More Layoffs, Likely Sale for Lillian Vernon

Things have gone from bad to worse for Lillian Vernon. Two months after it cut 25% of its staff, the struggling gifts and housewares cataloger on Feb. 15 laid off about half of its full-time staff, or nearly 200 employees.

The situation is so dire that Lillian Vernon is actively seeking a new owner, says CEO Michael D. Muoio.

The Virginia Beach, VA-based merchant has in fact hired New York-based investment bank Gruppo, Levey & Co. to explore strategic alternatives for Lillian Vernon. “We’re looking at all alternatives in terms of sale of the company,” Muoio says.

Citing devastating increases in postal and parcel rates, coupled with a paper price hikes and a decrease in value of the U.S. dollar, Muoio says the company was left with no alternative than to find a new owner.

And finding a new owner is a top priority. “We’re moving as fast as we possibly can,” Muoio says. “Eighty people have been contacted as potential buyers.”

Lillian Vernon has been privately held since Direct Holdings purchased it in 2003. It was sold again to Sun Capital Partners in 2006 and later that year moved operations from White Plains, NY, to Virginia Beach, VA.

Muoio says there is a possibility the company would move after a new owner is found. “We may stay here or we may relocate,” he says. “We can’t handle the infrastructure here. It’s too big.” The mailer currently has a 1 million-sq. ft.- facility.

In the past year, Muoio says the company reduced its EBITDA (earnings before interest, taxes, depreciation and amortization) loss from $22.1 million to $3.9 million, but the cost of rent, utilities, and maintenance accounted for $4.6 million.

“We actually made money on an EBITDA basis,” he says, “but we got whacked in the head with the postal, freight, and paper cost increases. And we started to shrink the business.”

As of June 30, 2007, the company had 564 employees; 374 employees as of Dec. 31, 2007; and it now has 177 employees. Worse yet, Muoio says that more layoffs are possible. “That’s in the cards because we don’t know the future of the company.”

He remains confident about Lillian Vernon’s outlook, however: “It’ll all be Lillian Vernon again.” And he’s proud of the fact that “we managed to get this thing to profitability inside of 12 months.”

Nonetheless, “It’s a sad day here at Lillian Vernon,” Muoio says. “But we’re continuing to operate and are working very hard to find a partner. Something is going to happen. I’m very confident of that. It’s too good of a company to have it stop shipping. We haven’t finished our work here.”

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