Warnaco Group reported sales in its Swimwear segment, which includes Speedo as well as Calvin Klein swimwear, slid 2.0 percent in the fourth quarter, to $55.8 million from $59.8 million and was down 1.6 percent on a currency-neutral basis. Operating income in the segment improved 2.8 percent to $6.7 million from $1.6 million.
Overall, net revenues were up 4 percent to $614.7 million compared to the prior year quarter, primarily fueled by growth in the Company's Calvin Klein businesses. Net revenues from the Company's international businesses increased 4 percent compared to the prior year quarter, while the domestic business grew 5 percent. Direct-to-consumer net revenues increased 14 percent compared to the prior year quarter. Net revenues in the Company's Heritage (non-Calvin Klein) businesses decreased 5 percent, compared to the prior year quarter. Growth in the Company's Core Intimates business was offset by a decrease in the Company's Chaps(R) business, which resulted primarily from weaker demand in the moderate priced channel.
Gross margin increased 60 basis points compared to the prior year quarter, due in part to a greater proportion of sales in the Company's higher margin direct-to-consumer business compared to its wholesale business. SG&A expense as a percentage of net revenues decreased 60 basis points to 34 percent of net revenues. The Company incurred an operating loss of ($5.5) million, compared to operating income of $45.1 million (or 8 percent of net revenues) in the prior year quarter. Operating income for the fourth quarter of fiscal 2011 included $69.6 million of pension and restructuring expense (including a $35.2 million non-cash impairment charge associated with the expected transition out of the Company's European CK/Calvin Klein bridge business), compared to $8.6 million of pension and restructuring expense for the fourth quarter of fiscal 2010.
The loss from continuing operations was ($6.6) million (or ($0.16) per diluted share) compared to income from continuing operations of $28.0 million (or $0.61 per diluted share) in the prior year quarter. On an adjusted, non-GAAP basis (excluding costs related to restructuring expenses, pension expense, certain tax-related items and other items), income from continuing operations was $40.7 million (or $0.97 per diluted share) compared to $34.1 million (or $0.74 per diluted share) in the prior year period.
Fluctuations in foreign currency exchange rates during the quarter compared to the prior year quarter resulted in a decrease in reported net revenues of $6.3 million and an increase in reported income per diluted share from continuing operations of approximately $0.02.
Fiscal 2011 Highlights
Total Company
Net revenues increased 9.5 percent to $2.5 billion compared to the prior year. The Company's Calvin Klein net revenues were up 12 percent compared to the prior year, driven by international and direct to-consumer expansion. International net revenues were up 17 percent and direct-to-consumer revenues increased 28 percent. Gross margin declined 60 basis points compared to the prior year, reflecting the impact of increased product costs and challenging business conditions in both the U.S. and Europe. SG&A expense as a percentage of net revenues increased 60 basis points, due primarily to restructuring expense and continued investment in the Company's direct-to-consumer business.
The Company incurred $60.9 million of restructuring charges, of which $40.0 million were non-cash charges, primarily related to an impairment charge associated with the expected transition out of the Company's European CK/Calvin Klein bridge business. The affected bridge businesses, in the aggregate, incurred operating losses in each of the past two years.
Operating income was $181.5 million (or 7 percent of net revenues) for fiscal 2011 compared to $247.8 million (or 11 percent of net revenues) for fiscal 2010 and includes pension and restructuring expense of $87.7 million and $12.4 million, respectively.
The Company's effective tax rate was 21 percent for fiscal 2011 compared to 36 percent for fiscal 2010. The effective tax rate for fiscal 2011 includes approximately $19.0 million of net tax benefits, primarily related to the recognition of pre-2004 net operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from that country's taxing authority ($11 million) and a reduction in the reserve for uncertain tax positions in certain foreign jurisdictions ($7 million). The Company's adjusted, non-GAAP, effective tax rate was 32 percent for fiscal 2011 compared to 33 percent for fiscal 2010.
The Company's income from continuing operations fell to to $132.3 million (or $3.01 per diluted share) in fiscal 2011 compared to $147.8 million (or $3.19 per diluted share) in fiscal 2010. On an adjusted, non-GAAP basis (excluding costs related to restructuring expenses, pension expense, certain tax-related items and other items), income from continuing operations was $ 174.1 million (or $3.96 per diluted share) for fiscal 2011 compared to $165.5 million (or $3.57 per diluted share) in the prior year.
Fluctuations in foreign currency exchange rates in fiscal 2011 compared to fiscal 2010 resulted in an increase in reported net revenues of $59.0 million and a decrease in reported income per diluted share from continuing operations of approximately $0.12.
THE WARNACO GROUP, INC.
NET REVENUES AND OPERATING INCOME BY SEGMENT
(Dollars in thousands)
(Unaudited)
Net revenues: Three Months Ended Three Months Ended Increase / (Decrease) % Change Constant $ % Change (a)
December 31, 2011 January 1, 2011
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Sportswear Group $ 322,074 $ 316,655 $ 5,419 1.7% 3.0%
Intimate Apparel Group 236,814 217,871 18,943 8.7% 9.6%
Swimwear Group 55,831 56,966 (1,135) -2.0% -1.6%
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Net revenues $ 614,719 $ 591,492 $ 23,227 3.9% 5.0%
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Three Months Ended % of Group Net Revenues Three Months Ended January 1, 2011 % of Group Net Revenues
December 31, 2011
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Operating income (loss):
Sportswear Group (b), (c) $ (8,045) -2.5% $ 19,426 6.1%
Intimate Apparel Group (b), (c) 30,128 12.7% 28,565 13.1%
Swimwear Group (b), (c) 6,646 11.9% 1,577 2.8%
Unallocated corporate expenses (b), (c), (d) (34,193) na (4,470) na
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Operating income (loss) $ (5,464) na $ 45,098 na
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Operating income (loss) as a percentage of total net revenues
-0.9% 7.6%
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