Shares of Russell Corporation rose 4.5% for the week, closing at $15.68 on Friday. The company reported lower Q4 sales and stronger earnings on Thursday.

RML posted a Q4 profit of $14.5 million, or 45 cents per share, compared with a loss of $30.8 million, or 96 cents a share, a year earlier. Fourth quarter sales dipped 2% to $308.4 million, but showed a 1% increase in ongoing businesses.

The company had forecast Q4 earnings of 42 cents to 46 cents per share, with sales rising 3% to 6%.

JC Penney’s national rollout of Russell’s Men’s/Boy’s fleece program and placing Discus at Sears were key drivers. RML saw significant price reductions in the Artwear/Careerwear channel, citing price deflation in the 10-12% range.

Net sales were essentially flat for 2002, inching up 0.3% to finish the year at $1.16 billion. Net sales on an ongoing basis increased 2% if discontinued and acquired businesses are taken into account.

Net income was $34.3 million, or $1.06 per share, for the year versus a net loss of $55.5 million, or ($1.74) per share, in fiscal 2001.

The licensed business grew 50%, led by strength in the MLB segment. RML also indicated that TSA, Kohl’s and Gart bought into new moisture-management product.

RML is on the acquisition hunt, mentioning the “a” word in just about every response on its conference call with analysts. Carol Mabe is now leading this effort as corporate VP for Strategic Development.

The company paid debt down to its lowest level in 10 years, but has reached the lower end of its allowable debt levels due to a $250 million bond. This means that cash creation this year will sit around or go into acquisitions. The company indicated that they would not be raising dividends back up to historical levels, opting to use the cash instead to take advantage of a number of “opportunities”.
Moving Comfort is a $10 million business that contributed about $2 million in sales for RML in 2002. Bike Athletic should be an additional $30 million to $40 million business in 2003.

The company is estimating that about 3% earnings growth this coming year will come from acquisitions, but Moving Comfort and Bike are not seen as immediately accretive due to investments required to get those businesses stabilized and re-directed.

Fully one-third of earnings growth in the coming years will come from acquisitions.

One analyst made the observation that RML could get back into double-digit P/E ratios if they can accomplish the acquisition contribution.
RML is forecasting per share earnings of 7 cents to 11 cents in Q1 2003 and $1.60 to $1.75 for the full year. Sales are expected to increase 4% to 6% in 2003.
Russell also announced that Benjamin Russell, grandson of the company’s founder, is leaving the board of directors. He will retire at the company’s annual shareholders meeting in April after serving on the board since 1963.

KEY METRICS:

    FOURTH QUARTER

    • Russell Athletic grew 19% to $82 million
    • Mass Retail declined 6% to $102 million
    • Artwear/Careerwear was down 7%
    • International business up 9% to $23 million
    • GM improved 350 bps to 29.9%

    YEAR-END

    • Year-end inventory levels down 14.9%
    • Debt reduced 40.5% in 2002
    • Expects a 15% increase in yarn costs in 2003

    MARKET SHARE

    • Jerzees holds 41% market share for Men’s fleece in Mass Retail. Boy’s has 42% share.
    • Russell has 42% fleece share in AW/CW segment
    • Market share for T’s is 13% in AW/CW with a 34% share in the 50/50 T-shirt market.


>>> These guys are flush with cash and are taking expenses out of the business to counter other higher costs. With the Bike deal behind them, they are already looking outward for more, seeing big upside in consolidating expenses across the new businesses