Michael Anthony Jewelers, Inc.
Michael Anthony Jewelers, Inc.
Sales: $129.9 million (1998)
Stock Exchanges: American
Ticker Symbol: MAJ
SICs: 3911 Jewelry & Precious Metal
Michael Anthony Jewelers, Inc. is a leading designer, marketer, and manufacturer of handcrafted jewelry in the United States. Its products, which generally retailed between $20 and $200 in the late 1990s, consist chiefly of 14-karat gold jewelry, including rope chains, bracelets, charms, pendants, earrings, rings, and watches. Most of this jewelry is manufactured at the company’s Mount Vernon, New York, facilities. In 1998, Michael Anthony products were available in more than 20,000 retail outlets, as well as through catalogers, wholesalers, and home shopping clubs. The company’s two largest customers during this time were Sterling Jewelers and Wal-Mart.
Michael Anthony Jewelers was founded in 1977 by two young men from New York City: Michael Paolercio, the new company’s president and chief executive officer, and his younger brother Anthony Paolercio, Jr., chief operating officer. Together, the Paolercios hoped to establish a national jewelry manufacturing concern known for the quality and value of its merchandise.
Success and expansion were quick to find Michael Anthony. The company’s net sales grew from $18.8 million in 1983 to $60.6 million in 1986, while net income rose from $985,000 to $5.9 million during this period. The company went public in October 1986, garnering about $10.5 million in proceeds from the sale of more than 30 percent of the outstanding shares of common stock. Michael and Anthony Paolercio remained the major shareholders immediately following this offering, with 37.2 percent and 37 percent of the stock, respectively.
Michael Anthony Jewelers was, in 1987, manufacturing and selling its products to more than 1,200 customers throughout the United States. More than 10,000 retail outlets were carrying its product line, which included a wide variety of handcrafted 14-karat gold jewelry. The chief line of about 2,000 styles of charms and pendants accounted for 58 percent of net sales in fiscal 1987. These charms and pendants included religious symbols; popular sayings (“talking charms”); sports themes and team logos; animal motifs; nautical, seashore, western, musical, zodiac and other thematic figures; initials; and abstract artistic creations. The company’s rings were second in terms of percentage of Michael Anthony sales.
During this time, the company strove to become an innovator in its industry. In fiscal 1987 Michael Anthony Jewelers introduced to its manufacturing process a photo-etching technique, enabling the company to fashion simultaneous etching on both jewelry sides that was more finely detailed than possible with the casting, or lost-wax, method. This allowed the company to enter the lower-priced segment of the 14-karat gold jewelry market through production of ultralight jewelry, although less than three percent of the company’s sales were derived from such products during the next three years. For casted-product lines, the company began CAD/CAM computer-aided technology to manufacture metal molds that offered important advantages over conventional molding techniques.
Michael Anthony Jewelers also claimed to have pioneered in the diamond-cut process, a technique that produces a sparkling effect on a finished piece of gold jewelry.
Michael Anthony Jewelers acquired Enca Industries Ltd., a manufacturer and marketer of more than 1,200 styles of earrings, in July 1987 at a cost of $925,000. Two months later, the company acquired the operating assets of M.J. Manufacturing Co., Inc., a manufacturer of rope chain, together with a patent for machinery to make this chain, for about $4 million. A subsidiary (later a division), M.A.J. Manufacturing, using the assets acquired from MJ. Manufacturing, began manufacturing 12 styles of 14-karat gold rope chains, 65 styles of designed gold tubing, and ten styles of bangle blanks used in the production of bangle bracelets. The company also was importing 14-karat gold chains from Italy, and these imported chains accounted for half of net sales in fiscal 1988.
The licensing of popular emblems and characters also became a means for expanding the company’s product line. Michael Anthony Jewelers’product line included licensed goods under arrangements with such parties as the National Football League, National Basketball Association, National Hockey League, Major League Baseball, the U.S. Olympic Committee, and Playboy. The company paid a royalty ranging from six to 7.5 percent of sales for the right to depict the popular logos and symbols associated with these licensors on jewelry products, particularly charms, pendants, and pins. Licensed products, introduced in 1985, came to about four percent of the company’s net sales in fiscal 1987.
