail and factory outlet stores.
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