Kellwood Company reported sales for the third quarter increased $73 million, or 11% to $717 million, versus $644 million last year due to a combination of organic growth of $44 million, and the acquisition of Phat Fashions and Phat Farm which provided $29 million of revenue. Phat Fashions and Phat Farm were acquired on February 3, 2004, and are being reported within the Men’s
Sportswear segment.
The organic growth was primarily driven by the new marketing initiatives
put in place during the last nine months of fiscal year 2003 including Calvin
Klein®, IZOD®, and XOXO® women’s sportswear, and Liz Claiborne®
dresses and suits, which collectively provided $45 million of growth in the
third quarter. This growth was partially offset by the planned elimination of
certain low margin brands and programs, which reduced sales by $18 million.
Sales growth of the remaining businesses in the third quarter was $17 million,
or 3 percent.
The year-to-year organic sales growth for the quarter came from the
Women’s Sportswear segment, up 4 percent, and the Men’s Sportswear segment, up
15 percent, and Other Soft Goods up 3 percent.
Net earnings from continuing operations in the third quarter decreased
$2.5 million, or 8 percent, to $28.4 million, or $1.01 per diluted share,
versus $30.9 million, or $1.13 per share last year. The drop in earnings was
due to a 0.8 percentage point decrease in gross profit as a percent of sales
due principally to higher seasonal markdowns, increased SG&A spending
attendant with the new marketing initiatives and the acquisition of Phat
Fashions and Phat Farm, and higher amortization expense.
Kellwood ended the quarter with an exceptionally strong balance sheet with
ample liquidity to fund acquisitions to enhance its diversification and
capability to service the needs of the Company’s customers.
Inventory and accounts receivable increased in the third quarter due
principally to the acquisition of Phat Fashions and Phat Farm. We ended the
quarter with 67 days supply of inventory, versus 68 days at the end of the
third quarter last year.
Sales for the first nine months grew by $138 million, or 8 percent to
$1.963 billion, versus $1.825 billion last year. The increase came from
organic growth of $83 million, or 5 percent, and $55 from the acquisition of
Phat Fashions and Phat Farm made earlier this year. The increase in organic
sales for the first three quarters came from a 7 percent increase in Women’s
Sportswear and a 10 percent increase in Men’s Sportswear, partially offset by
an 8 percent drop in sales of Other Soft Goods.
Net earnings from continuing operations for the first nine months
increased $3.8 million, or 6 percent, to $63.6 million, or $2.27 per share on
a diluted basis, versus $59.8 million, or $2.22 per share last year. The
strong growth in net earnings for the first nine months was driven by a 0.9
percentage point year-to-year improvement in gross profit as a percent of
sales partially offset by higher SG&A spending from launching several new
brands and the acquisition of Phat Fashions and Phat Farm, along with
additional amortization expense.
As Kellwood looks forward to the balance of the fiscal year, the Company
expects to be on target with its guidance for sales and earnings provided on
October 21. Sales in the fourth quarter are expected to increase 13-15
percent and be in the range of $600 million versus $521 million last year.
Approximately 60 percent of the $80 million year-to-year increase in sales
will come from the new marketing initiatives, and approximately 30 percent of
the increase will come from the acquisition of Phat Fashions and Phat Farm
with the balance coming from 1.5 to 2.0 percent growth in Kellwood’s base
business.
Net earnings from continuing operations in the fourth quarter are
forecasted to increase 7 percent, or $0.9 million, to $13.7 million, or $0.48
per diluted share versus $12.8 million, or $0.46 per share last year. It is
significant to note that operating earnings (gross profit less SG&A expense)
in the fourth quarter are forecasted to increase $6.5-$7.0 million, or
approximately 28 percent versus last year. The strong year-to-year
improvement in operating earnings is expected to be driven by the forecasted
growth in sales and an anticipated improvement in gross profit as a percent of
sales. The forecasted strong year-to-year growth in operating earnings for
the fourth quarter will be partially offset by the one-time gain in other
income/expense net reported last year, higher net interest expense from the
issuance of a $200 million 3.5 percent convertible bond earlier in the year,
and higher amortization of intangibles.
For the fiscal year, which ends January 31, 2005, sales are expected to
increase by 9.5 percent to approximately $2.57 billion versus $2.35 billion
last year. Net earnings from continuing operations for the year are
forecasted to be in the range of $77.5 million, or $2.75 per diluted share,
versus $72.6 million, or $2.68 per share reported last year from continuing
operations.
The Board of Directors declared a regular quarterly dividend of $0.16 per
common share, payable December 24, 2004 to shareholders of record December 13,
2004.
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Amounts in thousands, except per share data)Three Months Ended Nine Months Ended
10/30/2004 11/1/2003 10/30/2004 11/1/2003
Net sales by segment:
Women's Sportswear $413,522 $396,118 $1,171,054 $1,098,104
Men's Sportswear 205,978 153,884 473,748 379,302
Other Soft Goods 97,294 94,129 318,563 347,931
Total net sales 716,794 644,131 1,963,365 1,825,337Costs and expenses:
Cost of products
sold 567,362 504,752 1,534,974 1,444,288
Selling, general and
administrative
expenses 97,785 84,477 304,019 263,176
Amortization of
intangible assets 3,134 2,433 10,065 7,310
Interest expense, net 6,429 6,451 19,469 18,805
Other (income) and
expense, net (1,039) (88) (1,912) 744
Earnings before
income taxes 43,123 46,106 96,750 91,014Income taxes 14,770 15,237 33,137 31,172
Net earnings from
continuing operations 28,353 30,869 63,613 59,842Net loss from discontinued
operations, net of tax - (619) - (2,078)Net earnings $28,353 $30,250 $63,613 $57,764
Weighted average shares
outstanding:
Basic 27,669 26,632 27,446 26,412
Diluted 28,134 27,321 28,038 26,947Earnings (loss) per share:
Basic:
Continuing
operations $1.02 $1.16 $2.32 $2.27
Discontinued
operations - (.02) - (.08)
Net earnings $1.02 $1.14 $2.32 $2.19Diluted:
Continuing
operations $1.01 $1.13 $2.27 $2.22
Discontinued
operations - (.02) - (.08)
Net earnings $1.01 $1.11 $2.27 $2.14
