Russell Corporation reported fiscal 2004 first quarter net sales of $251.8 million, a 10% increase over the comparable period last year. The Company also reported first quarter earnings of $.5 million, or 2 cents per diluted share, versus earnings of $3.4 million, or 11 cents per diluted share, in first quarter 2003. First quarter earnings were reduced by 5 cents per share from the unfavorable impact of LIFO (Last In – First Out) inventory accounting resulting from declining product costs.
During the quarter, Russell reduced excess inventories with manufacturing short time and higher inventory closeout costs. The incremental costs of these actions versus prior year were 7 cents per share. With these steps, Russell has brought its inventory in line, and inventory levels, including the Spalding acquisition, increased by only 5% over prior year.
“Given our sales projections and the improved performance of our manufacturing operations, we feel positive about the year despite the lower first quarter earnings,” said Jack Ward, chairman and CEO. “We continue to forecast earnings per diluted share for fiscal 2004 to range between $1.40 and $1.60, even with the LIFO charges and continued pricing pressure in Activewear. Also, with additional manufacturing cost reduction projects that have been identified, we now forecast cost reductions to be over $60 million in 2004 versus the $50 million originally projected,” continued Ward.
Net sales for the 2004 first quarter were $251.8 million, an increase of $23.8 million or 10% from last year's first quarter sales of $228.0 million. Incremental sales versus prior year from the Spalding and Bike acquisitions accounted for $22.7 million of the increase, with sales in the base business flat versus prior year. Base business unit volume increased 9%; however, the increase in unit sales was offset by continued pricing pressure and product mix in Activewear.
Gross profit was $64.6 million, or a 25.7% gross margin, for the 2004 first quarter versus a gross profit of $62.8 million, or a 27.6% gross margin, in the prior year. During the 2004 first quarter, gross profit was positively impacted by ongoing cost savings and acquisitions. These benefits were more than offset by pricing pressure and product mix in Activewear, higher raw material costs for cotton and polyester, manufacturing short time and higher inventory closeout costs, and the unfavorable impact of LIFO accounting.
Selling, general and administrative expenses (“SG&A”) for the 2004 first quarter were $56.3 million, or 22.4% of net sales, versus $49.4 million, or 21.7% of net sales in the comparable period last year. Excluding acquisitions, SG&A in the base business remained unchanged at 21.7% of net sales in the 2004 first quarter.
“We are reaffirming our 2004 fiscal year sales to be in the range of $1.26 billion to $1.30 billion versus $1.186 billion in 2003,” said Ward. “Sales for the second quarter 2004 are projected to range from $285 million to $295 million.
“Our sales outlook remains positive due to expanded programs within all of our major businesses,” Ward added. “Our athletic and outdoor products continue to make significant progress. For example, we announced earlier this week our partnerships with the Southwestern Athletic Conference and the Southern Intercollegiate Athletic Conference to be the supplier for team uniforms, athletic apparel and sports equipment for their 21 Historically Black Colleges and Universities.
“Additionally, Russell Athletic has gained major fall program expansions such as Dri-POWER(R) and Sweatless Sweats(TM) with many sports specialty customers. Spalding continues to perform well with very strong sell-through with key customers and the introduction of the newly designed Arena Football League ball. Mossy Oak's new APX(TM) and Elements(TM) products have been sold-in for significant fall programs,” continued Ward.
“In Activewear, the new program with Target is selling well. During the second half of the year, there will be significant new business at Dollar General with several of the Jerzees products. In December, we began shipping a major new Artwear distributor, which will add significant sales in 2004. During the quarter, Russell's positive momentum in Artwear resulted in substantial unit sales increases versus prior year for t-shirts, fleece and sport shirts,” added Ward.
For the remainder of 2004, Russell expects:
- Second quarter earnings to range between $.12 and $.18 per share.
- Third quarter earnings to range between $.72 and $.81 per share.
- Fourth quarter earnings to range between $.54 and $.59 per share.
We are concluding our evaluation of the provisions of the Financial Accounting Standards Board Interpretation No. 46 for “variable interests” held in entities that were acquired prior to February 1, 2003. We are showing the principal effects of the consolidation of Frontier Yarns, LLC, our yarn spinning joint venture, as of April 4, 2004 through a footnote to our consolidated balance sheets. The consolidation of this entity would not have any impact on our first quarter net income and it is not anticipated that it would have any significant impact on our reported net income in future periods.
RUSSELL CORPORATION
Consolidated Statements of Income
(Dollars in Thousands Except Share and Per Share Amounts)
13 Weeks 13 Weeks
Ended Ended
4/4/04 4/6/03
(Unaudited) (Unaudited)
Net sales $251,793 $227,983
Cost of goods sold 187,160 165,162
Gross profit 64,633 62,821
Selling, general and
administrative expenses 56,292 49,378
Other expense - net 324 714
Operating income 8,017 12,729
Interest expense 7,187 7,167
Income before income taxes 830 5,562
Provision for income taxes 299 2,114
Net income $531 $3,448
Weighted-average common shares
outstanding:
Basic 32,546,574 32,208,425
Diluted 32,834,510 32,416,133
Net income per common share:
Basic $0.02 $0.11
Diluted $0.02 $0.11
Cash dividends per common share $0.04 $0.04
