Brazos Sportswear, Inc.
Brazos Sportswear, Inc.
Incorporated: 1981 as Sun Sportswear, Inc.
Sales: $284.5 million (1997)
Stock Exchanges: NASDAQ
SICs: 2329 Mens & Boys Clothing, Not Elsewhere Classified; 2339 Womens Misses & Jr. Outerwear, Not Elsewhere Classified; 2369 Outerwear Girls, Not Elsewhere Classified
With the capacity to decorate more than 20 million garments per year, Brazos Sportswear, Inc. ranks among the largest clothing screen printers in the United States. Its network of six manufacturing plants, 11 distribution centers, and three sales offices extends from the United States to Japan, China, and Israel. The company designs T-shirts, shorts, outerwear, tank tops, jerseys, and fleecewear featuring both licensed and proprietary cartoon characters, film properties, professional sports trademarks, and collegiate logos. Its stable of character licenses includes Disney’s Mickey Mouse and Winnie the Pooh; Warner Bros.’ Bugs Bunny and Tazmanian Devil; Betty Boop, and many others. The company also holds licenses from the International Hockey League and Major League Baseball. Brazos also sells private label apparel. A broad array of decorating techniques are used, including screen printing, embroidery, and appliqué. The company sells its goods to such mass merchandisers as Wal-Mart, Target, and Kmart, and to department stores, including J.C. Penney Co.
Privately held until its 1997 reverse merger with the publicly traded Sun Sportswear, Inc., Brazos calls itself “a family of companies” in reference to the many acquisitions that transformed it from a distributor of blank T-shirts into one of the fastest-growing firms in the apparel industry.
Roots Reaching Back to 1970s
A total of nine acquisitions fueled Brazos’ rapid growth in the 1990s. Due to its reverse takeover with Sun Sportswear in 1997, Sun is the company’s legal predecessor. This profile, however, will trace Brazos’ history to Gulf Coast Sportswear Inc., a firm that can most accurately be called Brazos’ historical forebear.
Founded in 1974 by Tom McKnight and George Warney, this company had its first headquarters in Clute, Texas. According to a 1997 report prepared by Jack Henry of the Dillon, Read & Co. Inc. investment firm, Gulf Coast started out wholesaling “blank goods”—T-shirts and sweatshirts sold to college bookstores, screen printing firms, and other businesses that put their own logos on the clothing. Driven in part by the nascent jogging craze, high demand and limited supply allowed McKnight and Warney to mine a profitable niche of the apparel industry for about 15 years. But when T-shirt manufacturers began boosting output and bypassing distributors to sell directly to screen printers, Gulf Coast saw its profit margins shrivel rapidly and inexorably. The partners quickly realized that they had to adapt to the new imperatives of their chosen business or face failure.
The agent of change came from outside the company. In 1989, Equus Capital Corp., a Texas venture capital firm, acquired a 55 percent controlling interest in Gulf Coast Sportswear Inc. Equus had been founded five years earlier by Sam P. Douglass to engineer leveraged buyouts. The new parent renamed its acquisition after the nearby Brazos River, injected capital, and formulated a growth plan that pushed the company into the heretofore highly fragmented screen printing industry.
Acquisitions Drive Rapid Growth in 1990s
Realizing that building its own network of manufacturing plants, license agreements, and customers would be a prohibitively expensive and time-consuming process, Brazos sought growth through acquisition. Friendly takeovers would increase the company’s revenues more than tenfold, from $29 million in 1990 to an estimated $310 million in 1997. As chief financial officer Clayton Chambers told The Press in 1997, “Each company has typically brought to us (something)… that we did not have before.” In 1992, Brazos gobbled up CC Creations, thereby gaining a vital connection to Wal-Mart, a mass marketer with a voracious appetite for T-shirts. CC Creations’ Red Oak brand held licenses for numerous colleges around the nation. Capital Industries, maker of custom athletic uniforms under the Red Fox and Lady Fox brands, was acquired in 1991.