Michael Anthony Jewelers had its executive and manufacturing facilities in Mount Vernon, about 15 miles outside of New York City. The company maintained a showroom and sales offices in a building it owned on West 46th Street in Manhattan and opened a showroom at the Los Angeles International Jewelry Center in fiscal 1987. It was selling to such large retail chains as Sears, Kmart, Wal-Mart, Montgomery Ward, J.C. Penney, and Zale’s in 1988. The company’s need for gold was being filled through a consignment arrangement with Rhode Island Hospital Trust National Bank that shifted the risk of fluctuations in price to this bank. In subsequent years Michael Anthony made similar arrangements with other banks and with nonbank companies.
Mixed Results: 1988-97
Michael Anthony’s growth came to a sudden halt in fiscal 1988, when the company lost $1.1 million despite net sales of $128 million, partly because the imported chains it was selling had a lower margin for profit. As a result the company sold certain operations. Enca, the earring-maker Michael Anthony had acquired in 1987, was sold for $1.7 million. Allcraft Tool & Supply Co., a manufacturer and distributor of jewelry manufacturing equipment and supplies, was sold for $139,000. The Manhattan building was sold for $2.2 million, and the Los Angeles showroom was closed. The number of company customers, which had grown to 1,500 in fiscal 1988, fell to 600 in fiscal 1989. Shares of Michael Anthony stock, which sold for $14 in 1987, were down to $4 in early 1990.
To improve its financial performance, Michael Anthony lessened its reliance on imported chains, slashed its inventory, and installed a new computer system to track its product lines better and respond more quickly to customer demand. It also cut its work force and switched its factory workers to a piecework payment system, thereby improving its productivity level. These measures put the company back into the black, even though net sales dropped to $85.4 million in fiscal 1990.
Michael Anthony Jewelers made some other changes, including a shift in product line to higher-priced jewelry. The company started introducing a more expensive line of sparkle rings and in 1989 acquired Maurice Katz & Co., a high-end line of diamond and gold pendants retailing for as much as $2,000 apiece. This purchase and that of another product line known as 3H added more than 2,000 distinctive jewelry pieces to the company’s offerings, most of them high-end designs featuring gold and diamonds.
In 1990 Michael Anthony Jewelers acquired NGI International Precious Metals, Ltd. from a British firm, Beresford International pic, for $1.65 million, a figure not reflecting the $22 million it paid for this company’s gold inventory. Following the purchase of this company, which was renamed Jardinay Manufacturing Corp., Michael Anthony introduced a Jardinay line of chains, earrings, and watches, made with diamonds and semi-precious stones as well as 14-karat gold. The company also added jewelry chain stores to its roster of retail customers.
In 1991, Michael Anthony Jewelers entertained an acquisition offer of about $50 million from Jan Bell Marketing Inc., but the deal was not effected. During fiscal 1991 the company earned $2.1 million on sales of $120.2 million, and by 1992 Michael Anthony Jewelers was the largest manufacturer of gold rope chain in the United States.
During fiscal 1992 sales fell to $112.7 million, and Michael Anthony Jewelers lost $369,000. This result was somewhat misleading, however, as the company charged to the fiscal year some $2.9 million it paid in stock to NGI International executives Isaac Nussen and George Weisz in connection with the acquisition. The company had net earnings of $1.6 million on net sales of $119.6 million in fiscal 1993.
Michael Anthony Jewelers’products were being sold in over 20,000 retail outlets in fiscal 1993, including catalogue and discount retailers, as well as in jewelry and department stores. Gold chains accounted for 44 percent of sales that year. The company’s 3,700-odd charms and pendants accounted for another 33 percent, with earrings, rings, bangles, bracelets, and other items responsible for the remainder. Licensors now included General Motors, Warner Bros., and United Features Syndicate (licensors of Muppets and Muppet Babies). In early 1994 the company added a full line of “Barbie for Girls” and “Nostalgic Barbie” items under an exclusive licensing agreement with Mattel Inc. By this time Michael Anthony Jewelers claimed to be the premier licensee of precious-metal jewelry in North America.
Michael Anthony is recognized as the leading and most trusted American designer, manufacturer and marketer of quality, affordable fine jewelry.
