Can James Mitarotonda Turn Warnaco Around?

Includes: PBY, PVH
by: SA Eli Hoffmann

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

For Warnaco Execs: It's Time to Sink or Swim by Richard Phalon

Highlighted companies: Warnaco Group Inc. (WRNC), Phillips Van Heusen (NYSE:PVH), Pep Boys (NYSE:PBY)
Summary: Shares of Warnaco Group - maker of household brand-names such as Speedo, Chaps, and Calvin Klein - have plummeted this year due to various and seemingly unending troubles such as product mistiming, shipping problems, and implementation issues. Last week investors were encouraged by the $40 million purchase of a 5.6% stake in the company by hedge-fund manager James Mitarotonda, whose assertive style may be what's needed to bring the otherwise sloppy operation around. "[We bring with us] people with very strong operating backgrounds, who have successfully run businesses," he said. Mitarotonda has built its reputation by seeking out small and midsize undervalued, underperforming companies. In his proxy-filing, he attacked management for favoring itself with cheap stock and undeserved performance bonuses. Mitarotonda's SEC disclosure form says he's ready to help management explore any value-producing ideas, including a possible sale to a rival like Phillips Van Heusen (PVH). At the same time, a wait-and-see investment posture may be advisable, buying shares on substantive operating improvement, and not hazy promises.
Quick comment: While the article has already been picked up on by GoogleNews, Barron's doesn't take a strong position for or against, so a violent market reaction seems unlikely. Michelle Leder has done a good job of covering Warnaco's accounting problems and compensation issues.

Warnaco 1-yr Daily Chart