Warnaco Group's Swimwear Group, which includes Speedo, reported net revenues decreased 5% in the first quarter to $95.9 million and decreased
1% on a constant currency basis. Swimwear Group operating income was
$12.6 million, or 13% of Swimwear Group net revenues, compared to $14.8
million, or 15% of Group revenue, in the prior year period. Group
results were adversely affected by currency exchange rates and delayed
deliveries in its Calvin Klein swim business. Speedo,
however, leveraged its leadership position and recorded a 1% increase in
revenues and a 120 basis point improvement in operating margin.
Overall, net revenues for Warnaco Group rose 6% on a constant currency
basis. Double digit growth, in constant currency, in the companys
Calvin Klein businesses was the primary contributor to the positive
results. On a reported basis however, net revenues for the Companys
Calvin Klein businesses fell 5% and total company net revenues fell 5%
to $538.4 million. The quarter benefited from an incremental $25.3
million of sales to certain domestic channels, reflecting both a shift
in timing from later quarters as well as expanded penetration.
Gross margin decreased 290 basis points to 42% of net revenues. Gross
margin was adversely affected by currency exchange rates and a more
promotional environment.
SG&A expense declined 19% to $158.8 million. SG&A as a percent of net
revenues decreased 510 basis points to 29% of net revenues. The decrease
reflects the effects of currency exchange rates as well as the initial
benefits of the companys previously announced expense reduction
initiatives.
Operating income increased 15% to $64.1 million compared to $55.7
million in the prior year quarter. Operating income for the first
quarter of fiscal 2009 and 2008 was adversely affected by $9.1 million
and $20.1 million, respectively, of restructuring charges and pension
expense. On an adjusted basis (excluding costs related to restructuring
expenses, pension expense, certain tax related items and other items)
operating income was $73.2 million compared to $75.5 million in the
prior year period, due primarily to the effects of currency exchange
rates.
The company recorded income from continuing operations of $38.5 million,
or 83 cents per diluted share, compared to $7.0 million, or 15 cents per
diluted share, in the prior year period. Income from continuing
operations for the first quarter of fiscal 2008 included an initial tax
charge of $19.5 million, or 42 cents per diluted share, related to the
repatriation of proceeds connected to the sale of the companys Lejaby
business.
Income from continuing operations, on an adjusted basis (excluding costs
related to restructuring expenses, pension expense, certain tax related
items and other items), as detailed in the accompanying schedules, was
$1.00 per diluted share compared to 94 cents per diluted share in the prior
year period.
The impact of foreign currency exchange rates decreased fiscal 2009
first quarter net revenues, gross profit, SG&A and operating profit by
approximately $60.9 million, $34.4 million, $20.4 million and $14.0
million, respectively, and decreased income from continuing operations
by approximately $0.20 per diluted share.
Sportswear Group net revenues fell 7% to $280.1 million and were up 6%
on a constant currency basis, which included the benefit of a shift in
timing of certain membership club shipments. Sportswear Group operating
income was $38.3 million, or 14% of Sportswear Group net revenues,
compared to $22.1 million, or 7% of Group net revenues in the prior year
period (which included a charge of $18.5 million related to the
Companys transfer of the Calvin Klein Collection License business).
Domestically, both Chaps and Calvin Klein Jeans recorded gains in
profits compared to the prior year period. However, reported results in
the international Calvin Klein sportswear businesses were adversely
affected primarily by currency exchange rates and the softening in the
economy.
Intimate Apparel Group net revenues decreased 3% to $162.4 million and
increased 8% on a constant currency basis. Intimate Apparel Group
operating income was $29.4 million, or 18% of Intimate Apparel Group net
revenues, down compared to $32.3 million, or 19% of Group net revenues
in the prior year quarter. Calvin Klein Underwear benefited from ongoing
direct-to-consumer expansion, strong international performance and the
timing of shipments to the value channel in the U.S., partially offset
by the adverse effects of currency exchange rates. The Core brands were
negatively affected due to reduced shipments when compared to last year
resulting from fixture roll out and door expansion in 2008. However,
increases in sales at retail resulted in market share gains for the Core
brands.
Joe Gromek, Warnacos President and Chief Executive Officer, commented,
“We are very pleased with our first quarter results. Our business model,
predicated on powerful brands, global diversification and disciplined
execution, continues to demonstrate strength and resiliency in a
challenging global environment. First quarter revenues, in constant
currency, increased as we continued to capitalize on the growth
opportunities for our Calvin Klein businesses. Earnings from continuing
operations increased, driven by positive comparable store sales,
continued direct-to-consumer growth and geographic expansion in our
Calvin Klein business. Earnings also benefited from the actions we have
taken to align our costs with todays economic realities and a more
efficient business model.”
“As we look forward, we remain committed to our long-term strategies of
growing the Calvin Klein business, expanding internationally and
broadening our direct-to-consumer platform. We are continuing to invest
in our retail initiative as we seek to accelerate revenue and market
share growth. At the same time, we remain focused on controlling
expenses and managing inventory and receivables. We are confident that
the strength of the Calvin Klein brand and the powerful global platform
we have developed to support our Calvin Klein business will enable us to
gain market share and create long-term shareholder value,”
concluded Gromek.
Cash and cash equivalents at April 4, 2009 were $122.1 million compared
to $138.0 million at April 5, 2008. At quarter-end, the Company had
approximately $52.0 million drawn on its U.S. revolving credit facility,
which it expects to pay down by mid-year. Additionally, the Companys
net debt (total debt net of cash and cash equivalents) at quarter-end
was $166.1 million.
Inventories were $316.2 million at April 4, 2009, a 2% decline, compared
to $321.0 million at April 5, 2008.
Accounts receivable were $362.5 million at April 4, 2009, up 1% compared
to $357.6 million at April 5, 2008, due primarily to timing. The vast
majority of the Companys receivable balance is current and days of
sales outstanding (DSO) in accounts receivable are down by two days
compared to prior year levels.
Fiscal 2009 Outlook
Based on our results to date, the Company is refining its 2009 earnings
outlook. For fiscal 2009, on an adjusted basis (excluding restructuring
expense, certain tax related items and assuming minimal pension expense):
-
The Company now anticipates net revenues will decline 9% – 12%,
primarily as a result of the impact of foreign currency exchange rates -
Based on recent currency exchange rates, the Company now expects
diluted earnings per share from continuing operations in the range of
$2.50 – $2.66 -
The Companys prior guidance was for net revenue declines in the range
of 9% – 14% and diluted earnings per share from continuing operations
of $2.40 – $2.66 per diluted share.
The accompanying tables provide a reconciliation of expected diluted
earnings per share from continuing operations, on a GAAP basis (and
based on recent currency exchange rates) of $2.25 – $2.38 per diluted
share (assuming minimal pension expense), to the adjusted fiscal 2009
outlook above.
