Russell Corporations Russell Athletic division looked to acquisitions once again to post any type of growth for the fourth quarter of 2003. Sales for the division without the Spalding and Bike Athletic acquisitions last year would have been down about 16% from the year-ago quarter to approximately $85 million. With the acquisitions reported in the numbers, Russell Athletic posted an 18.6% increase in sales to $98.0 million for Q4.
The company said sales were impacted by “lower volumes” in the “retail and team businesses”, but the biggest issue for the division appeared to be the slowdown in fleece sales. The company never recovered from a warmer start to the fall season that saw fleece sales suffer. The weather turned cold too late to fuel any significant fill-in business in Q4, but they may be seeing some upside in early 2004.
Mass Retail sales were down 84.7% to $85.9 million in the fourth quarter. The issue here was again poor fleece sales, coupled with a retailer shift to carrying lower inventories and a planned reduction in Mossy Oak sales to Kmart.
Artwear/Careerwear sales were down 6.6% to $95.0 million, reflecting the ongoing price deflation of the blanks business in the sector.
Despite the issues with the fleece business, RML said they increased market share in the category by 100 basis points to 42%, based on the most recent S.T.A.R.S. report. They also claim a 51% share in blended fleece. T-shirt share declined one full percentage point to 11% for the quarter, but 50/50 blended tees picked up a point to 35% of the market. Total share of the Sport Shirt market was flat at 25% in the quarter, but the Jerzees brand increased one share point to 22% for the quarter.
The company said it added a “major new distributor” at year-end and also expanded product lines at both Broder Bros. and Alpha Shirt.
The International business grew 3.2% to $23.4 million, which reflected a positive impact of the weaker dollar.
Total fourth quarter Corporate sales were down 2.0% to $302.4 million versus $308.4 million in the year-ago quarter. Gross margin improved by 30 basis points for the quarter to 30.2% from 29.9% in Q4 2002. Net income was flat at $14.5 million, or 44 cents per diluted share. The 2003 fourth quarter saw a non-recurring favorable tax benefit of $2.6 million, or 8 cents a share and pre-tax charge of $5.9 million, 12 cents per share, due to its planned expense and staff reductions. Without the benefit or charge, net income would have been up 9.7% to $15.9 million, or 48 cents per diluted share.
Inventories, minus the impact of the acquisitions, were still up 5.9% at year-end. Chairman and CEO Jack Ward said that inventories are $20 million to $30 million higher than he would like to see them.
The write-down and sell-off of the inventory is expected to cost the company between $2.5 million and $3.0 million, or 5 cents to 6 cents a share, a charge that will be taken in the first half of the year.
“During the quarter, we aggressively reduced costs in all areas of our business, which enabled us to be at the high end of our earnings guidance,” said Jack Ward, chairman and chief executive officer. “However, our top-line was softer than anticipated, principally as a result of key customers continuing to reduce their inventories and poor weather conditions impacting fleece sales.”
Looking ahead, management said team sales in January have been “fairly positive” and is reporting “some good improvements across the board” for the month versus a “reasonably weak November and December”.
Due to higher cotton prices, the company instituted price increases in the Artwear/Careerwear channel that came in around 5% to 7% depending on style. However, they are also seeing a “significant amount of dealing going on”, which they said they are matching.
RML is forecasting 2004 net income to be in the range of $1.40 to $1.60 per share sales to be in the range on sales of $1.26 billion to $1.30 billion, or a sales increase of 6.2% to 9.6%. Roughly half of the sales increase is expected to come from the acquisitions and a quarter is based on new product introductions like Sweatless Sweats, Dri-Power and other products. Fiber costs are expected to be 25% to 30% higher than 2003. First quarter earnings are estimated to be in the range of 6 cents to 10 cents per share. RML earned 11 cents per diluted share on sales of $228 million in the first quarter last year.
