Garan, Inc. - Relying on Wal-Mart in the 1990s

Relying on Wal-Mart in the 1990s

By 1992, burgeoning Wal-Mart was accounting for 45 percent of Garan's annual sales. A licensing agreement in 1990 gave Garan the right to carry the insignias of various colleges and universities on sweatshirts and knit shirts. In 1991, it became one of the few apparel companies allowed to use characters from Disney movies. After a strong first quarter in fiscal 1992, Garan, holding $30 million in cash with virtually no debt, declared a $1.20-per-share annual dividend on top of the quarterly payout. During 1988–92, the company earned an annual average of almost 18 percent on equity.

Net sales came to a record $189.6 million in 1993, when net income totaled $16.8 million. The following year was not as good, with sales of $173 million and income of $9.4 million. For fiscal 1995, results were even more disappointing: only $143.3 million in sales and $5.5 million in income. The company's market value, once nearly $190 million, dipped to less than $90 million. Some analysts blamed the company's heavy dependence on Wal-Mart (accounting for 63 percent of sales during fiscal 1995). Oversaturation in licensing, rising raw material costs, and cut-throat pricing were also cited as reasons for the firm's poor performance. During 1995, Garan became the exclusive licensee of the Everlast trademark for men's, boys', and girls' activewear, and of the trademark Hang Ten for boys' sportswear.

During fiscal 1995, children's apparel accounted for 72 percent of Garan's net sales, with women's apparel accounting for 18 percent and men's apparel accounting for 10 percent. Sales of sports and colleges licensed apparel accounted for about 12 percent of sales and Garan's own label accounted for about 6 percent. The Bobbie Brooks label accounted for another 7 percent, and Disney characters, scenes, and logos accounted for about 8 percent. In addition to Wal-Mart, JC Penney was an important customer that provided 20 percent of Garan's sales. Some 3,500 or so clients took the rest of the company's output.

Garan maintained 18 manufacturing plants in 1995 in the following locations: Haleyville, Jemison, and Rainesville, Alabama; Ozark, Arkansas; Clinton, Kentucky; Church Point, Kaplan, and Marksville, Louisiana; Carthage, Corinth, Eupora, Lambert, Philadelphia, and Starksville, Mississippi; Adamsville, Tennessee; San Jose, Costa Rica; and two in San Salvador, El Salvador. All were leased in whole or in part except for the plants in Clinton, Haleyville, and San Jose. The company was also leasing its headquarters and showroom in New York City's Empire State Building. Seymour Lichtenstein owned 12 percent of Garan in 1995 and heirs of Samuel Drosky owned another 12 percent. Other officers and directors owned 16 percent. The long-term debt was $3.2 million in March 1995. Dividends had been paid every year since 1962.