The Warnaco Group, Inc. expects fiscal 2005 revenues to increase 5.7% to approximately $1.5 billion over fiscal 2004. The expected increase is less than the company's targeted high single-digit sales growth, primarily due to a decrease of higher margin swimwear sales in excess of $15 million during the fourth quarter of fiscal 2005, the majority of which is expected to be shipped during the first quarter of fiscal 2006; fewer than expected replenishment orders of intimate apparel, sportswear and denim product offerings; and the company's inability to timely deliver product to meet demand for certain intimate apparel product offerings.
Primarily as a result of the above-mentioned loss of certain higher margin sales and, to a lesser extent, additional end-of-season markdowns, gross profit as a percentage of net revenues is expected to improve less than the targeted 100 basis points from the prior year. Selling, general and administrative expenses as a percentage of net revenues are expected to be comparable or slightly above the prior year, and the company expects that growth in operating income as a percentage of net revenues will be less than the targeted double digit improvement. The company notes that it expects that reported operating income will include pension expense of approximately $2 million in the full year fiscal 2005 results (substantially due to adjustments to actuarial assumptions) as compared to $6.2 million of pension income recorded in fiscal 2004.
“Although these preliminary results demonstrate improvement over the prior year, we are nonetheless disappointed that we did not reach all of our financial goals for 2005,” said Joe Gromek, Warnaco's president and CEO. “We expect to end the year with a strong balance sheet. Cash and cash equivalents should approximate $150 million and we believe inventories at year end will be below last year's levels. Moreover, our brands are performing to our expectations at retail, and we are enthusiastic about our new fall introductions, including Perfectly Fit and 365 from Calvin Klein underwear. We also believe that actions taken throughout fiscal 2005, including further diversification of our distribution channels and development of our in-house global sourcing team, have set the foundation for future success.”
Mr. Gromek continued, “Looking forward to 2006, for our existing businesses, we would anticipate (i) revenue growth similar to 2005, (ii) a gross margin increase of at least 100 basis points, and (iii) double-digit growth in our operating margin percentage (assuming minimal pension expense in 2006).”
Mr. Gromek concluded, “We expect that our agreement to acquire the Calvin Klein jeans and certain related businesses in Europe and Asia will build on our existing foundation and accelerate growth. Assuming the acquisition closes on January 31, 2006, we would then expect (i) revenue growth in 2006 to be at least in the low 20 percent range, (ii) double digit improvements in the operating margin percentage over the prior year (assuming minimal pension expense in 2006), and (iii) the transaction to be accretive to our earnings per share.”
