Fila is walking tall again

Profits: They seem to have returned to Fila Holding SpA, a development not likely lost on potential buyers of the Italian company.

February 08, 2003|By William Patalon III | William Patalon III,SUN STAFF

Fila Holding SpA - the Italian sportswear maker that gleamed like a supernova in the mid-1990s, only to burn out - is on the rise again.

But this time around, Fila understands that, even in the running-shoe business, "it's a marathon, not a sprint," said Mark Westerman, a top marketing executive for Fila USA, Fila Holding's American arm, which has its headquarters in Sparks.

Analysts agree that Fila is on the mend.

"Definitely, performance is improving," said Alessandro Baj Badino, an analyst for Deutsche Bank AG in Milan, Italy. "The third-quarter results were very good. The company also said the October and November numbers are quite good, too."

Fila USA employs about 500 in this country, most of whom work in the Baltimore region, according to the company.

Fila Holding has been on the auction block for about a year. Its parent company, fashion and media conglomerate Holding di Partecipazioni Industriali SpA, or HdP, found that the media business was the most profitable of its holdings. So it undertook to sell all its other properties - including Fila.

Fila is still on the market, though both that firm and HdP expect a deal to be consummated by summer. Negotiations with a suitor are likely under way, said Badino. That alone proves Fila is on the comeback trail, said Fila USA Chief Executive Officer Jon Epstein, 47, who joined the company in 1998 after a career at Adidas America.

"Things can only get better," Epstein said. "The fact that people want to buy [Fila] shows that there is great value here."

Fila's prospects may be bright now, but a year ago they appeared to be dimming - and quickly.

The firm wasn't expected to turn a profit until 2005, was running out of money, and "would not be able to continue as a going concern unless it regains profitability or obtains ongoing financial support," according to documents filed last fall with the U.S. Securities and Exchange Commission.

The SEC filings were made because Fila Holding was planning a public offering of 25.7 million American depositary shares at approximately $1.72 each, which would raise more than $44 million, before fees. That offering has yet to go through, in part because the existing Fila shares are trading at roughly $1 each, or half the proposed offering price.

Fila also has a second category of stock, which it has labeled "ordinary shares." The company also was planning to sell 65.9 million of these shares to the firms that controlled it, headed by HdP.

HdP has already purchased ordinary shares with a dollar-value equivalent of about $114 million, said Badino, the Deutsche Bank analyst, boosting its stake in Fila to 91.1 percent. Other firms with a piece of Fila must now decide whether to invest their proportional share.

"HdP has already done their part," Badino said.

Fila USA improving

Against this backdrop, Fila USA has seen its performance get better and better, said Epstein, who also is responsible for the company's business in Canada.

"There's really a lot of great things happening here," Epstein said.

When Epstein signed on, Fila USA was reportedly losing $2 million a week and had become a doormat for such sports shoe industry giants as Nike Inc., Reebok International Ltd. and Adidas.

Only a few years before, Fila had been among those giants.

In the mid-1990s, Fila duked it out with Nike and came away with the sponsorship of then-budding basketball star Grant Hill. Fila's earnings exceeded Wall Street estimates quarter after quarter.

Sales went from $188 million to $1.3 billion in just five years, and the stock went from $15 a share to nearly $107.

The sports shoe business is a marketing high-wire act, where image can be as important as style, and where both the buying public and Wall Street analysts can be fickle.

Several analysts began to question whether Fila could continue to grow three times faster than the 7 percent overall growth rate of sports shoe sales - especially when such newcomers as Donna Karan, Nautica, Tommy Hilfiger and Ralph Lauren were elbowing their way into the marketplace.

Shares downgraded

Several analysts downgraded Fila's shares, and some of the company's new shoes didn't catch on. The company sank and spent several years mired in mediocrity.

At Epstein's urging, the company took an early risk that would end up as an image-boosting victory, according to both Epstein and Westerman, the Fila marketing executive. Tennis player Jennifer Capriati was attempting a comeback, but was struggling, and lacking the lucrative sponsorship deals of other stars. She was even buying her equipment in a sporting-goods store.

Fila offered to sponsor her - and two years later Capriati won the Australian Open and was the Comeback Player of the Year.

Epstein said he told Capriati: "`Jennifer, we believe you're on the way back. And we believe we're on the way back. So why not team up?'"

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