Russell Corporation reported fiscal 2003-second quarter net sales of $267.9 million, a 6% increase over the comparable period last year. The Company also reported earnings per diluted share of $.20 versus a loss of ($.19) per diluted share in the 2002-second quarter. Prior year earnings per share included an after- tax charge of ($.39) per share associated with the early retirement of debt and an after-tax gain of $.05 per share associated with the sale of non-core assets. Excluding these items, earnings in the 2002-second quarter would have been $.15 per share.
The Company's 2003-second quarter results of $.20 per diluted share exceeded the First Call consensus estimate of $.17 per share.
“Given the challenging economic and retail environment, we are pleased to report earnings per share at the high-end of our forecast,” said Jack Ward, chairman and chief executive officer. “Today's earnings results clearly demonstrate the progress we are making to enhance our athletic, activewear and outdoor businesses, lower our expense structure, strengthen the competitive positioning of our brands, and execute our long-term growth strategies.
“As part of this effort, we recently completed the acquisition of the sporting goods business of Spalding Sports Worldwide, Inc.,” added Ward. “Spalding is one of the leading sporting goods brands in the world, and the acquisition is another milestone in our expansion strategy that includes a stronger focus on the athletic and outdoor markets.”
For the 2003-second quarter, net sales were $267.9 million, an increase of $14.8 million, or 6%, from last year's second quarter sales of $253.1 million. Net sales in the U.S. increased 4%, or $8.4 million, driven by the Company's acquisitions of Spalding, Bike and Moving Comfort plus higher retail sales of Russell Athletic(R), Mossy Oak(R) and Jerzees(R) branded products. The increase was partially offset by lower net sales in the Artwear/Careerwear channel, reflecting continued industry-wide lower prices, primarily in the promotional T-shirt market, and reduced corporate purchasing of higher priced products, such as sports shirts, denims and wovens. International net sales rose 31%, or $6.4 million, reflecting strong sales growth and the positive effects of foreign currency translation.
Gross profit was $77.4 million, or a 28.9% gross margin, for the 2003- second quarter versus a gross profit of $66.1 million, or a 26.1% gross margin, in the prior year. During the 2003-second quarter, gross profit was positively impacted by the acquisitions of Spalding, Bike and Moving Comfort, and on-going cost savings initiatives. However, these positive impacts were partially offset by pricing pressures primarily in the distributor market of the Artwear channel, higher raw material costs for cotton and polyester, higher insurance costs, and additional costs for new product features.
Selling, general and administrative expenses (“SG&A”) for the 2003-second quarter were $58.5 million, or 21.8% of net sales, versus $50.8 million, or 20.1% of net sales in the comparable period last year. SG&A expenses in the 2003-second quarter increased $7.7 million over the year-ago quarter principally as a result of the incremental expenses from the Company's acquisitions (Spalding, Bike and Moving Comfort) and to a lesser extent, higher marketing expenses. In addition, management estimates the financial impact to SG&A from adopting FASB 148, which amended FASB 123, was an increase of approximately $.01 per share during the 2003-second quarter.
Net income for the 2003-second quarter was $6.7 million, or $.20 per diluted share, versus a net loss of $6.1 million, or ($.19) per diluted share, in the prior year. Excluding the after-tax charge of ($.39) per share associated with the early retirement of debt and the after-tax gain of $.05 per share associated with the sale of non-core assets, net income would have been $4.9 million, or $.15 per share in the 2002-second quarter.
Year-to-date Results
For the six months ended July 6, 2003, net sales were up $27.0 million to $495.9 million, a 6% increase over the prior year's sales of $468.9 million. Gross profit was $140.2 million, or a 28.3% gross margin, for the first six months of fiscal 2003 versus a gross profit of $125.9 million, or a 26.9% gross margin, in the prior year. SG&A expenses for the first six months of fiscal 2003 were $107.9 million, or 21.8% of net sales, versus $99.8 million, or 21.3% of net sales in the comparable period last year.
For the first six months of fiscal 2003, net income was $10.1 million, or $.31 per diluted share, versus a net loss of ($3.5) million, or ($.11) per diluted share, in the comparable period last year. Excluding the after-tax charge of ($.39) per share associated with the early retirement of debt and an after-tax gain of $.05 per share associated with the sale of non-core assets in the 2002-second quarter, net income would have been $7.5 million, or $.23 per diluted share, in the first six months of fiscal 2002.
Balance Sheet
“We continue to maintain a strong balance sheet, which positions Russell for additional growth,” said Ward. “With a 6% net sales increase over the year-ago quarter, inventories increased only 4% to $403.2 million. Excluding inventories from acquisitions, inventories decreased 2%, or $7.7 million, to $379.1 million. Additionally, even with making three acquisitions in the last 12 months, total debt of $392.0 million is basically flat with last year's level of $385.7 million.”
Outlook
“Overall, during the first-half of 2003, we had solid financial results in a challenging global economic environment,” added Ward. The Company projects 2003 net sales to be in the range of $1.25 billion to $1.28 billion. In addition, the Company continues to forecast earnings per share for fiscal 2003 to range between $1.60 and $1.75, which anticipates additional marketing and advertising expenses, higher raw material costs, continued pricing pressure in the distributor market of the Artwear channel, and the impact of expensing stock based compensation.
For the remainder of 2003, Russell expects:
* Third quarter earnings to range between $.75 and $.83 per share.
* Fourth quarter earnings to range between $.53 and $.60 per share.
RUSSELL CORPORATION
Consolidated Statements of Operations
(Dollars in Thousands Except Share and Per Share Amounts)
13 Weeks Ended 26 Weeks Ended
7/6/03 6/30/02 7/6/03 6/30/02
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $267,925 $253,070 $495,908 $468,895
Cost of goods sold 190,539 186,974 355,700 342,963
Gross profit 77,386 66,096 140,208 125,932
Selling, general and
administrative
expenses 58,499 50,792 107,877 99,760
Other expense
(income) - net 704 (2,747) 1,419 (2,758)
Operating income 18,183 18,051 30,912 28,930
Interest expense 7,443 7,734 14,610 14,428
Debt retirement
charge (1) --- 20,097 --- 20,097
Income (loss) before
income taxes 10,740 (9,780) 16,302 (5,595)
Provision (benefit)
for income taxes 4,081 (3,638) 6,195 (2,081)
Net income (loss) $6,659 $(6,142) $10,107 $(3,514)
Net income (loss)
per common share:
Basic $0.21 $(0.19) $0.31 $(0.11)
Diluted $0.20 $(0.19) $0.31 $(0.11)
Cash dividends per
common share $0.04 $0.04 $0.08 $0.08
(1) The charge for the early retirement of debt, associated with our debt
refinancing in 2002, has been reclassified to conform with Statement
of Financial Accounting Standard No. 145 ("SFAS No. 145"). Prior to
the adoption of SFAS No. 145, this charge was properly classified net
of tax as an extraordinary item.
RUSSELL CORPORATION
Unaudited Financial Highlights
(Dollars in Thousands)
13 Weeks Ended 26 Weeks Ended
7/6/03 6/30/02 7/6/03 6/30/02
Net Sales by Distribution
Channel
Domestic Athletic (2) $79,152 $60,596 $156,696 $119,653
Domestic Mass Retail 62,235 58,867 110,768 101,230
Domestic Artwear/Careerwear 99,698 113,186 178,356 206,900
International Activewear 26,840 20,421 50,088 41,112
Consolidated total $267,925 $253,070 $495,908 $468,895
(2) This distribution channel includes Russell Athletic, Spalding, Bike
and Moving Comfort.
