The Warnaco Group Inc. said its swimwear group's sales grew 1.3% in the fourth quarter, to $84 million from $83 million a year ago. Operating income in the segment, which includes Speedo, fell to $8.4 million from $12.5 million, reflecting losses related to the sale of Ocean Pacific.
Last November, Warnaco sold the trademarks and certain other assets of its Ocean Pacific business to Iconix Brand Group Inc. for a total consideration of $54 million. The company still was granted a license to design, source, manufacture, market and distribute Ocean Pacific womens and junior swimwear for an initial term of three years.
In the full year, profits in the swimwear group fell to $18.7 million from $35.6 million. Revenues increased 2.3% to $388.9 million from $380 million. Warnaco also makes swimwear under Anne Cole, Cole of California, Catalina, Michael Kors and Nautica.
Overall, Warnaco Group reported fourth quarter revenues increased 35.6% to $480.6 million from $354.5 million a year ago. The gain was due primarily to the acquisition of CKJEA, which operate the wholesale and retail businesses of Calvin Klein jeanswear and accessories in Europe and Asia and the CK Calvin Klein bridge line of sportswear and accessories in Europe. Warnaco also saw growth in its Calvin Klein Underwear and the North American Calvin Klein Jeans business. Net revenues for the fourth quarter benefited by approximately $6.0 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005.
Net income was $18.9 million, or 41 cents a share, compared to $6.9 million, or 15 cents per diluted share, in the prior year quarter.
Gross profit was $184.3 million, or 38.3% of net revenues, compared to $122.9 million, or 34.7% of net revenues, for the fourth quarter of fiscal 2005. Gross profit margin was driven by strong consumer demand and a shift in mix favoring higher margin channels of distribution, including international and direct to consumer. In particular, the company's Calvin Klein Underwear division recorded a 320 basis point improvement in gross profit margin and the North American Calvin Klein Jeans business reported a 1500 basis point improvement. Gross profit benefited by approximately $3.1 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005.
Selling, general and administrative (“SG&A”) expenses were $142.3 million compared to $101.6 million in the fourth quarter of fiscal 2005. As a percentage of net revenues SG&A was up 90 basis points to 29.6%. Excluding the $36.8 million of SG&A expense related to CKJEA, SG&A as a percentage of net revenues was down more than 200 basis points, driven by disciplined expense control. SG&A was negatively affected by approximately $2.2 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005.
Operating income in the fourth quarter was $41.1 million compared to $19.1 million in the fourth quarter of fiscal 2005. Operating income for the fourth quarter of fiscal 2006 includes $1.8 million of pension income compared to $0.9 million of pension expense for the fourth quarter of fiscal 2005. Operating income benefited by approximately $0.8 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005.
Warnaco said losses from discontinued operations (net of taxes) were $6.3 million, or 14 cents per share, in the quarter compared to $2.3 million, 5 cents, in the fourth quarter of fiscal 2005. Income from continuing operations was $25.1 million, or 55 cents, compared to $9.2 million, or 20 cents, a year ago.
In the full year, net revenues increased 35.6% to $480.6 million compared to $354.5 million in the fourth quarter of fiscal 2005. The CKJEA businesses contributed $314.2 million to revenue and Calvin Klein Underwear revenues grew in excess of 18%. The gains were partially offset by revenue declines in Chaps and the North American Calvin Klein Jeans business. Net revenues for the year benefited by approximately $9.0 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to fiscal 2005.
“We finished the year on a high note led by the performance of our Calvin Klein businesses which collectively surpassed one billion dollars in revenues for fiscal 2006,” said Joe Gromek, Warnaco's president and CEO. “During the year, we focused on executing our strategic business initiatives, namely innovative product extensions, geographic expansion and direct to consumer development. We successfully integrated the acquisition of the Calvin Klein Jeans and related businesses in Europe and Asia, expanded our regional and country platforms, and continued to develop a world class sourcing operation. At the same time, we remained disciplined in the assessment of Warnaco's portfolio of brands and focused on – and continue to focus on – the opportunities that we believe present our shareholders the greatest revenue and profit potential.”
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, excluding per share amounts)
Fourth Fourth
Quarter of Quarter of
Fiscal 2006 Fiscal 2005
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(Unaudited) (Unaudited)
Net revenues (a) $ 480,567 $ 354,490
Cost of goods sold 296,295 231,604
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Gross profit (b) 184,272 122,886
Selling, general and administrative
expenses (c) (d) 142,267 101,623
Amortization of intangible assets (e) 2,531 1,221
Pension expense (income) (d) (1,774) 892
Restructuring expense 191 21
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Operating income (f) 41,057 19,129
Other income 431 288
Interest expense, net (g) 9,069 4,382
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Income from continuing operations before
provision for income taxes 31,557 14,459
Provision for income taxes 6,412 5,248
------------- -------------
Income from continuing operations 25,145 9,211
Loss from discontinued operations, net of
taxes (h) 6,260 2,346
------------- -------------
Net income $ 18,885 $ 6,865
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Basic income per common share:
Income from continuing operations $ 0.56 $ 0.20
Loss from discontinued operations (0.14) (0.05)
------------- -------------
Net income $ 0.42 $ 0.15
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Diluted income per common share:
Income from continuing operations $ 0.55 $ 0.20
Loss from discontinued operations (0.14) (0.05)
------------- -------------
Net income $ 0.41 $ 0.15
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Weighted average number of shares
outstanding used in computing income per
common share:
Basic 45,044,744 46,072,545
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Diluted 46,055,486 46,965,613
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