Brazos made what one analyst deemed its “most significant” acquisition in 1994, when it brought Cincinnati-based Velva-Sheen Manufacturing Co. into the fold. Founded in the late 1930s, Velva-Sheen held licenses with the Walt Disney Company for such timeless characters as Mickey Mouse and Winnie the Pooh, as well as Warner Bros.’ Looney Tunes characters. Velva-Sheen became a cornerstone of the Brazos organization, so much so that the parent company moved its headquarters to greater Cincinnati soon after the acquisition. A 1995 restructuring pared administrative personnel, reduced inventories, and focused Velva-Sheen squarely on products featuring licensed characters. The company’s roster of over 7,500 customers gave Brazos a broader distribution through which to sell its CC Creations products, thereby reducing somewhat its dependence on Wal-Mart.
The 1995 acquisition of Needleworks, Inc. gave Brazos expertise in machine embroidery, a growing segment of the decorated sportswear market. In August 1996, Brazos acquired Plymouth Mills Inc., a New York manufacturer whose valuable licensing agreements with Chic by H.I.S. and Cherokee added about $40 million to Brazos’ top line. At that time, J. Ford Taylor advanced from president of the decorated sportswear division to president and CEO, succeeding Randall Hale, who continued to serve as chairman of the board.
Merger with Sun Sportswear in 1997
In the spring of 1997, Brazos and its parent companies performed an intricate reverse stock swap with Sun Sportswear, Inc. Founded in 1981 by David A. Sabey, Sun grew over the course of the decade to become a major player in the casual sportswear segment. Its proprietary “Rude Dog” character, launched in 1986, sold three million T-shirts and sweatshirts in 1989 and at one time had his own Saturday morning animated series. The company also garnered licenses for U.S. and overseas college logos. By 1989 Sun was netting $6.6 million on sales of $59 million per year. That October, Sabey decided to sell 20 percent of his company to the public. The IPO marked a turn for the worse.
By the late 1980s, Sun had become dependent on faddish licenses with short-lived popularity and was locked into a cycle of boom and bust. Its California Raisins license, for example, sold $8.4 million worth of T-shirts and sweatshirts in the first half of 1988, but brought in less than $500,000 in the first half of 1989. Sales of Sun’s line of shirts printed with heat-sensitive ink declined from $5.8 million in 1991 to nil in 1992. Company-wide sales had declined from $73.3 million in 1989 to $70.6 million in 1992, and net income slid from a $4.1 million profit to a $517,000 loss over that period. The proverbial “other shoe” dropped in 1992, when another of David Sabey’s business ventures, the Frederick & Nelson chain of department stores, went bankrupt. Sabey’s banker, Seafirst Corp., called in the collateral on his loans: his 68 percent stake in Sun Sportswear. Sabey resigned as chairman and CEO of Sun in 1993 and was succeeded by Larry Mounger.
Mounger executed a quick turnaround focused on expanding Sun’s customer base from a heavy dependence on mass merchandisers into higher-margin lines for department stores, investing $4 million into new design and manufacturing technology in the process. Sun’s sales jumped from $70.6 million in 1992 to $104.8 million in 1993 on the strength of Disney film character licenses, including The Little Mermaid and 101 Dalmatians. Net income amounted to $2.7 million in the latter year. But when Sun’s net income slid to $2.4 million on sales of $113.2 million in 1995, Mounger resigned. Under his successor, William Wiley, Sun sunk into a deep well of red ink, losing $3.7 million on sales of just $94 million in 1996. The reverse takeover offer from Brazos came in 1997.
By purchasing all but eight percent of Seafirst Bank’s stake and converting all of Brazos’ equity into Sun shares, Brazos ended up with 88 percent of Sun and went public in the process. Though Sun was legally the surviving business entity, it was quickly renamed Brazos Sportswear, Inc. Equus II Inc. continued to hold a controlling 56.3 percent interest in Brazos after the merger.
Reorganization to Unite Profitability with Growth
Although bedeviled by numerous difficulties, Sun had several strengths, including licenses to Warner Bros, and Disney characters (both cartoon and film); an award-winning staff of in-house artists backed by cutting-edge design technology; and shiny new manufacturing machinery. Brazos quickly exorcised Sun’s demons: 150 redundant employees, loss-making licenses, excess manufacturing capacity, and surplus inventory.
