Speedo Going Public : Apparel: Authentic Fitness Corp. is expected to net $40.5 million in an initial offering of 3 million shares.

Linda J. Wachner, chairman of apparel giant Warnaco Inc., is about to add another notch to her already impressive roster of business coups.

In 1990 Wachner spun off from Warnaco a Van Nuys company called Authentic Fitness Corp., which makes Speedo swimwear, White Stag active wear and Edelweiss ski clothes. Back then, Wachner and other investors bought Authentic Fitness for $85 million in cash, plus the assumption of about $4 million in debt. Now, in a move expected to net the company $40.5 million, Authentic Fitness is going public in an offering of 3 million shares of common stock.

Wachner, 46, is Authentic Fitness’ chairman and chief executive and owns 16% of the company’s stock. After the offering, her stake will be reduced to 10%. But Wachner stands to profit handsomely if Authentic Fitness’ shares sell for their expected offering price of $14 to $16 each. On paper, she would book a profit of nearly $11 million for her investment, based on the average price of $2.54 a share paid by existing stockholders.

Part of the proceeds from the stock sale would also go to Wachner. If the offering is completed, Wachner--who has so far received no salary from Authentic Fitness--would receive $1.7 million in deferred compensation, plus $2.26 million under the company’s 1990 incentive compensation plan. Also, under a new five-year contract she would receive an annual base salary of $675,000 for the first three years, and $300,000 a year for the remaining two.

Documents filed with the Securities and Exchange Commission last month say the purpose of the stock sale is to raise cash to reduce the company’s debt, which totaled $74.3 million as of March 29. After the offering is completed, its debt is expected to total $43.3 million.

In the nine months that ended March 29, Authentic Fitness earned $2.56 million on $71.1 million in revenue, in contrast with a year earlier loss of $68,000 on $60.1 million in revenue. The company attributed the profit turnaround to growth in its swimwear sales.

The IPO has raised a few eyebrows among certain observers who point to a possible conflict of interest, an issue first raised when Wachner and her partners acquired Authentic Fitness. Warnaco’s sale of the company to the Wachner group “smelled a little of self-dealing,” said Phelps B. Hoyt, an analyst at Duff & Phelps.

Wachner declined to comment on Authentic Fitness or the stock sale, citing SEC rules barring her from promoting a stock that’s in registration. But in a brief telephone interview she called the conflict-of-interest allegations “ridiculous.”

She said the sale two years ago of Authentic Fitness was approved by Warnaco’s board of directors and bondholders, and a fairness opinion was rendered on the purchase price. The sale was prompted by her promise to meet all of Warnaco’s mandatory debt payments, she said.

“We wouldn’t have sold the asset if we didn’t have the debt payment to meet,” she said, adding that “we were not given any other cash bids.”

According to the SEC filing, Wachner spends just 10% of her time managing Authentic Fitness. The rest of her time is given to running Warnaco, a Bridgeport, Conn., company that makes Olga and Warner’s underwear and licenses Christian Dior and Ralph Lauren brand names for its men’s apparel. She gained control of Warnaco in a leveraged buyout in 1986 and took it public again last year.

Authentic Fitness’ day-to-day operations are run by Christopher G. Staff, its chief operating officer and president of the Speedo and White Stag/ski wear divisions. But the SEC filing credits Wachner for increasing Authentic Fitness’ revenues from $60.5 million in 1986 to $85.5 million in fiscal 1991, and she is apparently considered so important to the company that its loan agreement with General Electric Capital Corp. says a default would occur without her as chief executive.

GE Capital, a unit of General Electric Corp., is also a major shareholder and would own 21% of the stock after the offering, and British apparel company Pentland Ventures Ltd. would own 26% of Authentic Fitness after the stock sale.

Wachner’s strategy for Authentic Fitness has included expanding product lines, improving customer service, refocusing on more profitable products and reducing overhead, the filing states. The company was moved to Van Nuys from Portland, Ore., in 1987, a move it says helped it benefit from the design talent pool in Southern California. It has 365 employees, and imports about 40% of its finished products.

Yet, burdened by high interest costs and the ups and downs of the apparel business, Authentic Fitness’ profit performance has been erratic. In its fiscal year that ended June 30, 1991, the company earned $1.09 million, in contrast with an accumulated loss of $6.5 million in the previous six months.

Speedo accounted for 83% of Authentic Fitness’ sales in its latest nine-month period. The company has an exclusive license to use the brand name on swimwear, active wear and related accessories in North America from Speedo Holdings B.V., which is owned by Pentland. Speedo has been a big name in swimsuits since the 1950s, when the suits were first worn by the Australian Olympic swim team.

About two-thirds of the U.S. swim team wore Speedo suits at the 1988 Olympic Games, and champion diver Greg Louganis and swimmers Janet Evans and Tom Jager have promotional contracts with Authentic Fitness. Some analysts suggest that the IPO was timed to coincide with the publicity the brand is sure to get from Speedo’s use by swimmers at this summer’s Olympics.

Authentic Fitness said that at the U.S. Olympic swim trials in March, more than three-fourths of the finalists who earned the right to compete at this summer’s Olympics wore Speedo suits.

Authentic Fitness said it hopes to continue extending the Speedo brand strength beyond the competition swimwear market into other sports such as volleyball and aerobics. In recent years, the company has introduced and expanded lines of men’s shorts, T-shirts and swimwear accessories such as goggles, swim caps and footwear. Its products are sold through more than 9,000 retail outlets, 280 team dealers, catalogues, cruise ships and hotels.

The company also plans to open five Authentic Fitness retail stores in 1993 that will sell its Speedo products. The stores will serve as testing grounds for new products and marketing techniques.

Keith Goggin, a reporter at the newsletter “Going Public: The IPO Reporter,” said Authentic Fitness’ plan for Speedo “hinges on them being able to build the Speedo name into a recognizable market for active wear, not just swimwear.”

Other companies have been successful with such strategies, such as Nike’s expansion from athletic shoes into sportswear. But, Goggin noted, such diversification moves require large sums of capital.

Authentic Fitness has also had some troubles with its White Stag/ski wear division, which saw its sales fall 28% in the latest nine-month period.

The company blamed low snowfall rates at ski resorts and overall softness in consumer demand for the sales decline, and said it is responding by introducing new products, changing styles and fabrics, and gearing more products to other activities.

As a result, Authentic Fitness said the division’s backlog of orders has doubled from a year earlier and it has received initial orders for some of its White Stag active wear from Wal-Mart, the nation’s largest retailer.