Kellwood Company net sales for the first quarter totaled $516.9 million, as compared to $553.5 million last year. Net earnings from continuing operations for the first quarter were $2.2 million, or nine cents per diluted share, versus $15.1 million, or 54 cents per diluted share, last year. Included in net earnings from continuing operations for the current quarter were restructuring and related non-recurring costs of $2.9 million (after tax), or 11 cents per diluted share associated with the Company’s earlier announced strategic initiatives.
Total net earnings for the first quarter were $9.2 million, or $0.36 per diluted share, versus $11.8 million, or $0.42 per diluted share, last year. Included in total net earnings for the first quarter were net earnings from discontinued operations of $7.0 million, or $0.27 per diluted share, versus a net loss of $3.3 million, or $0.12 per diluted share, last year. Results of discontinued operations in the first quarter include a $6.3 million reversal of allowances for tax exposures no longer deemed necessary.
For the first quarter, on an ongoing basis, (continuing operations excluding the restructuring and related non-recurring charges), net sales were $516.9 as compared to $553.5 million last year and previous guidance of $480 million. Net earnings were $5.1 million, or $0.20 per diluted share, compared to $15.1 million, or $0.54 per share last year, exceeding previous guidance of $4.0 million, or $0.15 per share. Included in the net earnings for the current quarter is $2.9 million before tax, $1.9 million after tax, or $0.08 per diluted share, of stock option expense related to the adoption of FAS 123R “Share Based Payment”, a new accounting pronouncement requiring the expensing of stock-based compensation.
Net earnings and earnings per share were below last year due to lower sales and a decrease in gross profit as a percent of sales. Sales were lower, as planned, due to consolidations at retail and decreased orders for certain brands which have recently had sub par performance at retail. We have been in the process of repositioning and revitalizing these brands. We have upgraded the management, improved business processes, and look forward to better profitability in the second half. Gross margins in the current quarter were below last year due to intense competitive pricing and actions taken to move seasonal inventory. We ended the quarter with inventory levels in balance with orders for the upcoming second quarter transitional selling season.
Mr. Skinner stated, “Our first quarter results were ahead of earlier guidance. Sales from each of Kellwood’s three business segments exceeded expectations resulting in operating earnings before expensing stock options of $16 million which was the upper end of the range previously given. Net earnings and earnings per share were also bolstered by a higher level of interest income. Short-term investment rates have risen and additional investable cash was freed up from the successful restructuring program and continued improvement in the management of working capital.”
By segment, on a continuing and ongoing basis for the first quarter, sales were down $34 million, or 10 percent in Women’s Sportswear to $304 million versus $338 million last year, and down $8 million, or 9 percent in Other Soft Goods to $79 million versus $87 million last year. These year-to-year decreases were partially offset by a $4 million, or 3 percent increase in Men’s Sportswear sales to $133 million versus $129 million last year.
Kellwood ended the quarter with considerable liquidity and a strong financial position. Inventory totaled $175 million, or 53 days supply, a reduction of $40 million from $215 million, or 58 days supply at the end of the first quarter of fiscal year 2005. Total debt increased $39 million to $509 million versus $470 million last year due to borrowings by our Asian operations.
During the first quarter, the Company repurchased an additional 173,600 shares or $5.0 million, for an average price of $28.83 per share. Kellwood has now repurchased a total of 2.4 million shares for $60.5 million under the current authorization. There remains the lesser of $14.5 million or 351,400 shares that can be repurchased under the original $75 million stock repurchase authorization.
The Board of Directors declared a regular quarterly dividend of $0.16 per common share, payable June 23, 2006 to shareholders of record June 12, 2006.
Mr. Skinner stated, “We are continuing to execute the strategic plan we formulated in June and July of 2005. Kellwood is in the early stages of a turnaround and we are encouraged by the results forecasted for the first half of the year. We continue to focus on revitalizing our legacy women’s sportswear and dress brands like Sag Harbor® and Koret®. At the same time, we are pleased by retailers early reactions to the offerings in our newer branded initiatives such as Calvin Klein and XOXO®. We are confident that the actions we have taken will result in year-to-year improvement in results beginning in the second quarter and carrying into the second half of the year.”
For the second quarter of fiscal 2006, the Company expects net sales of $480 million, as compared to actual sales from ongoing operations of $488 million in the second quarter last year. Increases in sales of Men’s Sportswear and Other Soft Goods are expected to be more than offset by lower sales of Women’s Sportswear.
Operating earnings (gross profit less SG&A expense before amortization of intangible assets and expensing stock options) from ongoing operations in the second quarter are forecasted to be in the range of $20 million versus $17 million last year. Net earnings from ongoing operations in the second quarter of fiscal 2006 are estimated to be approximately $8.0 million, or $0.30 per diluted share, inclusive of $0.5 million before tax, $0.3 million after tax, or $0.01 per diluted share of stock option expense. This compares to net earnings from ongoing operations of $6.0 million, or $0.22 per share, in the second quarter of fiscal 2005.
For the fiscal 2006 year, the Company continues to expect sales to be in the range of $2.0 billion. This compares to actual sales from ongoing operations of $2.065 billion in fiscal 2005.
On an ongoing basis, net earnings for fiscal 2006 are now estimated to be in the range of $45 million to $46 million, flat with fiscal 2005 net earnings from ongoing operations. Also on an ongoing basis, fiscal 2006 diluted earnings per share are now estimated to be approximately $1.75 per diluted share, which compares to actual earnings per diluted share from ongoing operations of $1.68 in fiscal 2005. The increase in net earnings and earnings per share from our earlier guidance of $1.70 per share is due to a higher level of interest income resulting from an increase in investable cash and higher short-term investment rates. The Company continues to forecast operating earnings (gross profit less SG&A expense before amortization of intangible assets and expensing stock options) in the range of $105 million versus $100 million last year. Kellwood’s fiscal 2006 forecast includes $4.3 million before tax, $2.8 million after tax, or $0.11 per diluted share of stock options expense related to the adoption of FAS 123R “Share-Based Payment,” a new accounting pronouncement requiring the expensing of stock- based compensation.
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended
4/30/2005 4/29/2006
Net sales by segment:
Women's Sportswear $337,503 $304,428
Men's Sportswear 128,986 133,366
Other Soft Goods 87,058 79,059
Total net sales 553,547 516,853
Costs and expenses:
Cost of products sold 430,213 411,573
Selling, general and administrative expenses 91,871 89,215
Stock option expense - 2,941
Amortization of intangible assets 2,781 2,481
Impairment, restructuring and related
non-recurring charges - 4,406
Interest expense, net 6,634 4,092
Other (income) and expense, net (175) (1,165)
Earnings before income taxes 22,223 3,310
Income taxes 7,112 1,077
Net earnings from continuing operations 15,111 2,233
Net earnings (loss) from discontinued operations (3,292) 6,960
Net earnings $11,819 $9,193
Weighted average shares outstanding:
Basic 27,759 25,623
Diluted 27,957 25,785
Earnings (loss) per share:
Basic:
Continuing operations $0.54 $0.09
Discontinued operations (0.12) 0.27
Net earnings $0.43 $0.36
Diluted:
Continuing operations $0.54 $0.09
Discontinued operations (0.12) 0.27
Net earnings $0.42 $0.36