Throughout its history, Brazos Sportswear has remained true to its business objectives: delivering superior quality clothing and adhering to meaningful customer service standards. This combination of products and service, balanced with diversification and ongoing improvements, has formed the company’s building blocks for success in the past, present, and future.
But Brazos was not finished with 1997’s corporate machinations. That June, it acquired Morning Sun, Inc., a Seattle-based apparel company, for $31.9 million. Barely a month passed before the T-shirt maker added its third acquisition of the year, paying $7.6 million for Boulder, Colorado’s Premier Sport Group Inc. In September, Brazos paid $13.5 million for CS Crable Sportswear Inc., also of Colorado. With their focus on middle-aged women, international sourcing strengths, and catalog divisions, these acquisitions gave Brazos new methods by which to purchase blank goods and sell finished garments.
Brazos’ series of acquisitions built a company with many strengths. It boasted a vital licensing program; strong proprietary characters and the means to create and market new ones; state-of-the-art plants; and a nationwide distribution network reaching more than 12,000 customers. From 1994 through 1996, the company won design and vendor awards from J.C. Penney, Disney, Chic by H.I.S., Warner Bros., and Target.
Because of the reverse merger, Brazos carried with it Sun’s poor financial record, with sales declining from a high of $113.2 million in 1994 to $65.6 million in 1996 and a net loss of $5.8 million. Through the first three quarters of 1997, Brazos had sales of $196.3 million and $3.6 million in net income. By the end of the year, the company reported sales of over $284 million, representing an impressive increase over the previous year of 68 percent.
Brazos Embroidery Inc.; Brazos Inc.
“Brazos Acquires Plymouth,” Daily News Record, October 9, 1996, p. 12.
“Brazos in Deal to Buy Premier,” Daily News Record, June 13, 1997, p. 2.
De Lombaerde, Geert, “Brazos Goes on Buying Binge After Going Public,” Cincinnati Business Courier, October 3, 1997, p. 28.
Farnsworth, Steve, “Sun Sportswear Ends Up with New Majority Owner,” WWD, January 7, 1993, p. 13.
Fasig, Lisa Biank, “Brazos to Expand Again,” Cincinnati Enquirer, April 16, 1997, p. B10.
Gold, Howard, “The Poor Man’s LBO,” Forbes, August 13, 1984, p. 123.
Henry, Jack C., “Brazos Sportswear, Inc.,” Dillon Read High Yield Research, New York: Dillon, Read & Co., Inc. August 12, 1997.
Klempin, Raymond, “Equus Buys Wholesale Sportswear Company,” Houston Business Journal, March 6, 1989, p. 15.
Marlow, Michael, “Sun Shines,” Daily News Record, June 4, 1996, p. 20.
Prinzing, Debra, “Hot Flash: Clothes That Change Color,” Puget Sound Business Journal, July 15, 1991, pp. 1–2.
——, “Mounger Shining Up Sun Sportswear’s Strategy,” Puget Sound Business Journal, February 12, 1993, p. 11.
——, “Sabey Slates an IPO for Sun Sportswear,” Puget Sound Business Journal, October 30, 1989, pp. 1–2.
Rodriguez, Robert A., “It’s a Small World for the Brazos Sportswear Empire,” The Press, November 1997, pp. 34–36.
Spector, Robert, “Larry Mounger Finds His Place in the Sun,” Daily News Record, May 2, 1994, p. 20.
——, “Licensing Finds a Place in the Sun,” Daily News Record, June 4, 1990, pp. 14–15.
——, “Sun: Expecting to Shine Again,” WWD, July 18, 1990, p. 9.
——, “Sun Sportswear Pouring Millions into Technology,” WWD, September 22, 1994, p. S13.
“Sun to Merge with Brazos Unit,” WWD, December 4, 1996, p. 18.
“Velva Sheen Celebrates 200M T-Shirts,” Daily News Record, November 7, 1986, p. 11.
—April D. Gasbarre