Warnaco Group reported revenues in its Swimwear Group, which is largely Speedo, grew 6.7 percent in the third quarter, to $42.0 million from $39.3 million in the same period a year ago.
The group shrunk its operating loss in the period to $429,000 from $3.4 million a year ago.
Overall, Warnaco, which last week reached an agreement to be acquired by PVH, reported net revenues fell 5 percent, compared to the prior year period, to
$611.5 million and were flat in constant currency. An increase in
Swimwear Group net revenues, fueled by continued strength from Speedo,
was offset by declines in Sportswear and Intimate Apparel net revenues.
Challenging macro-economic conditions and the unfavorable effects of
fluctuations in currency exchange rates adversely affected the Company’s
Gross profit decreased 5 percent compared to the
prior year quarter, to $267.0 million, while gross margin increased 30
basis points to 44 percent of net revenues. A favorable product mix,
moderation of product costs and efficient execution contributed to the
improvement in gross margin.
SG&A expense decreased 7 percent
compared to the prior year quarter, to $197.8 million. As a percent of
net revenue, SG&A declined 60 basis points to 32 percent, benefiting
from disciplined expense control as well as the effects of fluctuations
in currency exchange rates.
Operating income was $66.7 million,
or 11 percent of net revenues, compared to $64.8 million, or 10 percent
of net revenues, in the prior year quarter.
continuing operations was $41.1 million, or $0.98 per diluted share,
compared to $48.8 million, or $1.13 per diluted share, in the prior year
quarter. Income from continuing operations for the third quarter of
fiscal 2011 includes a tax benefit of approximately $8.6 million,
primarily associated with a reduction in the reserve for uncertain tax
positions in certain foreign jurisdictions.
On an adjusted,
non-GAAP basis (excluding restructuring expenses, pension income, tax
related items and for the current quarter, acquisition costs relating to
the previously announced transaction with PVH Corp.), income from
continuing operations was $48.1 million, or $1.15 per diluted share,
compared to $46.1 million, or $1.07 per diluted share, in the prior year
The effective tax rate in the quarter was 35 percent
compared to 18 percent in the prior year quarter. The prior year quarter
benefited from the $8.6 million tax benefit described above. On an
adjusted, non-GAAP basis, the effective tax rate in the quarter was 32.7
percent; the prior year quarter’s effective tax rate (excluding the
$8.6 million tax benefit) was approximately 31 percent.
effect of fluctuations in foreign currency exchange rates for the
quarter resulted in a decrease in net revenues, gross profit and
SG&A by $30.7 million, $13.4 million and $13.2 million,
respectively, compared to the prior year quarter and had no material
impact on income from continuing operations. An additional discussion
regarding the effects of fluctuations in foreign currency exchange rates
on operating results can be found in the Company’s Form 10-Q, for the
quarter ended September 29, 2012, which is being filed with the
Securities and Exchange Commission.
“Our third quarter results reflect the efforts of our team to efficiently operate our global business,” said Helen McCluskey, Warnaco’s President and Chief Executive Officer. “Gross margin expansion and expense discipline more than offset a decline in net revenues, driven primarily by the impact of currency and macro challenges. As a result, we delivered an increase in operating margin and adjusted non-GAAP income per share from continuing operations compared to the prior year quarter.
“Internationally, net revenues in constant dollars were up slightly, led by growth in Latin America and Asia offsetting a slight decline in Europe. Our direct-to-consumer net revenues, in constant dollars, were up 5 percent and comparable store sales for the quarter were relatively flat. We saw some progress in Europe, where direct-to-consumer net revenues rose 6 percent, in constant dollars, including positive comparable store sales for the quarter.
“Looking forward, our reported 3Q results support our outlook for the balance of the year. As was announced last week, we entered into a merger agreement with PVH Corp. and look forward to the opportunities the transaction with PVH brings to our business. In the meantime, we intend to continue to operate the business effectively for the next several months as we work collaboratively with PVH to ensure a smooth integration,” concluded McCluskey.
Cash and cash equivalents at September 29, 2012
were $311.0 million, a 73 percent increase, compared to $179.3 million
at October 1, 2011. The Company ended the quarter in a $56.3 million net
cash positive position compared to a $78.0 million net debt position at
October 1, 2011.
Inventories at September 29, 2012 were $388.8
million, down $3.3 million (or 1 percent) compared to $392.1 million at
October 1, 2011. The Company remains comfortable with the quality of its
Fiscal 2012 Outlook
For fiscal 2012, based on recent foreign currency exchange rates, the Company continues to anticipate:
- Net revenues, on a reported basis, will be down 2 percent to flat compared to fiscal 2011; and
- Adjusted, non-GAAP, diluted income per share from continuing operations (excluding restructuring expense, pension expense the Lejaby impairment charge, and acquisition costs relating to the previously announced transaction with PVH Corp.) in the range of $4.00 – $4.15.
- Schedule 7 of the accompanying tables provides a reconciliation of anticipated diluted income per share from continuing operations, on a GAAP basis of $2.97- $3.00 per diluted share (assuming minimal pension expense/income), to the adjusted, non-GAAP fiscal 2012 outlook above.