Loehmann's Land

Cramer recounts how some short-term neglect landed this once-hot story in Chapter 11.
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In these glory days of IPOs, it helps periodically to reflect on the disasters, the past IPOs that popped up, only to then wilt as surely as weeds do come winter.

Loehmann's

(LOEH)

bankruptcy this week made me recall how much money I made on the company's IPO, and how much money I lost not soon after by hanging around.

Three years ago -- yes, just three short years ago -- Loehmann's came public at 17 and opened at 23, for what was then a huge one-day gain. The company used the proceeds of its IPO to cut debt and to position itself for dramatic growth.

Less than four months later, with the stock still 10 points higher than the IPO, the company conducted a tour of its new flagship Manhattan store. It also mentioned, as an aside, that comparable-store sales -- the true barometer of the health of a retailer -- were running slightly negative.

Oh, the company told you not to worry. Gross margins were looking good. The expansion into men's clothing would provide the spark that was necessary. Loehmann's was back and bigger than ever.

But after that aside, the stock never saw those lofty levels again. In fact, for the next three years, all it did was go down, despite pretty constant reassurance by management and analysts alike that things were all well and good at Loehmann's.

(Not surprisingly, even the note announcing the bankruptcy of the company was cheery, talking about all of the good things that could still happen. Talk about rosy marked-down glasses!)

When Loehmann's came public in 1996, nobody was worried about running out of money someday, or about expected profits coming in lower, or about sales estimates not being met. They should have been. All of those negatives happened.

All anybody wanted to do was get in on the red-hot IPO market of the time.

Sure, you could have gotten out, but the decline happened swiftly. And the debacle that was Loehmann's spared no one who was a believer in the long-term story.

Unlike a lot of today's IPOs, this company was encumbered with a huge amount of debt from the start. But, let's be honest -- the three years that Loehmann's was a publicly traded company were three of the greatest years for retailing in American history. We have had unprecedented prosperity during this stock's short, unhappy lifetime.

It is a sobering reminder of what can go wrong.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.