Swimwear sales at Warnaco Group fell 5.2% in the first quarter, to $107.2 million from $113.1 million, reflecting the discontinuance and sale of brands. Operating earnings fell 9.9% to $14.8 million from $16.2 million, or 14.3%, a year ago. The latest quarter included $2 million in restructuring charges including $1 million for brands it intends to classify as discontinued operations by June 2008 – versus $666,000 a year ago.
On a conference call, Helen McCluskey, who has been heading Warnaco's swimwear business since June 2007, said swimwear sales from continuing operations Speedo and Calvin Klein swimwear grew 4% with operating income gained 2%.
“Growth in the quarter was driven by Calvin Klein swimwear, which increased substantially in Europe,” said McCluskey. “Speedo revenue was comparable to last year.”
Operating margin, at nearly 20%, was impacted by its exit from owned manufacturing and the timing of favorable variances that occurred in Q107. She said this will not be as significant in subsequent quarters. Following the general direction of U.S. retail, the 2008 swim season “is off to a somewhat sluggish start,” but McCluskey expects the Olympics to spark the category.
In the short term, Warnaco's swimwear segment will focus its efforts on enhancing processes and inventory management to improve operating results. Although its growth expectations long-term are “relatively modest, we believe there is considerable potential to continue operating margin improvement,” said McCluskey. “2008 should be a positive first step toward that objective.”
Separately, TYR Sport last week filed a federal lawsuit alleging that Speedo had conspired with USA Swimming to stifle competition and lure top athletes away from other companies. Also named in the suit were the United States national team director, Mark Schubert; and the Olympic distance freestyler Erik Vendt, a former pitchman for TYR who recently switched to Speedo.
In documents filed in U.S. District Court for the Central District of California, TYR describes a climate in which elite athletes have been led to believe they cannot excel on the world stage unless they wear Speedos LZR suit. Among the allegations by TYR are that Speedo, USA Swimming and Schubert systematically “combined to engage in a campaign of falsely disparaging the products of Speedos competitors, including TYR, for the purpose of inducing competitive swimmers to refrain from doing business with Speedos competitors.”
TYR was particularly concerned that as a major sponsor, Speedo holds too much sway over USA Swimming. The suit also points to disparaging comments Schubert allegedly made about non-Speedo suits. The suit doesn't ask for specific damages but claims TYR has lost more than a half-million dollars because of its competitive disadvantage.
Speedo in a statement denied any wrongdoing. “While Warnaco generally does not comment on pending litigation, we think this lawsuit is without merit,” the company said. “Speedo for 80 years has been the leader in innovation. Speedo's goal has always been to help athletes achieve their personal best. We're pleased that swimmers, wearing the Speedo LZR Racer, have set 37 world records in the last three months.”
