Kellwood Company will be launching a new long-term financial plan. The company's five-year strategy focuses on reinvigorating its legacy businesses, expanding into higher profile, better and above price point brands, connecting more directly with consumers and utilizing the company's operating infrastructure more efficiently to fund growth. Through the continued execution of this plan, Kellwood is positioned to become a brand- focused marketing enterprise, offering compelling lifestyle brands that are equally balanced between better and mainstream price points. This is expected to lead to sustained sales growth and double digit increases in net earnings and earnings per share.
Long-Term Financial Plans
The company's long-term financial plans for ongoing operations are expected to be achieved over the next five years (fiscal 2008 through fiscal 2012).
* Annual Organic Sales Growth of 4% to 5%
Kellwood expects to achieve organic sales growth in the range of 4% to
5% per year. Initiatives driving organic sales growth include:
continuing to develop the Hanna Andersson retail store base; growing
wholesale sales through door expansion and increasing penetration at
existing doors for XOXO(R), Democracy(R), Calvin Klein women's better
sportswear, Gerber(R) childrenswear and Royal Robbins(R); expanding
the Vince brand internationally and introducing new product categories
both directly and through licensing arrangements; opening additional
HOLLYWOULD retail stores while further developing its wholesale sales
base and expanding product offerings that appeal to a broader consumer
base for American Recreation Products specialty brands' Kelty(R) and
Sierra Designs(R), among others.
* Operating Margins of 9% for Existing Businesses, Excluding Potential
Future Acquisitions
Kellwood expects to realize significant improvement in operating
margins through the: (i) previously announced reorganization of the
women's sportswear business; (ii) transformation of the Phat Farm
men's business to solely a licensing model; (iii) reduction in costs
resulting from streamlining corporate functions and (iv)
implementation of supply chain savings initiatives. Those already
realized and additional expected margin improvement initiatives are
anticipated to aggregate $25.0 million in fiscal 2008 and
$41.5 million in 2009 and up to $49.0 million in 2012.
The Company also expects to realize increased operating margins by
having a greater percentage of its sales in better and above price
point brands, which carry higher operating margins, as compared to its
private brand and mainstream offerings, as well as through the
implementation of its current strategies to improve the performance of
certain brands and classifications.
* Earnings Per Share Growth of at Least 25% After Significant 2008
Increase, Excluding Potential Future Acquisitions
Diluted earnings per share are expected to improve to $1.50 in fiscal
2008, compared with $0.71 in 2007, following the divestiture of Smart
Shirts. Annually, from fiscal 2008 to 2012, Kellwood expects to grow
diluted earnings per share by at least 25%, as a result of its organic
sales growth, enhanced operating margins and reduction of debt and
share repurchases as authorized by the Board of Directors. The
Company expects to achieve a higher growth rate in diluted earnings
per share in 2008 and 2009 driven by the (i) previously announced
reorganization of the women's sportswear business; (ii) transformation
of the Phat Farm men's business to solely a licensing model; (iii)
reduction in costs resulting from streamlining corporate functions;
and (iv) implementation of supply chain savings initiatives.
“Our management team's top priority is the successful execution of the strategic initiatives outlined in our five-year plan,” stated Robert C. Skinner, Jr., chairman, president and chief executive officer of Kellwood Company. “Based on the success we have had to date and our confidence in the actionable items in our pipeline, we are pleased to provide long-term financial plans that are real and achievable. The Board and management are committed to the five-year plan and are confident that we can position Kellwood as a leader in the apparel and soft goods industry.”
“This is the right plan for Kellwood, as we emphasize brand building and cost savings initiatives while providing us with the flexibility to remain dynamic and adaptable to the evolving retail landscape. We look forward to reporting consistent long-term growth in sales and profitability. At the conclusion of this plan, our business is expected to be equally balanced between better and mainstream brands as compared to approximately 30% of our business being in better brands today. Owned brands are expected to reach 70% of total Company sales from approximately 50% today, and we expect private brands to fall to 10% of our business from 28% today. In addition, owned retail sales are expected to reach 15% to 20% of sales up from 8% today. As a result, between 2008 and 2012 we will become better positioned to capitalize on the growth areas within the apparel and soft goods industries,” continued Skinner.
Executing on Kellwood's Five-Year Strategic Plan
Since announcing the strategic initiatives of Kellwood's five-year plan, management has been executing the plan to accelerate growth and enhance profitability. This strategic plan is the result of an extensive analysis of the company's businesses, brands, and infrastructure needs, and has already resulted in significant improvements in all aspects of Kellwood's business, including:
* Creating Value by Identifying and Integrating Acquisitions:
Kellwood's proven track record includes the October 2006 acquisitions
of Vince and HOLLYWOULD, and more recently, in July 2007, the
completion of the Hanna Andersson and Royal Robbins acquisitions.
These acquisitions advance management's goal to increase Kellwood's
percentage of better and above price point offerings with highly
desired brands. Businesses acquired since 2002 have provided
cumulative operating margins of 13.5% before corporate overhead and a
cumulative return on capital of 16%. Kellwood will continue to
evaluate potential acquisitions in areas that drive value and meet
strict strategic and financial criteria.
* Reorganizing Women's Sportswear Business: In September 2007 the
Company began implementing a plan to reorganize and revitalize its
women's sportswear business to create a focused and more agile
organization that can swiftly adapt and grow its diversified portfolio
of women's brands to meet the evolving needs of Kellwood's retail
partners and consumers. As part of the reorganization, women's
sportswear was condensed from seven divisions to three distinct
operating alliances (Lifestyle, Designer and Modern), which brought
the total Company operating divisions to seven from eleven previously.
