The Warnaco Group, INc. reported net revenues increased 13% to $662.2 million for the quarter ended April 2, 2011, compared to the prior year period, with all three segments (Sportswear, Intimates and Swimwear) reporting double digit growth.


The companys international businesses grew 19% compared to the prior year quarter. Asia, and Latin America led the growth, each reporting net revenue increases in excess of 30% compared to the prior year quarter. Direct-to-consumer net revenues grew 36% compared to the prior year quarter, powered by the addition of retail space and an 8% increase in comparable store sales. The Companys Heritage (non-Calvin Klein) businesses achieved 11% net revenue growth compared to the prior year quarter, including double digit growth for both Chaps and Speedo, partially offset by a slight drop in Core Intimates.

Gross profit increased 10% to $295.1 million compared to the prior year quarter, and gross margin decreased 80 basis points to 45% of net revenues. Internationally, higher gross margins in Asia and Latin America, more than offset a decline in European gross margins. Domestically, increased customer allowances, channel mix and, to a lesser extent, the effects of higher product costs, particularly in the Sportswear segment, pressured gross margins.


SG&A expense increased 20% to $222.6 million compared to the prior year quarter and from 31% of net revenues in 2010 to 34% of net revenue in 2011. The 220 basis point increase reflects incremental selling and distribution costs in connection with the continued expansion of the Companys direct-to-consumer business (approximately $24 million), planned investments in marketing (approximately $3 million) and infrastructure investment (approximately $2 million), as well as incremental restructuring expense (approximately $5 million) related to the ongoing integration of the Companys international and domestic operations. The effects of fluctuations on foreign currencies resulted in a $4.5 million increase in SG&A expense.


Operating income was $69.7 million, or 10.5% of net revenues, compared to $79.5 million, or 13.5% of net revenues, in the prior year quarter. And, income from continuing operations was $44.5 million, or $0.98 per diluted share, compared to $48.3 million, or $1.03 per diluted share, in the prior year quarter.


On an adjusted, non-GAAP basis (excluding costs related to restructuring expenses, pension expense, tax related items and other items), income from continuing operations was $ 49.8 million, or $1.10 per diluted share, compared to $51.1 million, or $1.09 per diluted share, in the prior year period.


The effect of fluctuations in foreign currency exchange rates for the quarter increased net revenues by $9.8 million compared to the prior year quarter and had no material effect on income per diluted share from continuing operations. An additional discussion regarding the effects of fluctuations in foreign currency exchange rates on operating results can be found in the Companys Form 10-Q, for the quarter ended April 2, 2011, which is being filed with the Securities and Exchange Commission.


Balance Sheet


Cash and cash equivalents at April 2, 2011 were $174.1 million compared to $157.5 million at April 3, 2010 and the Company remained net cash positive (cash net of short and long term debt). During the quarter, the Company used $29.1 million to purchase 561,000 shares of its common stock.


Inventories were $364.3 million at April 2, 2011 up $97.1 million compared to $267.2 million at April 3, 2010. The inventory increase consists of approximately $47 million related to the Companys significant expansion of its direct-to-consumer business (including retail openings planned for the second quarter), $35 million to support growth in the overall wholesale business, an additional $15 million of inventory in-transit (intended to partially mitigate cost increases). The total increase in inventory includes $9 million due to the higher cost of product, and $12 million due to fluctuations in foreign currency exchange rates. The Company remains comfortable with the quality of its inventory and expects a more normalized inventory level as we go into the second half of the year. 
















































































































































































































































































































































































































































THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, excluding per share amounts)
(Unaudited)
 
Three Months Ended
 
April 2, 2011 April 3, 2010
 
 
Net revenues $ 662,161 $ 588,164
Cost of goods sold   367,023     321,046  
Gross profit 295,138 267,118
Selling, general and administrative expenses 222,637 184,973
Amortization of intangible assets 3,159 2,668
Pension expense   (312 )   (21 )
Operating income 69,654 79,498
Other loss (income) (644 ) 1,820
Interest expense 2,696 4,978
Interest income   (746 )   (1,006 )
Income from continuing operations before provision
for income taxes and noncontrolling interest 68,348 73,706
Provision for income taxes   23,816     25,394  
Income from continuing operations before noncontrolling interest 44,532 48,312
Loss from discontinued operations, net of taxes   (501 )   (337 )
Net income   44,031     47,975  
 
Basic income per common share:
Income from continuing operations $ 1.00 $ 1.05
Loss from discontinued operations   (0.01 )   (0.01 )
Net income $ 0.99   $ 1.04  
 
Diluted income per common share:
Income from continuing operations $ 0.98 $ 1.03
Loss from discontinued operations   (0.01 )   (0.01 )
Net income $ 0.97   $ 1.02  
 
Weighted average number of shares outstanding used in
computing income per common share:
Basic   43,891,868     45,418,865  
Diluted   44,790,731     46,417,053