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Friday, Mar 29, 2024

Zipped-Up Operation

Editor’s Note: This story has been updated from an earlier version that incorrectly stated Talon International’s market capitalization. It’s been a long time since the balance sheet at Talon International Inc. looked good. While many companies saw revenue and earnings dip through the recession in recent years, problems for the Woodland Hills manufacturer of zippers, fasteners and clothing trim date back a decade. Now Chief Executive Lonnie Schnell thinks it’s time for Talon to bust out of the penny stock dungeon it’s resided in for years and grow. “We’re focused on hitting singles and doubles, not home runs,” he said. “But finally we can grow unimpeded.” This confidence stems from a financial move the company made last month when Talon bought up all of its preferred shares in an $18.8 million cash-and-debt deal. The company redeemed all its outstanding Series B preferred stock with $13 million in cash and a short-term, low-interest promissory note of $5.8 million. The move saved the company from a preferential $25.9 million payment to preferred stockholders should Talon be liquidated. Significantly, the preference would have increased to more than $40 million in 2016. And at that point, Comvest Capital LLC of West Palm Beach, Fla. would have been able to cash that money out, something Talon just can’t afford. What’s more, Talon ended an eight-year legal fight last year over the patent for TekFit expandable waistband technology. The English company that developed the product, Pro-Fit Holdings, went bankrupt, bringing an end to the legal turmoil. Talon then bought the patent for less than $100,000 at auction. But in the meantime, the suit killed a supply contract with Levi Strauss & Co. of San Francisco that was bringing more than $10 million a year to Talon’s revenue about 10 years ago. With the litigation behind it, Talon can freely market the waistband, which enables pants to expand up to two or three sizes. And Schnell thinks TekFit will allow the company to grow rapidly. “This (TekFit) has the potential to be a $5 million to $8 million-a-year business in the next year or two,” he said. Now that the company’s float is exclusively common stock, its price has shot up. Since the July 15 announcement, the share price has jumped more than 150 percent. But Lloyd Greif, chief executive at L.A. investment bank Greif & Co., said the company still has a ways to go, since the stock that trades for less than 30 cents on the over-the-counter market. “The preference was certainly a problem and it had to go,” he said. “But they’re going to have to do more. The company is still a yawner.” Historic brand The Talon zipper has bounced around a lot since it was founded as the Universal Fastener Co. in 1893. It was managed by several different companies, eventually landing in the hands of industrial conglomerate Textron of Providence, R.I. in the late 1970s. The company now named Talon was founded as an independent company in the early 1980s as Tag-It Pacific Inc. It went public in 1997 with much of its manufacturing and sales taking place in Central and South America. The market shifted to Asia and Talon struggled to catch up. Instead of shifting its manufacturing to Asia, Talon made a bet on a U.S. plant. In 2001, the company opened a state-of-the-art manufacturing facility in North Carolina. Much of its Central American and South American customers, which bought the zippers for their apparel-making operations, closed up shop, as the industry continued to shift. Talon was left with a domestic manufacturing facility and not enough customers. Also, Schnell said the cost of the plant was prohibitive. The facility closed in 2005, leaving Talon about $22 million in debt. And the company’s shares, which had traded at more than $5, descended to less than $1. In 2007, Talon was dropped from the American Stock Exchange and began trading over-the-counter. All of the manufacturing for the company today is in China and Bangladesh, much like the rest of the apparel industry. Talon has less than 200 employees, with only about 25 in the United States. Schnell said the road to recovery for Talon took shape about two years ago when it converted its debt to preferred stock with the expensive trigger, the same shares that were bought up last month. “We’ve been a sleeper story for awhile,” he said. “But now the momentum is picking up and we’re expecting to see some very healthy growth in the next couple years.” Still, the company is destined for second place. YKK Group of Tokyo is the industry leader in zippers. It had net sales of about $5.5 billion in its fiscal 2012. “We’ll never sell as many zippers as YKK,” said Schnell, who joined the company in 2005, when things were at their worst. But he said there is room for Talon to grow, despite its lack of size. The company is focused on specialty apparel and active wear, having added supply contracts with Coldwater Creek of Couer d’Alene, Idaho; Lands’ End of Dodgeville, Wis.; and Burberry Group plc of London in recent years. And last year, the company signed a contract to be the exclusive supplier of zippers and trim to Fat Face Group Ltd. of Hampshire, England, which has more than 200 retail outlets in the U.K and Ireland. But the biggest thing working in Talon’s favor may be its name. Given the brand’s long history, it’s still the first name in zippers. “Talon was the only zipper company the industry used years ago,” said Ilse Metchek, president of the California Fashion Association, a Los Angeles trade group. “You didn’t use a zipper, you used a Talon.” Growth potential Talon is back at work and set to release new products, something it hasn’t done in a long time. This year, in addition to more active marketing of its TekFit waistband, Talon will release a new flat bra clasp which will remove the bump in the back of women’s clothing. To date, the company hasn’t been able to bring on big-time clients for TekFit, but Schnell said Talon does a small amount of business with Saks Fifth Avenue and a few uniform companies. “We’re talking with some major retailers about TekFit now,” he said. “But it’s still small quantities.” The company has hired Financial Profiles Inc., an L.A. company that works on the investor relations and corporate communications side of public relations. Nonetheless, Greif, the investment banker, still believes the company’s stock to be a risky investment. Despite all the talk of momentum and a more attractive balance sheet, its revenues are still down from five years ago. In 2008, the company reported revenue of about $48.2 million. Last year, revenue was $44.6 million. But in its first quarter this year, the company reported $10.1 million in revenue, a 16 percent increase from the same period last year. “Investor beware at this point,” he said. But Larry Dyne, president of Talon, said the numbers are misleading. Without the preferred stock and large-scale debt looming over head, he feels more optimistic than he has in years. Dyne has been with the company more than 20 years. “The focus can now really be about growing the business without distractions,” he said. “Now it’s head down, elbows up.”

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