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Guess battles scandal
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August 1, 1996: 5:45 a.m. ET
Authorities say trendy apparel made by low-paid workers
From Correspondent Rhonda Schaffler
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NEW YORK (CNNfn) -- Clothing manufacturer Guess Inc. is defending itself against what could be a public relations nightmare.
Days before the trendy apparel maker is about to go public, it is caught up in an embarrassing scandal. California authorities found Guess labels and materials being assembled by low-paid workers in their homes.
The discovery set the stage for the worst kind of scene possible for the image-conscious company: California state labor officials recently raided illegal garment assembly operations and took away Guess labels to serve as evidence.
In New York, protesters were also demonstrating against Guess for alleged labor law abuses.
Guess tried to defuse the bad publicity by issuing a statement saying the company was in full compliance with labor regulations. Still, insiders like Alan Millstein, retail analyst at Fashion Network, said the incident left a scar on the company. (94K WAV) or (94K AIFF)
Weakness in the IPO market has already forced more than a dozen companies to postpone planned offerings.
Guess officials say they are committed to taking the company public as soon as possible.
Howard Davidowitz, retail consultant at Davidowitz & Associates, said Guess is hoping to ride the coattails of other successful IPOs in the fashion industry at a time when profits are rising.
"Guess is in an industry that's hot. Donna Karan, Saks, Mossimo…Guess is in the right segment. Investors are excited about fashion companies," he said.
Analysts say Guess needs the $188 million that is estimated to be raised in the IPO to fend off new competition this fall from Tommy Hilfiger and Ralph Lauren, which are launching new lines of blue jeans.
"My sense of this is that the deal would get done, possibly at a slightly lower price," said Robert Natalie, new issues analyst at Standard & Poor's.
Guess shares are expected to begin trading Friday at the earliest and should be priced at the low end of estimates, partly because of general market weakness and partly because of the California raids.
Bad publicity may not keep investors away from what's perceived as a good deal, it may just allow them to pay a little less for the shares. 
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Guess
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