The Warnaco Group, Inc. reported results for the first quarter ended April 2, 2005:
-
Net revenues rose 11.8% to $439.5 million, an increase of $46.3 million
over the first quarter of fiscal 2004; - Operating income climbed to $52.9 million, or 12.0% of net revenues,
compared to $43.2 million, or 11.0% of net revenues, for the first
quarter of fiscal 2004; - Net income increased 45.1% to $29.4 million, or $0.63 per diluted share,
compared to $20.2 million, or $0.44 per diluted share, in the prior
year's first quarter.
“These results evidence a solid start to 2005. Revenues grew by nearly 12%, with contributions from each of our three Operating Groups,” stated Joe Gromek, Warnaco's president and chief executive officer. “Product successes from many of our leading brands, across multiple channels both domestic and international, drove top and bottom-line improvements. In addition, improved execution and cost controls contributed to a 23% increase in first quarter operating income.”
First Quarter Operating Highlights
Net revenues increased $46.3 million to $439.5 million for the first quarter of fiscal 2005 compared to $393.3 million for the first quarter of fiscal 2004, driven primarily by the Sportswear Group, with the expanded distribution of Chaps(R) and the continued strength of Calvin Klein(R) jeans. Intimate Apparel Group revenues increased 7.5% with significant contributions from Warner's(R) and Calvin Klein underwear. Swimwear Group revenues were up slightly, with gains from Ocean Pacific(R) and Calvin Klein swimwear in Europe offset by lower sales of other Designer swimwear brands and Speedo(R). The increase in net revenues for the first quarter of fiscal 2005 includes approximately $7.0 million related to the translation of foreign currencies, primarily as a result of a stronger euro and Canadian dollar relative to the first quarter of fiscal 2004.
Gross profit was $157.0 million, or 35.7% of net revenues, for the first quarter of fiscal 2005 compared to $141.5 million, or 36.0% of net revenues, for the first quarter of fiscal 2004. Gross profit for the first quarter of fiscal 2005 was negatively affected by lower sales volumes at Speedo and Designer swimwear as well as investments in new product launches. The increase in gross profit in the first quarter of fiscal 2005 includes approximately $2.5 million related to the translation of foreign currencies, primarily as a result of a stronger euro and Canadian dollar relative to the first quarter of fiscal 2004.
Selling, general and administrative expenses were $103.9 million, or 23.6% of net revenues, for the first quarter of fiscal 2005 compared to $95.7 million, or 24.3% of net revenues, for the first quarter of fiscal 2004. SG&A expense reflects increased investments in marketing, most notably at Chaps and in new intimate apparel product launches. The increase in SG&A expense in the first quarter of fiscal 2005 includes approximately $1.5 million related to the translation of foreign currencies, primarily as a result of a stronger euro and Canadian dollar relative to the first quarter of fiscal 2004.
Operating income was $52.9 million compared to $43.2 million for the prior year period. Higher revenues, lower SG&A as a percentage of net revenues and fewer restructuring items contributed to better results.
Net income increased to $29.4 million, or 63 cents per diluted share, for the first quarter of fiscal 2005 compared to $20.2 million, or 44 cents per diluted share, for the first quarter of fiscal 2004. Income from continuing operations was $29.2 million, or 63 cents per diluted share, compared to $23.7 million, or 51 cents per diluted share, in the prior year quarter. Higher revenues, lower SG&A as a percentage of net revenues, fewer restructuring items and lower losses from discontinued operations contributed to improvements in net income in the first quarter of fiscal 2005.
Mr. Gromek continued, “For the remainder of 2005, we are focused on driving growth with new initiatives and expanded product offerings. This Summer, we will show the first full collections of Op swimwear and Op young men's and juniors' apparel developed by our in-house design team with delivery targeted for 2006.”
“We also continue to develop the infrastructure to support our initiatives.” Mr. Gromek concluded, “The recent hire of Dwight Meyer as president of global sourcing, demonstrates a commitment to building a world- class, global sourcing platform that is focused on manufacturing superior products in centers of excellence around the world as well as leveraging the scale of Warnaco's brands and improving margins.”
The company noted the following balance sheet highlights as of April 2, 2005:
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Cash and cash equivalents were $45.9 million at April 2, 2005 compared to $69.0 million at April 3, 2004. The company's acquisition of Ocean Pacific Apparel Corp. in August 2004 and increases in working capital affected the cash position.
- Accounts receivable rose 4.2% to $283.3 million at April 2, 2005 from $271.9 million at April 3, 2004 despite double digit increases in net revenues.
- Inventories at April 2, 2005 were $324.5 million compared to $241.2 million at April 3, 2004. The increase is the result of several factors including, among other things, a timing shift in the company's swimwear business and a planned inventory build up to address ongoing demand for its products, to improve service levels, and to contend with uncertainty relating to sourcing in certain countries of origin.
Commenting on the company's outlook, Larry Rutkowski, Warnaco's chief financial officer stated, “With the year off to a good start, we believe we are well positioned to achieve our financial targets. On a comparable basis, we continue to drive toward our three year goals, on balance and over time, of: (i) continued positive sales momentum with no less than high single digit growth; (ii) gross margin increases on average of 100 basis points annually; (iii) competitive SG&A expense; and (iv) annual double-digit growth in operating margin percentage.”
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, excluding per share amounts)
For the First For the First
Quarter Quarter
of Fiscal 2005 of Fiscal 2004
(Unaudited) (Unaudited)
Net revenues $439,541 $393,253
Cost of goods sold 282,533 251,756
Gross profit 157,008 141,497
Selling, general and
administrative expenses 103,885 95,671
Pension expense 200 331
Restructuring items 6 2,323
Operating income 52,917 43,172
Other (income) expense (91) (1,466)
Interest expense, net 5,034 5,165
Income from continuing
operations before
provision for income taxes 47,974 39,473
Provision for income taxes 18,748 15,771
Income from continuing
operations 29,226 23,702
Income (loss) from discontinued
operations, net of taxes 125 (3,478)
Net income $29,351 $20,224
Basic and diluted income (loss)
per common share:
Income from continuing
operations $0.64 $0.52
Loss from discontinued
operations - (0.07)
Net income $0.64 $0.45
Diluted income (loss) per
common share:
Income from continuing
operations $0.63 $0.51
Loss from discontinued
operations - (0.07)
Net income $0.63 $0.44
THE WARNACO GROUP, INC.
NET REVENUES AND OPERATING INCOME BY BUSINESS UNIT
(Dollars in thousands)
(Unaudited)
For the First For the First
Quarter of Quarter of %
Net revenues: Fiscal 2005 Fiscal 2004 Increase Change
Intimate Apparel
Group $ 151,775 $ 141,182 $ 10,593 7.5%
Sportswear Group 130,363 96,803 33,560 34.7%
Swimwear Group 157,403 155,268 2,135 1.4%
Net revenues $ 439,541 $ 393,253 $ 46,288 11.8%
For the % For the %
First Quarter of Total First Quarter of Total
of Fiscal Net of Fiscal Net
2005 Revenues 2004 Revenues
Operating income:
Intimate Apparel
Group $ 15,050 $ 13,199
Sportswear
Group 19,416 12,337
Swimwear Group 38,061 36,900
