Warnaco's swimwear segment reported a Q2 operating loss of $7.4 million after a $3.6 million charge ($2.2 million after-tax) to write off inventories of its Speedo LZR Racer product. The loss compared to a year-ago deficit of $10.2 million, which included $1.06 million in restructuring charges.
On July 24, FINA ruled that males will be restricted to suits that run from the waist to the knees (known as jammers) and females to suits that can't go past the shoulders or below the knees. The ruling came after long concerns among some groups (including Speedo's competitors) that the numerous record-breaking times achieved through the suits had tarnished the sport's reputation.
Swimwear revenues fell 4.6% to $30.2 million and were down 2.9% on a constant currency basis. Speedo wholesale revenues slid 6.1% to $23.6 million. Sales to sporting goods stores declined as year-ago results were boosted by the Beijing Olympics, as well as the affects of the slower economy. These declines were partly offset by increased sales to discounters. Swimwear retail revenues were flat at $5.5 million.
Swimwear gross margin decreased 1,720 basis points reflecting a $5.1 million decrease in Speedo due to the LZR Racer write-downs.
On a conference call with analysts, Helen McClusky, president of Warnaco Intimate Apparel and Swimwear, said the third quarter is not a significant revenue quarter for the swimwear group but efforts to streamline operations are paying off. Even with the one-time charge, operating results were equal to 2008. To address the new FINA requirements, Warnaco has worked closely with its customers to exchange their existing inventory for current Speedo suits that meet the new guidelines.
“For future demand, Speedo's Aqualab has responded to the new requirements quickly and we will be in a position to launch a comprehensive line of new suits, LZR Elite and LZR Pro in 2010,” said McClusky.