At the end of 1993 Michael Anthony Jewelers sold a second offering of 1.6 million shares of common stock at $8 a share, raising $11.7 million after expenses. The Paolercio brothers sold another 200,000 shares apiece. The company earned $5 million on record revenues of $142.8 million in fiscal 1994 and, late in the calendar year, purchased the Mount Vernon quarters it had been leasing.
In 1995, however, shares of stock sank to a level of $3 and under, where they generally stayed through 1997. The company announced plans in December 1995 to purchase up to 750,000 of its shares and by November 1997 had bought a total of 638,000 shares at an average of about $3 a share. The drop in the value of Michael Anthony Jewelers shares reflected investor disappointment in its earnings. During fiscal 1996 (the year ended January 31, 1996), the company reported net income of only $728,000 on net sales of $145.3 million. In fiscal 1997 the results were little better: $1.8 million on revenues of $150.6 million. The long-term debt was $12.9 million in November 1997. In fiscal 1998 revenues dipped to $129.9 million. The company lost $2.6 million after taking a pretax charge of $4.5 million from writedown of inventory.
Michael Anthony Jewelers in 1997
In 1997 Michael Anthony Jewelers was offering a broad selection of handcrafted gold and silver jewelry. Many of its products carried the company’s “Ma” trademark. The M.A.J. manufacturing division was manufacturing gold rope chain and gold locks used in the production of rope chain. It was also designing gold tubing and bangle blanks used in the production of bangle bracelets. Another manufacturing division, M.A.E., was making gold earrings and certain findings used to assemble jewelry. The company was also manufacturing a line of men’s and ladies’14-karat gold watches, starting at $499, under the “Michael Anthony” brand name. The America Sapphire Collection included a wide selection of rings, earrings, bracelets, pendants, and necklaces in an array of colors. Prices started at $79.95.
In fiscal 1997 the company manufactured about 95 percent of its products from gold bullion and other raw materials and purchased the rest as semi-finished or finished goods. Casted products accounted for about 44 percent of sales; chains for 43 percent; earrings for five percent; and other items for eight percent.
Sales of licensed products accounted for about 11 percent of net sales in fiscal 1997. Michael Anthony’s “character” Jewelry consisted of the Cathy, Looney Tunes, Peanuts, and Playboy collections; sports jewelry was divided into the Major League Baseball, National Football League, National Hockey League, National Basketball Association, and Collegiate collections. The company was now paying a royalty ranging from six to 12 percent on sales of licensed products.
Michael Anthony Jewelers was still marketing and selling its jewelry primarily through its in-house sales force. The company maintained a showroom in Mount Vernon, made direct presentations at customers’locations, and promoted its products through the use of catalogues, advertisements in trade publications, trade-show exhibitions, and cooperative advertising allowances with certain customers. It also began a campaign of advertising in consumer magazines and selling to certain retailers a specially selected and packaged line of gold jewelry, including watches, under the “Michael Anthony” name.
Michael Anthony Jewelers was shipping its products in bulk to wholesale distributors. For certain retail chains, such as Sterling Jewelers, Wal-Mart, J.C. Penney, Zale’s, Service Merchandise, and Kmart, the company prepackaged and price-tagged most items, then shipped an order of many different items to distribution centers and stores in the chain. Michael Anthony’s two largest customers in fiscal 1997, Sterling and Wal-Mart, accounted for 13 and 12 percent of net sales, respectively. In addition to jewelry chain stores, discount stores, department stores, and wholesalers, the company was selling its products primarily to catalogue retailers and television home-shopping networks.
The Paolercio brothers were still Michael Anthony Jewelers’chief stockholders in May 1997. Anthony Paolercio, Jr., held 15.45 percent of the company’s common stock, and Michael Paolercio held 13.55 percent.
F & F Acquisitions Corp.; Mount Vernon Distributors, Inc.
M.A.J. Manufacturing; M.A.E. Manufacturing.
Breznick, Alan, “Jewelry Maker Shines in Rough Market,” Grain’s New York Business, February 19, 1990, p. 7.
Curan, Catherine M., “Michael Anthony Sells 2-Million-Share Offering,” Women’s Wear Daily, January 10, 1994, p. 15.
“Shares Fall on End of Plan to Merge with Jan Bell,” Wall Street Journal, August 6, 1991, p. C17.