Diplomat hopes change is good: Will new name lure new investors?

Diplomat Direct Marketing, the parent company of the women’s apparel catalogs Lew Magram and Brownstone Studios, hopes changing its name will improve investors’ perceptions of the struggling business. On Aug. 23, the Teaneck, NJ-based company became StyleSite Marketing to “enhance our recognition in the investment and business community as a direct marketer of women’s fashions, with an emphasis on the growing e-commerce industry,” CEO Warren Golden said in a statement. (As of press time, StyleSite had not returned repeated phone calls.)

StyleSite needs more than “recognition” from investors, however: The cataloger needs better results. Third-quarter sales fell 25%, to $15.4 million for the three months ended June 30, from $21 million last year. The sales decrease was actually less than some may have expected, given that the cataloger slashed circulation 75%, to 8 million from 14 million. Nonetheless, StyleSite reported a third-quarter loss of $3.3 million, compared to inc ome of $99,317 for the third quarter of ’98. The loss for the nine months ended June 30 totaled $7.7 million, compared to a loss of $199,387 for the same period of 1998.

“A company just cannot sustain those kinds of losses and continue to survive,” says Ken Gassman, vice president/retail analyst at Richmond, VA, investment firm Davenport & Co. Indeed, StyleSite noted in its quarterly statement that inadequate working capital prevented it from obtaining sufficient vendor credit. The lack of credit forced merchandise delivery delays and resulted in canceled orders.

Moreover, StyleSite has borrowed the maximum amount available under its asset-based credit facility, though it received from an unnamed source additional funds to meet immediate cash needs. To raise more funds, StyleSite planned to sell 2 million shares in a public offering following a 1-for-6 reverse stock split, which was slated to close in September. The reverse split would also inflate StyleSite’s stock price; on Sept. 7, the company was trading at just 5/16 a share.

“Diplomat must succeed in arranging for additional equity financing to improve its balance sheet and its standing with suppliers,” says Ed Duffy, an analyst at New York’s Donald & Co. Securities. But Duffy believes the company, which is well established in selling to mature women, will raise the necessary funds.