The Warnaco Group, Inc. first quarter ended March 31, 2007 net revenues rose 20.7% over the prior year quarter. Operating margin increased 350 basis points to 11.6% of net revenues and net income increased by 52 cents to 82 cents per diluted share.
“Our business is off to a very good start, with improved results in our key operating metrics,” stated Joe Gromek, Warnaco's President and Chief Executive Officer. “Total net revenues rose over 20% and on a comparable basis (excluding the January 2007 results of the international Calvin Klein® business, which was acquired on January 31, 2006) were up over 13%, driven by gains in all three segments with notable strength from our worldwide Calvin Klein businesses. Our international revenues grew to over 48% of our total business and our direct-to-consumer revenues climbed four percentage points to 14%. Additionally, our gross margin increase was driven by sourcing and supply chain efficiencies as well as the mix of business generated from our higher margin international and direct-to-consumer businesses. This, along with disciplined cost control, contributed to a significant increase in operating profit.”
Mr. Gromek concluded, “Looking forward, we remain optimistic. We are a global enterprise with a portfolio of powerful brands, serving multiple geographies and channels. We are strategically directing our resources to support the growth of our businesses with the greatest long-term potential and have initiatives in place to address our underperforming businesses. We remain focused on enhancing shareholder value and look forward to continuing our positive momentum throughout the year and beyond.”
Sportswear
Revenues for the Sportswear Group increased 40.2% to $235.4 million and operating income increased to $27.6 million, or 11.7% of Sportswear Group net revenues. It is important to note that the acquired international Calvin Klein business contributed three months of performance to the first quarter 2007 results, including $34.4 million of revenue for the one month ending January 2007, compared to two months of operations in the prior year quarter. In addition, a shift in timing of certain sales (which sales occurred in the first quarter of 2007 while comparable sales occurred in the second half of fiscal 2006) benefited both revenues and operating income at the Company's Calvin Klein jeans business.
Intimate Apparel
The Intimate Apparel Group's revenues rose 15.9% to $175.0 million and operating income increased to $29.5 million, or 16.8% of Intimate Apparel Group net revenues. The strong wholesale and retail performance at the Company's Calvin Klein underwear business was the major contributor to the Group's results, offsetting revenue and profit declines in its U.S. Core brands which were in part due to higher sales in the prior year quarter associated with the launch of Olga® into Sears in January of 2006.
Swimwear
The Swimwear Group revenues were $136.8 million, an increase of 1.8%, and operating income was $19.0 million, or 13.9% of Swimwear Group net revenues. Speedo reported operating margins of 15.5% and remains the leader in competitive swim. While certain of the designer brands reported international growth, domestically the designer business remains challenged and the Company continues to evaluate various initiatives to improve the productivity and profitability of this business.
In light of the better than expected first quarter performance, for fiscal 2007, the Company now expects net revenues to grow 6% – 8% over fiscal 2006 levels and diluted earnings per share in the range of $1.75 – $1.85 (assuming minimal pension expense).