Through the reorganization of women's sportswear, Kellwood also
attracted new and experienced talent. Kellwood expects the
reorganization to significantly reduce expenses and enable it to
capitalize on efficiencies in scale to improve its supply chain and
eliminate redundant costs. The Company plans to realize savings of
$7.5 million in 2008 and $15.0 million in 2009 and thereafter. The
repositioning of the Company's mainstream brands also provides strong
cash flow to fund Kellwood's faster growing segments.
* Divesting of Smart Shirts: Earlier today, Kellwood announced an
agreement to sell its Smart Shirts manufacturing operations as well as
related real estate assets in two separate transactions that will
bring Kellwood gross proceeds of approximately $161 million in cash in
the aggregate. Eliminating capital-intensive manufacturing from the
Company's operations and enhancing its focus on the development of
lifestyle brands will enable Kellwood to elevate its position in the
apparel industry.
* Transforming Phat Farm Men's Business to Solely a Licensing Model: In
August 2007 Kellwood announced the transformation of its Phat Farm
men's business to solely a licensing model, which was already
successfully in place within the Phat Fashions division. This
structure supports the 'World of Phat' global brand strategy and
allows the men's business to capitalize on the broad Phat Fashions
licensing system. Beginning with the Spring 2008 season, the Phat
Farm(R) and XV(TM) men's sportswear and outerwear collections will
operate under a licensing agreement with Longstreet Industries. The
Phat Farm and XV brands will continue to be sold in existing high-end
distribution channels, such as better department and specialty stores
throughout the United States, as well as the Baby Phat/Phat Farm
stores. With the disposition of Smart Shirts and the repositioning of
the Phat Farm men's business to solely a licensing model, Phat
Fashions will now be reported in the Company's women's sportswear
segment and there will no longer be a men's sportswear segment. As a
result, Kellwood will continue to operate seven total operating
divisions, including four in women's sportswear.
* Accelerating Growth of Hanna Andersson: Kellwood is capitalizing on
the significant opportunity to maximize the potential of
Kellwood-owned Hanna Andersson retail stores. The Company acquired
Hanna Andersson in July 2007 and it is already a proven retail
concept. From 2008 to 2012, Kellwood currently plans to open 60 Hanna
Andersson retail specialty stores bringing the total number of stores
to 78 at year-end 2012. The Hanna Andersson stores that have been
open to date offer attractive returns, including a payback of the
initial cash investment in less than two years.
* Implementing Supply Chain Savings Initiatives: The Company expects to
achieve savings of $4.5 million in 2008, $10.0 million in 2009,
$12.5 million in 2010 and up to $17.5 million in 2012 through its
supply chain initiatives that are targeted to reduce product costs,
increase speed-to-market through logistics improvements, improve
quality enhancement programs and reduce distribution center costs
through targeted consolidations.
* Streamlining Corporate Functions: The Company plans to achieve
savings of $4.0 million in 2008 and $7.5 million annually in 2009 and
thereafter from: right-sizing its corporate functions to better match
its ongoing sales base; reducing costs through technology enhancements
and efficiencies in business processes; decreasing professional and
consulting fees; as well as lowering costs in other expense areas.
These savings will result in a 15% to 20% reduction in corporate
overhead expense from fiscal 2007 levels.
* Increasing Advertising and Marketing Investment: Kellwood intends to
reinvest a portion of the expected savings described above to support
the growth of its brands, primarily in advertising and marketing. As
part of its marketing effort, Kellwood has engaged Christie Brinkley
as the “face” of Sag Harbor(R). The Company's efforts are already
showing traction: Sag Harbor was recently ranked 62 in the 2007
Women's Wear Daily survey of the most-recognized apparel and accessory
brands in the U.S. — a marked improvement from a ranking of 91 in
2006. Additionally, Baby Phat(R) has captured and engaged an
extensive consumer market online with strong brand presence. Each
month babyphat.com boasts over one million unique visitors, with over
400,000 of those visitors returning the following month.
“We see and understand the changes in the industry and are taking the steps required to be nimble, responsive and financially successful in this dynamic environment. The actions we are taking with respect to our Smart Shirts, Phat Farm men's, and women's sportswear businesses are demonstrative of our ongoing efforts to transform Kellwood into a brand-focused marketing enterprise. We believe that we are making the right long-term investments in the Company and are implementing the correct initiatives to make Kellwood stronger and more efficient. As part of this, we are changing the way we operate our business by introducing improved processes in speed-to-market, product development and consumer research so that we can adapt to the evolving retail landscape,” concluded Skinner.
Fiscal 2008 Guidance (Excluding Smart Shirts)
For fiscal 2008, the Company expects net sales from ongoing operations to be $1.55 billion. This compares to its 2007 guidance for net sales from ongoing operations of approximately $1.5 billion to $1.55 billion. The Company is forecasting that operating earnings (gross profit less selling, general and administrative expense before stock option expense, amortization and impairment, restructuring and other non-recurring charges) from ongoing operations will approximate $92.0 million. This compares to the Company's 2007 guidance for operating earnings from ongoing operations of approximately $68.0 million to $73.0 million.
On an ongoing basis, net earnings for fiscal 2008 are currently estimated to be $32.0 million, as compared to the Company's 2007 guidance for net earnings from ongoing operations of approximately $17.0 million to $20.0 million. Also, on an ongoing basis, fiscal 2008 diluted earnings per share are currently estimated to be approximately $1.50, as compared to the Company's 2007 guidance for diluted earnings per share of approximately $0.66 to $0.76.
