Kenneth Cole Productions, Inc. reported adjusted operating earnings per fully-diluted share of 21 cents a share in the fourth quarter versus a loss of 27 cents in the year-ago period, consistent with its pre-announcement on Feb. 11, 2010. The significant improvement in operating performance was due to solid holiday sell-through results, increased gross margins, effective inventory management and the ongoing benefit of the company’s streamlining initiatives.

Net revenues in the fourth quarter were $109.4 million vs. $126.6 million in the year-ago period, in line with prior guidance. The sales decline was primarily due to the Company’s planned exit from unprofitable businesses as well as reductions in associated private label programs and off-price distribution. 

Consolidated gross margin increased 870 basis points to 46.8% compared to 38.1% in the year-ago period.  Improvements were realized in both the Consumer Direct and Wholesale business segments due primarily to disciplined inventory management, better product and less promotion for the holiday season. 

Selling, general and administrative expenses (“SG&A”) declined by $11 million in the fourth quarter as compared to the year-ago period.  This resulted in a 320 basis point improvement in SG&A as a percent of revenues to 41.1% compared to 44.3% last year. This improvement was achieved despite the addition of 14 net new stores throughout the year.

As a result of gross margin improvement and careful expense management, adjusted operating income before taxes and excluding non-cash charges was $6.3 million in the fourth quarter compared to an adjusted operating loss of ($7.7) million before taxes and excluding charges in the same quarter of last year.

While operating income for the fourth quarter was strong, the Company noted that at year end it was in a three-year historical cumulative loss position which prompted the requirement of a valuation allowance against the Company’s deferred tax asset balance.  This resulted in a non-cash charge of $43.3 million. The Company also recorded impairment charges on certain of its stores and intangible assets of $19.6 million, for total non-cash charges of $62.9 million.  As a result of these non-cash charges, the Company reported a GAAP loss per fully diluted share of ($2.88) for the fourth quarter compared to a loss of ($0.67) per share in the year ago period.  The Company further noted that the increase in the deferred tax valuation allowance does not have any impact on its cash position, nor does such an allowance preclude it from using its tax losses, tax credits or other deferred tax assets in the future. 

For the full fiscal year ended December 31, 2009, the Company reported net revenues of $410.4 million, a decrease of 16.6% versus the prior year’s level of $492.3 million, and a loss per share of ($3.52) as compared to a loss per share of ($0.80) last year. Excluding non-cash charges, the Company reported an adjusted loss per share of ($0.36) for fiscal 2009 compared to an adjusted loss per share of ($0.19) last year.  The Company noted that its full-year results were driven by aggressive inventory liquidation in the early part of the year following the onset of difficult economic conditions and that it returned to operating profitability in the back half of fiscal 2009.

The Company’s balance sheet remained strong at December 31, 2009.  Inventory at the close of the quarter was down 33% to $29.1 million compared to $43.3 million at the end of the fourth quarter last year. Cash and cash equivalents were $68.5 million versus $64.7 million at the end of last year.  In addition, the Company continues to operate with no long-term debt.

Kenneth Cole, Chairman and Chief Creative Officer, commented, “We are pleased with the strong reception our products received from both customers and consumers over the holiday season.  We are showing improvement in many areas of our organization, but our biggest opportunities are still in front of us.  In 2010, we must continue to focus on product innovation and execute at a higher level to deliver increased value to our shareholders.” 

Looking ahead, the Company announced earlier today that it had signed a Strategic Alliance Agreement with Macy’s for a new, exclusive REACTION Men’s Sportswear collection that will launch in time for holiday 2010 in 150 Macy’s stores. Distribution is ultimately slated to grow to 550 stores over the next few years, consistent with the REACTION brand penetration in other categories.  All other men’s and women’s REACTION classification products as well as Kenneth Cole New York products will continue to be sold in a wide range of better department, specialty and company-owned stores.

Jill Granoff, Chief Executive Officer, concluded, “We are pleased with the progress we are making as a Company in terms of brand development, inventory management, margin improvement and cost reductions. We have demonstrated quarter over quarter improvement throughout 2009 and returned to profitability in the back half of the year. We believe that the path we are on will lead to further improvements in financial performance, incremental opportunities for growth, and the creation of value for our consumers, customers, partners and shareholders.”