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:

  • 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