Jeans maker finds life at top short lived.

Earl Jean Inc. is fading like an old pair of denims.

One of the hottest denim companies just a few years ago, the Los Angeles-based company that almost single-handedly popularized the low-rise jean may be a victim of its own success.

Fashion industry and retail sources note that the troubles run deeper than just competitors flooding the market with their own versions of the trendy hip-hugging style. They say that what once was a cutting-edge boutique firm founded by a husband and wife team may have lost some of that edge since its sale last year for $86 million to Nautica Enterprises Inc., the huge New York clothing company.

Since Nautica's acquisition, the L.A. jean company has had three presidents, seen stiff critiques of its new spring 2003 collection, and now anticipates a drastic revenue drop this year over last.

"There are a lot of alternatives out there for customers now," said Jennifer Black, an analyst who follows Nautica for Wells Fargo Securities. "And I'm not crazy with what Nautica is doing with Earl Jean. I think Earl Jean is trying to be too different and not trying to appeal to the masses, which is what they have to do to grow."

Revenues are expected to slump to between $35 million and $40 million this fiscal year, which ends March 31, after rising to $60 million a year earlier.

No executive from either Nautical or Earl Jean would return calls.

New competition

Five years ago, Earl Jean was the darling of the fashion world. Started in 1995 by husband and wife team Ben and Suzanne Freiwald, the low-rise, tight-fitting jean with a $125-$ 150 price tag became the fashion item to be worn by every skinny young actress and model in town.

Hip retailer Fred Segal, the Santa Monica store frequented by the nation's fashion elite, was the first shop to sell Earl Jean pants and related apparel. Now, low-rise jeans are worn by practically every female college and high school student in the country -- and are sold everywhere from The Gap to Target.

In some ways, it's another example of how cutthroat the jeans business can be. Just ask Levi Strauss & Co., the San Francisco jean company whose pants were worn by nearly everyone in the 1960s and 1970s. With new competitors, Levi has seen its sales decline for the last five years.

In the fashion industry, there is always an eager designer with a new idea. When Earl Jean arrived, it took sales from Diesel's line of jeans.

"There have been so many people who have come onto the denim scene," said Sheri Drobnick, a merchandise manager for Directives West, a Los Angeles consulting firm that tracks fashion trends. Citing companies like Bella Dahl, Blue Genius and Blue Cult, Drobnick noted that, "Some of them have taken the sizzle out of the Earl Jean market."

One L.A.-based company that is stealing the show in particular: Seven for All Mankind, simply known as Seven jeans, a subsidiary of Vernon-based Koral Industries.

Seven jeans blew into the fashion world when garment executive Michael Glasser and former Lucky jeans designer Jerome Dahan decided to start their own line. They went to Peter Koral, who funded the launch and the new division.

Though Seven is only two years old and does no advertising, revenues are expected to reach $60 million and $80 million to $90 million next year, Glasser said.

Drobnick remembers being in Barneys in New York last Christmas and watching hundreds of Seven jeans being sold. after one network TV show named Seven jeans as the hottest gift for the holidays. Earl Jeans was not on the list.

"At the higher price points, the fashion denim market is certainly a fickle market," said analyst Lee Backus of Buckingham Research Group. "There are a lot of people going from one brand to another."

When Nautica bought Earl Jean last year, the L.A. company's annual revenues had reached around $45 million. In 2000, Earl Jean was No. 3 on the Business Journal's list of L.A.'s fastest growing private companies, when its revenues more than doubled in one year.

After Nautica acquired Earl Jean in April 2001, revenues rose to nearly $60 million during fiscal 2002 as the company positioned the low-rise jeans in high-end specialty stores and Nautica's 1,500 shops within major department stores.

This year is a different story.

"It's not what they expected when they acquired it," said Backus. "It's a tough business to stay on top of."

Under Nautica's wing, analysts and others figure Earl Jean should be making at least $60 million to $80 million a year because of the "doors" -- or retail customers the powerhouse clothing company has around the world.

Change in executives

But that hasn't happened for Earl Jean.

"Now Nautica is stuck with this under-performing company," said one investment banker who brokers deals between apparel companies.

Six months after Nautica took over, Ben Freiwald was replaced as president by Joe Krafka, who had been Earl Jean's vice president of sales. Krafka lasted about one year, replaced last month by Bonnie Takhar, who had been the managing director of Earl Jean Europe. She reports to Nautica's chief executive and president, Harvey Sanders.

Fashion observers are still scratching their heads about why Nautica, primarily a middle-of-the road men's apparel company, decided to venture into the unknown realm of trendy women's wear.

"Their purchase of Earl was a funny purchase," said Ilse Metchek, executive director of the California Fashion Association. "Nautica is not a fun company. They're not with it."

That was noticed at Earl Jean's spring 2003 collection shown at the MAGIC apparel trade show last August in Las Vegas.

"We hated their stuff," said Black, who has a hold on Nautica's stock. "In this economic environment, their price points are too pricey. And you have to be pretty slender to wear them."