Bankrupt Crazy Shirts to be sold to Big Dog

By Susan Hooper
Advertiser Staff Writer

Longtime kama'aina retailer and manufacturer Crazy Shirts Inc. filed for Chapter 11 bankruptcy reorganization yesterday as part of a deal to sell the business to a California retailer for about $10 million.

Although the sale of Crazy Shirts to Big Dog Holdings means the loss of another locally-owned firm, analysts said the deal will help the retailer thrive. Crazy Shirts' store on Royal Hawaiian Avenue in Waikiki is one of 23 in Hawai'i. Eugene Tanner • The Honolulu Advertiser

In its bankruptcy petition, Crazy Shirts listed assets of between $10 million and $50 million, and debts in the same range. The company has 44 stores and 537 employees in Hawai'i, the Mainland and Guam.

Crazy Shirts president and chief executive Randy Yeager said yesterday he expects that all employees will retain their jobs through the bankruptcy restructuring. About 300 employees are in Hawai'i, where the company has 23 stores and three outlet shops.

The company had sales of about $50 million in the fiscal year ending Feb. 28, Yeager said.

"Clearly what's important to us has been to find a buyer to support ongoing growth and development of the brand and provide employment for existing employees," Yeager said.

As part of that process, the Chapter 11 bankruptcy filing gives the company protection from its creditors while it reorganizes, and allows leases and assets to be transferred to a buyer "free and clear of encumbrances," Yeager said.

Ted Pettit, a Honolulu lawyer representing Crazy Shirts in its bankruptcy, said the reorganization also allows the company to continue operating with the support of its major secured creditors, Bank of Hawaii and Congress Financial. Both entities will continue to lend Crazy Shirts money during the bankruptcy, he said.

"That's important, because the budget indicates we would run out of money if we didn't have the support," Pettit said.

The sales agreement with Big Dog is not a foregone conclusion, however, because another buyer could come forward during the bankruptcy proceeding and make a better offer.

"There is a signed offer to purchase the assets right now," Pettit said. "We will ask the court to set up procedures to allow others to come in and overbid. It's much like setting a procedure for an auction, to make sure the offer we have from Big Dog is the best offer. If it's not the best offer, presumably someone else will come forward and bid more."

Big Dog Holdings, a developer and retailer of casual sportswear and other consumer products based in Santa Barbara, Calif., expects to maintain the Crazy Shirts name, products and stores if it succeeds in buying the company, Andrew Feshbach, Big Dog's chief executive officer and director, said yesterday.

Big Dog has about 200 stores nationwide. Sales last year were about $116 million, Feshbach said, and he expects them to be the same — or perhaps slightly lower — this year.

A slowdown in the company's growth is one reason Big Dog decided to acquire another company, Feshbach said. For the quarter ended June 30, Big Dog reported a decline in comparable store sales of 5.1 percent, compared to sales in the same period a year ago. Also for the second quarter of this year, the firm had gross profits of $14.4 million, down from $15.5 million in gross profits in second quarter 2000.

Big Dog, which has one store in Hawai'i at Waikele Premium Outlets, attributed the declines primarily to the "general softening" in the retail market.

"Our top-line revenue growth has slowed and we still have a pretty strong balance sheet making a lot of money," he said. "The result was we thought it was appropriate to look to acquire another company, and Crazy Shirts was always right there in my thoughts. Lo and behold, they're available. It works out so well."

The two companies have much in common, representatives of both firms said. Both are manufacturers and retailers of casual sportswear with a focus on graphics, especially T-shirts. Both target the tourist market, with Crazy Shirts focused more on the high-end market and Big Dog targeting the middle market.

If the sale goes through, Crazy Shirts' assets will be acquired through a wholly owned subsidiary of Big Dog that upon closing will change its name to and operate as Crazy Shirts, the California firm said.

Company founder Rick Ralston is expected to remain as a consultant; Yeager will stay through the closing of the deal, expected in 60 days.

Hawai'i retail analyst Stephany Sofos said Crazy Shirts would benefit from a purchase by Big Dog because it would provide a significant cash infusion to grow the company's market base.

"Their biggest problem has been they have not been able to grow because they were cash-strapped," Sofos said. "This gives them the opportunity to grow their markets and develop their product lines. It's a significant change for them. It's excellent."

Crazy Shirts was incorporated in 1964 by Ralston, who airbrushed designs on T-shirts for tourists.

The business grew steadily over the years, expanding to the Mainland and to Guam. But the company ran into trouble in the 1990s, first with the purchase of the 'Aiea Sugar Mill for $19 million and then as sales sank because of a slowdown in the Japanese economy following the Asian financial crisis.

The company had its worst year in 1998, and hired a consultant to restructure short-term debt and close stores.

Ralston continued as chairman, while Yeager left the company in 1999 and was replaced by former Danskin executive Bill Almon. At the urging of its lenders, the company appointed a new board of directors.

Last year Yeager returned to run the firm with the help of Ralston and another new board of directors. Earlier this year, the company hired an investment banking firm to explore options for raising capital.

Crazy Shirts now joins a growing list of local businesses being sold to Mainland firms, including Liberty House, which was bought in June by Cincinnati-based Federated Department Stores Inc., and Cheap Tickets, which last month announced it was being bought by New York-based Cendant Corp.

Sofos acknowledged that consumers may feel sad about the loss of local control of another Hawai'i-grown company with deep roots, but she said the Big Dog deal would allow the kama'aina company to survive and grow.

"If it had remained the way it was," Sofos said, "(Crazy Shirts) would have died."

Advertiser staff writer Andrew Gomes contributed to this story.