Russell Corporation beat street earnings expectations for the seventh straight quarter last week, posting net income of $4.7 million, or 20 cents per share, compared to a loss of $6.1 million, or 19 cents per share in the year-ago quarter. Excluding charges and one-time gains for both periods, net income was up by a third. Analysts were expecting 17 cents per share.
The excitement over the positive bottom line results was offset a bit by the mixed results in the top line. Although total sales were up 5.8% for the quarter, $15 million of the gain came from the acquisitions of Spalding, Russell Athletic and Moving Comfort and another $3 million came from favorable currency exchange rates. Without the benefits of the acquisitions and the weaker dollar, sales for the company would have actually decreased 1.3% on a continuing business basis.
Domestic sales would have been down 3.0% without the new companies included in the number, with the Artwear/Careerwear segment offsetting small non-acquisition gains at Russell Athletic and Mass Retail.
The Russell Athletic division saw 20% of its gain come from improving businesses in the retail segment, including JC Penney, Sears and Kohls as well as the College Bookstore business. The other 80% of growth here was from acquisitions. The segment would have grown 6.0% without the new companies in the number.
The company said that starting with 2004 sell-in, Russell reps will assume sales responsibility for the Bike Athletic brand from the current sales agencies. Russell currently runs company reps in most territories, with independent agencies in place in the Northeast and Mideast territories.
The Mass Retail unit saw two-thirds of its gain come from growth in the Mossy Oak business.
The Artwear/Careerwear business continues to be a drag, with much of the declines coming from continued price deflation in T-shirts and lower sales in the sports shirts business. According to the company, the STARS report indicates that the industry saw a 12% gain in T-shirt units sold in the quarter, but revenues were lower due to lower average selling prices. RML said they gained 300 basis points in share in the 50/50 category and 100 basis points in the Jerzees segment. The same report indicated that the sports shirts segment declined 13% on an industry-wide basis while Russell saw share decline less than one percentage point to 24%.
The gains in the International segment reflected strong sales growth in Europe and the positive effects of foreign currency translation.
Inventories were also impacted by the acquisitions and would have actually decreased 2% to $379.1 million. The acquisitions also added little to debt on the balance sheet, with total debt up only $6.3 million, or 1.6%, versus last year.
The company indicated that the current MLB deal runs through 2004, but management said they have a “very aggressive proposal for 05” on the table. The license contributes a little more than 1% of sales, but RML sees it as a strong marketing platform.
RML is now projecting total 2003 net sales to be in the range of $1.25 billion to $1.28 billion, with EPS in the $1.60 – $1.75 range.
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