Kellwood Company announced several initiatives aimed at advancing the Companys corporate objectives, which focus on increasing its penetration of consumer lifestyle brands with strong growth and profit potential while reducing
exposure to smaller volume brands and private label businesses. The Company expects to improve its operating margin upon completion of the following plan:
- Exit Kellwood Private Label menswear, which does not include the Companys Smart
Shirts subsidiary; - Exit Kellwood Intimate Apparel Group, which includes the Biflex, LA Intimates and
Dotti divisions; - Exit Kellwood New England, which includes David Brooks, Pink Poodle and other
smaller volume brands sold through specialty stores; - Restructure Kellwoods Oakland Operation by exiting several labels to better focus on
developing the Koret brand; and - Reassess certain ongoing business operations for the appropriateness of the Companys
operational and support infrastructures and also perform a formal review of its
assumptions regarding the future profitability of certain brands, labels and divisions.
The Company is in the process of reviewing its alternatives for each of the businesses it will exit
and will consider the sale of all or some of these divisions and brands.
The annual sales and pre tax operating loss associated with divisions and brands slated for exit are
expected to approximate $335 million and $8.3 million before tax, respectively in fiscal 2005.
The after tax loss is estimated to be $5.6 million, or ($0.20) per diluted share.
“Our decision to exit non-strategic businesses represents an important step in a series of initiatives that we believe will help re-establish Kellwood as a premier marketer of branded apparel and related soft goods,” stated Kellwoods President and Chief Executive Officer, Robert C. Skinner, Jr. “We expect that these actions will allow us to better focus our resources to further
build our existing portfolio of lifestyle brands and effectively pursue additional growth opportunities in the marketplace. We will also reduce our operating divisions to 11 from 14 presently. This strategy, along with actions taken to upgrade our talent base, reduce cycle times
and improve our assortments should result in better operating performance beginning in fiscal
2006.”
The Company expects the costs associated with these actions to approximate $225 million before
tax, $155 million after tax, or $5.51 per diluted share. Included in the charge is $55 million pretax,
$41 million after tax, or $1.46 per diluted share to write off goodwill and intangible assets.
The Company noted that the restructuring efforts have already begun. The Company is hopeful
that this plan can be completed over the next twelve months. Kellwood expects to book $110
million after tax of the restructuring charge, or $3.91 per diluted share in the second quarter and
the remainder recorded principally in the second half of the year in accordance with generally
accepted accounting principles.
Updated Financial Guidance Separately, the Company indicated that it is reducing its earnings outlook for the second quarter and fiscal 2005 year. For the second quarter, the Company continues to estimate sales of $560 to
$570 million, as compared to actual sales of $560 million in the second quarter last year. Net earnings in the second quarter of fiscal 2005 are currently expected to approximate $0.6 million, or $0.02 per diluted share, which is prior to the recognition of tax benefits from the repatriation of foreign earnings.
This compares to the Companys previous guidance for net earnings in the range of $10.5 million, or $0.38 per diluted share and versus actual second quarter fiscal 2004 net earnings of $10.2 million, or $0.36 per diluted share. On an ongoing basis, as if the restructuring was complete at the beginning of fiscal 2005, the Company expects second quarter net earnings of $5.3 million, or $0.19 per diluted share (see table on page 4). The Company expects to report actual results for the second quarter of fiscal 2005 on Thursday, September 1, 2005.
For the fiscal 2005 year, the Company currently expects sales in the range of $2.425 billion, the
same as previously forecasted. This compares to actual fiscal 2004 sales of $2.56 billion. The
Companys current sales guidance for the year includes sales from divisions and brands that will
be exited or restructured. Net earnings for the fiscal 2005 year are currently estimated in the
range of $37 million to $38 million, or approximately $1.35 per diluted share, which is before
recognition of the tax benefit from the repatriation of foreign earnings and prior to the
restructuring charge. On an ongoing basis, as if the restructuring plan was complete at the
beginning of fiscal 2005, the Company expects net earnings of $43.5 million, or $1.55 per diluted
share (see table on page 5). This compares with the Companys previous guidance for net
earnings of $68.5 million, or $2.38 per diluted share and versus actual fiscal 2004 net earnings of
$70.1 million, or $2.50 per diluted share.
“Obviously we are very disappointed by our recent performance,” commented Mr. Skinner.
“Approximately one fourth of the earnings per share decrease from our previous guidance for the
year is due to the expected shortfall in results for the divisions included in our restructuring
efforts. While sales for the second quarter are expected to be in line with our expectations,
second quarter earnings are now expected to be negatively impacted by higher than anticipated 3 markdowns on spring and summer merchandise in certain womens sportswear divisions and lower margins in Mens Sportswear.
“Importantly, we have identified and are currently implementing initiatives to bring about a
positive change in these and other business units,” he added. “At the same time, we have also
taken an aggressive stance toward expense control and have put into action several processes to
ensure that our merchandise is on trend and delivered in the right quantities at retail. We remain
committed to executing a strategy that will result in long term growth and increased shareholder
value.”
