The Warnaco Group second quarter net revenues increased to $332.1 million compared to $319.3 million for the second quarter of fiscal 2003. The Company saw solid revenue gains in both its Swimwear and Sportswear Groups,
which were partially offset by a decline in Intimate Apparel Group net revenues.
Calvin Klein jeans reported notable revenue and income gains as
compared to last year and Chaps® continued the positive performance recorded
in the first quarter. In the Intimate Apparel Group, Calvin Klein®
underwear net revenues rose as compared to the prior year period. The
Company's Olga® and Warner's® brands remain challenged, with management
working to reposition these brands.
Gross profit was $103.4 million, or 31.1% of net revenues, for the second
quarter of fiscal 2004 compared to $90.3 million, or 28.3% of net revenues,
for the second quarter of fiscal 2003. Improved full-price retail selling
contributed to the 280 basis point improvement in gross profit margin.
Selling, general and administrative expenses were $89.2 million, or 26.9%
of net revenues, for the second quarter of fiscal 2004 compared to
$88.4 million, or 27.7% of net revenues, for the second quarter of fiscal
2003. The Company continues to invest in the marketing of new and existing
brands. During the second quarter, the Company allocated an incremental
$1.8 million in total marketing spend over the prior year period to support,
among other efforts, ongoing Calvin Klein jeans, Lejaby® and Speedo®
campaigns as well as the launches of Choice Calvin Klein(TM), Sensual
Support(TM) and Chaps denim.
Restructuring expenses for the second quarter of fiscal 2004 were
$1.1 million, primarily related to continued activities associated with the
closure and consolidation of certain facilities as well as the sale of the
Company's intimate apparel manufacturing facility in Honduras in January 2004
and the March 2004 sale of the Company's San Luis, Mexico intimate apparel
manufacturing facility. This compares to $6.0 million in restructuring
expenses for the second quarter of fiscal 2003 associated with the
consolidation of manufacturing and distribution operations as part of the
Company's plan of reorganization. The results for the second quarter of
fiscal 2003 were negatively affected by $5.9 million of amortization of sales
order backlogs recorded in connection with fresh start accounting. There was
no comparable amortization expense in the second quarter of fiscal 2004.
Net income increased to $4.4 million for the second quarter of fiscal 2004
compared to a net loss of $9.0 million for the second quarter of fiscal 2003,
primarily as a result of increased net revenues and lower restructuring and
amortization expenses in the current quarter.
Financial data as of and for the three and six month periods ended July 3,
2004 and July 5, 2003 can be found on Schedules 1, 1.1, 2 and 3 to this
release.
-- Net revenues increased 4.0% to $332.1 million compared to
$319.3 million for the second quarter of fiscal 2003.
-- Operating income rose to $12.8 million from an operating loss of
$10.0 million in the prior year quarter.
-- Net income was $4.4 million, or $0.10 per diluted share, as compared
to a net loss of $9.0 million, or $0.20 per diluted share, for the
second quarter of fiscal 2003.
-- Cash and cash equivalents increased to $162.7 million at July 3, 2004
from $65.9 million at July 5, 2003.
“We are pleased with the results reported today,” said Joe Gromek,
President and Chief Executive Officer. “Our second quarter performance
reflects the success of the ongoing implementation of our long-term strategic
plan to position Warnaco for sustainable growth. Of particular note during
the quarter were the double-digit revenue gains posted by the Sportswear Group
and the 280 basis point improvement in the Company's gross profit margins over
the prior year's quarter. Our addition of Helen McCluskey as Group President,
Intimate Apparel highlights Warnaco's continued commitment to a premier
management team dedicated to improving and growing the business.”
Mr. Gromek continued, “As we look ahead, we are pleased with the direction
and momentum of our business and see further opportunity to build upon our
core strengths in sportswear, intimate apparel and swimwear through brand
extensions, new license opportunities and strategic acquisitions. The recent
licensing agreement with Michael Kors® for swimwear, as well as our recent
brand extensions for Calvin Klein underwear, are representative of the
opportunities we see for Warnaco.”
The Company noted the following balance sheet highlights as of July 3,
2004:
Cash and cash equivalents increased to $162.7 million from $65.9 million
at July 5, 2003. A reduction in inventories and improved collection of
receivables contributed to the improved cash position.
Inventories declined $45.7 million, or 16.7%, to $228.3 million from
$274.0 million at July 5, 2003. This decline reflected improved inventory
management and the transition to a primarily sourced operating model.
Commenting on the results, Larry Rutkowski, Chief Financial Officer
stated, “Our strong balance sheet at quarter end demonstrates the
effectiveness of our efforts to streamline operations and drive efficiencies
through all areas of our business. We believe we have ample resources to
pursue our strategic growth objectives and to create the optimal
infrastructure to capitalize on the many opportunities we see for our
Company.”
“We continue to strive toward our three year goals, on balance and over
time, of: (i) modest near term revenue growth increasing in future years; (ii)
gross margin increases on average of 100 basis points annually; (iii)
competitive selling, general and administrative expense; and (iv) annual
double digit growth in operating margin percentage. Additionally, the
amendment to our credit agreement provides the Company with alternative uses
for our free cash,” Mr. Rutkowski added.
Subsequent Events
Earlier today, Warnaco announced the acquisition of Ocean Pacific Apparel
Corp. for $40.0 million and the assumption of $1.0 million in debt. The
acquisition, which is subject to regulatory approval and other customary
closing conditions, is expected to close during the third quarter.
Schedule 1
THE WARNACO GROUP, INC.CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands, excluding per share amounts)For the Three For the Three
Months Ended Months Ended
July 3, 2004 July 5, 2003
(Unaudited) (Unaudited)
(As Restated)(a)Net revenues $332,077 $319,318
Cost of goods sold 228,645 228,991Gross profit 103,432 90,327
Selling, general and administrative
expenses 89,169 88,433
Pension expense 329 --
Amortization of sales order backlog -- 5,902
Restructuring items 1,140 6,024Operating income (loss) 12,794 (10,032)
Other income 495 1,363
Interest expense, net 4,985 5,457Income from continuing
operations before provision (benefit)
for income taxes 8,304 (14,126)
Provision (benefit) for income taxes 3,874 (6,393)
Income from continuing operations 4,430 (7,733)
Income (loss) from discontinued operations,
net of income taxes 12 (1,297)Net income (loss) $4,442 $(9,030)
Basic and diluted income (loss) per
common share:
Income (loss) from continuing
operations $0.10 $(0.17)
Loss from discontinued operations -- (0.03)
Net income (loss) $0.10 $(0.20)Weighted average number of shares
outstanding used in computing income
(loss) per common share:
Basic 45,370,712 45,010,024Diluted 46,623,704 45,010,024
