The Warnaco Group, Inc. will undertake additional
restructuring initiatives in order to further lower costs and improve efficiency, icluding the closure of all remaining Speedo Authentic Fitness stores and the sale of the White Stag trademark to Wal-Mart. The company has also sold its Honduran production facility for intimate apparel and will downsize its European operations.
In order to better focus on its core Speedo(R) wholesale business, Warnaco said that it will close its remaining Speedo Authentic Fitness retail stores in the United States; however, the Company will continue to operate its e-commerce site located at www.SPEEDOUSA.com. The Speedo Authentic Fitness retail stores account for less than five percent of overall sales of Warnaco's Swimwear Group, which reported sales of $38.6 million in the most recent third quarter and $300.9 million in the nine-month YTD period.
The Company believes that the closure of these stores will allow its Swimwear Group to focus on maximizing organic growth and product extension opportunities in the wholesale sector, which has experienced approximately 20 percent growth in the first nine months of 2003. The Company expects the closures to begin in January 2004 and be completed by April 2004. The Company expects to convert certain of these existing retail stores to Calvin Klein underwear stores in 2004.
Separately, Warnaco announced that it has entered into an agreement to sell its White Stag(R) trademark to Wal-Mart Stores, Inc. Wal-Mart had licensed the trademark on an exclusive basis from Warnaco since 1993. Warnaco will continue to design the White Stag women's sportswear line at Wal-Mart's expense through 2006.
Under the terms of the sale agreement for the White Stag trademarks, Wal-Mart will pay Warnaco $10 million in cash
and an additional net present value of $18.7 million (at a discount rate of eight percent) in cash over the next three years. Warnaco will continue to design the White Stag women's sportswear line at Wal-Mart's expense and
will receive design incentive fees of no less than $3.6 million in the aggregate through 2006.
As part of Warnaco's ongoing strategy to source product from lower-cost third-party providers, the Company has entered into a binding agreement to sell its intimate apparel production facility in Honduras to an investor group led by the current manager of the operation. The Company noted that the agreement to sell the facility
will not include a long-term production commitment.
As a result of the sale and attendant reductions in U.S. payroll associated with the Company's manufacturing operations, Warnaco expects to realize annualized expense savings of over $5 million as well as reductions in
inventory of over $20 million and significant gross margin
improvements.
The Company also announced that it has commenced a consultation
process with employees associated with its Warner's(R) brand in the
United Kingdom and Europe to rationalize that organization. The
process is expected to conclude by fiscal year-end and may result in
significant job reductions.
Combined, the Company anticipates that these restructuring
initiatives will result in a total pre-tax restructuring charge of
between $18 million and $26 million. The Company expects that
approximately one-half of the total charges will be non-cash.
Joe Gromek, President and Chief Executive Officer of Warnaco, said, “We are committed to continually working to reduce costs, improve efficiency and enhance margins to enable our brands to compete more effectively. It is also important that we focus our energy and resources on the development and expansion of our core brands. We believe we are taking the right steps to accomplish these strategic
objectives.”
