Kellwood Company reported that sales for the first quarter ended May 1, 2004 increased $14 million to $686 million, versus $672 million last year due to a combination of organic growth of $5 million, or approximately one percent, and the acquisition of Phat Fashions which provided $9 million of revenue. Phat Fashions was acquired on February 3, 2004, and is being reported within the Men's Sportswear segment.
The organic growth was driven by the new marketing initiatives put in place during the last nine months of fiscal year 2003 which includes Calvin Klein(R), IZOD(R), XOXO(R), and Lucy Pereda(TM) women's sportswear, Liz Claiborne(R) dresses and suits, and Def Jam University(TM) urban sportswear. Nearly two-thirds of this growth was offset by the planned elimination of certain low margin business. All of the organic growth for the quarter came from the Women's Sportswear segment, up 6 percent, and the Men's Sportswear segment, up 1 percent. Sales of Other Soft Goods were down 16 percent from last year due principally to sourcing and logistical challenges in Intimate Apparel. These issues are being addressed and should be resolved during the second half.
Net earnings from continuing operations for the quarter were strong, increasing $3.9 million, or 19 percent to $25.0 million, or $0.90 per diluted share, versus $21.1 million, or $0.80 per share last year. The increase in earnings was driven by a 2.2 percentage point increase in gross profit as a percent of sales, which was partially offset by an increase in SG&A spending attendant with the new marketing initiatives. The improvement in gross profit as a percent of sales came from the acquisition of Phat Fashions, a mix of higher margin branded business, improved sourcing, less markdown pressure, and lower surplus and obsolete inventory. This is the eighth consecutive quarter in which Kellwood has reported a significant year-to-year improvement in gross profit as a percent of sales reflecting the continued underlying strengthening of operations, quality of inventory, and improving mix of business.
Kellwood ended the quarter with an exceptionally strong balance sheet. Total debt continues to drop and represented 30 percent of total capital at the end of the first quarter, versus 34 percent at the same time last year. Total inventory was $27 million below last year and represented 56 days supply, versus 68 days at the end of the first quarter last year.
As Kellwood looks ahead to the second quarter and total year, the Company is encouraged by the improving economy and improving same store sales being reported by the retailers. In spite of these favorable and encouraging trends, the retailers are continuing to place orders closer to the selling season and are not stepping up with big increases in open-to-buy. Cautious optimism continues to be the mindset at retail which is good for the entire supply chain – retail and wholesale. More emphasis is being placed on gross margin, inventory turnover and return on investment which benefits everyone.
As a result, the Company expects sales in the second quarter to increase 10 to 12 percent and to be in the range of $560 to $570 million, versus $509 million reported last year. Net earnings from continuing operations are forecasted to increase by approximately 20 percent and to be in the range of $9-$10 million, or $0.32-$0.35 per diluted share, versus $7.9 million, or $0.29 per share last year.
The Company expects to be on target with its financial plan through the first six months. At this time, Kellwood remains comfortable in staying with its original financial plan and guidance for the year which calls for sales to increase by 11 percent to approximately $2.6 billion, versus $2.35 billion last year. Net earnings from continuing operations for the year are planned to increase by $15-$17 million, or approximately 23 percent to $88-$90 million, or $3.15-$3.25 per diluted share, versus $72.6 million, or $2.68 per share reported last year.
The Company held its forty-second Annual Shareowners' meeting today at its headquarters in St. Louis. Approximately 90 percent of the outstanding shares were represented either in person or by proxy. Robert C. Skinner, Jr., Kellwood president and chief operating officer, was elected a new Board member. Other Directors standing for election this year were Martin Bloom, Martin J. Granoff and Hal J. Upbin. All were elected.
The Board of Directors declared a regular quarterly dividend of $0.16 per common share, payable June 25, 2004 to shareholders of record June 14, 2004.
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended
5/1/2004 5/3/2003
Net sales by segment:
Women's Sportswear $437,977 $411,926
Men's Sportswear 128,157 117,214
Other Soft Goods 119,969 143,206
Total net sales 686,103 672,346
Costs and expenses:
Cost of products sold 531,538 536,043
Selling, general and
administrative expenses 106,908 94,078
Amortization of intangible assets 3,466 2,818
Interest expense, net 6,288 6,443
Other (income) and expense, net (180) 178
Earnings before income taxes 38,083 32,786
Income taxes 13,044 11,663
Net earnings from continuing operations 25,039 21,123
Net earnings (loss)
from discontinued operations - (295)
Net earnings $25,039 $20,828
Weighted average shares outstanding:
Basic 27,090 26,174
Diluted 27,832 26,554
Earnings (loss) per share:
Basic:
Continuing operations $.92 $.81
Discontinued operations - (.01)
Net earnings $.92 $.80
Diluted:
Continuing operations $.90 $.80
Discontinued operations - (.02)
Net earnings $.90 $.78
