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At the entrance to the Manhattan headquarters of Sam & Libby Inc. stands a life-size cardboard replica of the shoe company's founders, Sam and Libby Edelman. Inside, showroom walls are covered with photos of the handsome couple and their three picture-perfect children rolling on a sandy beach, riding horses and sitting in their Jeep.

Promoting themselves and their laid-back lifestyle once served the Edelmans well. The cozy images, woven into a high-profile in-house ad campaign, helped turn a 7-year-old line of simple, cheap ballet-style shoes into an $85 million company. The Edelmans sold their vision of the ideal American family to investors, raising $45 million in a 1991 stock offering and keeping $10.5 million.

Now, shareholders believe Sam & Libby, which has been in a free fall for the past two years, isn't much more than hype. In the first nine months of 1993, sales dropped 48% to $29.4 million and the company posted a loss of $13.7 million. The stock, which made its debut at $14.50 and reached $24, is now trading at a dollar and change.

"The company veered off track," Mr. Edelman said, adding he plans to revive the operation with a new line of simple, affordable women's shoes. If that fails, it's hard to see how Sam & Libby will remain afloat.

The saga shows just how quickly a hot apparel company can falter. It also sends an ominous message about fashion stocks to investors as they wait for the initial public offering of another fashion couple, designer Donna Karan and husband, Steven Weiss.

"With apparel companies, you want to see a history of management's ability to assess trends," said Elizabeth Eveillard, a managing director at PaineWebber. "But even that is no guarantee that it can continue to stay on top of fashion."

From the start, Sam & Libby looked risky. The prospectus showed several years of explosive demand for the ballet slippers, which accounted for more than half of sales. Growth was to come from expansion into high-stakes businesses like sportswear and retailing.

The Edelmans envisioned building a full-line apparel empire like the San Francisco sportswear house Esprit de Corps, where both worked in the early 1980s and where Mr. Edelman built a thriving shoe division.

But in 1987, they left in a compensation dispute and set up Sam & Libby, with him as chairman and her as exec VP. They started by knocking off a classic from French fashion house Chanel, a soft ballet slipper with a tiny bow at the top that sold for $30.

Soon after, Stuart Kreisler, who on and off has run designer Ralph Lauren's women's division, took a stake in and began helping shape Sam & Libby's image.

The shoes took off in large part because of savvy marketing. Believing American women would be dazzled by his blond wife's style and beauty, Mr. Edelman featured her in ads. Sometimes he added himself and their three children in scenes shot at their $3 million San Francisco estate. By late 1991, with sales reaching $85 million and earnings at $11.5 million, the couple and Mr. Kreisler were ready to go public.

"They were young and good looking, and all of a sudden, they were the darlings of the world," said Harry Bernard, exec VP at Colton Bernard, a New York-based apparel consultancy.

But just months after the public offering, in which the Edelmans and Mr. Kreisler reaped $15.6 million in stock, Sam & Libby began to falter. A major drain was the apparel division launched in 1992.

Despite the blissful images in ads, the Edelmans were at odds over strategy, former employees said. He wanted to make a few sporty basics comparable with jeans company Guess?. She envisioned a less expensive version of Ms. Karan's DKNY label, a line of career and weekend clothes. What they came up with was an eclectic mix that retailers hated.

Discounters began knocking off Sam & Libby's core business, ballet shoes, and Mr. Edelman abruptly jumped into the short-lived grunge look with square-toe, heavy-bottom boots.

Shareholders sued in 1992, claiming the Edelmans knew their ballet shoes had already peaked when they took the company public. The case was settled recently for $8.25 million.

Mr. Edelman said he's now focused on restoring profits. He has pared staff to 30 from 140, put his once omnipresent ad campaign on hold and moved the company to New York from San Carlos, Calif., to be closer to retailers.

For now, the Edelmans are sticking to moderately priced shoes. Mr. Edelman predicted Sam & Libby will regain strength this year by going back to where it started; eventually, ballet shoes will make up at least 20% of the line.

"Most women were born loving ballet flats," Mr. Edelman said. "They should never go away."

Ms. Furman is a reporter at Crain's New York Business.

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