The Warnaco Group reported revenues in its Swimwear segment, which includes Speedo, increased 2.5% in the year, to $257.7 million from $251.5 million a year ago and moved up 1.7% at constant exchange rates. Operating earnings grew 16.1% to $18.0 million from $15.5 million.

In the fourth quarter, Warnaco's swimwear revenues jumped 12.1% to $57.0 million and moved up 11.4% at constant currencies. Operating earnings declined 41% to $1.27 million from $2.2 million.

Overall, Warnaco Group, Inc. reported revenues in the fourth quarter were $591.5 million, up 17% from the prior year quarter. Net income surged 74.1% to $19.2 million, or 42 cents a share, from $11 million, or 23 cents, a year ago.


    * Gross margin decreased 80 basis points from the prior year quarter to 43% of net revenues
    * Selling, general and administrative (SG&A) expense increased 80 basis points to 34% of net revenues
    * Income per diluted share from continuing operations increased to $0.61 compared to $0.29 in the prior year quarter
    * Net income per diluted share increased to $0.42 compared to $0.23 in the prior year quarter
    * Income per diluted share from continuing operations on an adjusted, non-GAAP, basis increased 16% to $0.74 compared to $0.64 in the prior year quarter (both of which exclude restructuring expenses, pension expense, tax related items and other items)
    * The Company purchased 692,411 shares of its common stock for approximately $35.6 million pursuant to its share repurchase program

For the year:

    * Net revenues were $2.3 billion, up 14% from the prior year
    * Gross margin increased 160 basis points from the prior year to 44% of net revenues
    * SG&A expense increased 140 basis points to 33% of net revenues
    * Income per diluted share from continuing operations increased 46% to $3.19, compared to $2.19 in the prior year
    * Net income per diluted share increased to $2.99 compared to $2.05 in fiscal 2009
    * Income per diluted share from continuing operations on an adjusted, non-GAAP, basis increased 27% to $3.57 compared to $2.82 in fiscal 2009 (both of which exclude restructuring expenses, pension expense, certain acquisition costs and tax related items and other items)
    * Cash & cash equivalents were $191.2 million at January 1, 2011 compared to $320.8 million at January 2, 2010
    * The Company purchased 2.4 million shares of its common stock for approximately $116.4 million pursuant to its share repurchase programs and redeemed $160.0 million of its long-term debt
    * Net cash flow provided by continuing operations was $225.4 million

“Fiscal 2010 was another record year for Warnaco,” commented Joe Gromek, Warnaco's President and Chief Executive Officer. “The continued execution of our key strategies fueled a powerful revenue and earnings performance. Growth in our Calvin Klein businesses, including International, and expansion of our direct to consumer business together with a strong performance from our heritage businesses contributed to these solid results.

“During 2010, we further developed our Calvin Klein brand in existing geographies as well as in new markets, expanded our direct to consumer footprint and engaged consumers worldwide with innovative product offerings supported by memorable marketing campaigns. This led to a 14% increase in Calvin Klein revenues. Our International revenues grew 17% and increased to 56% of our total Company. We also recorded a 25% increase in our direct to consumer revenues, fueled by productivity gains in existing doors along with the addition of over 200,000 square feet of new retail space, a 31% increase compared to the prior year.”

“As we begin 2011,” continued Gromek, “we anticipate another year of solid revenue and earnings growth. Our retail business is off to a strong start, we are excited about the CK One launch across our portfolio of Calvin Klein properties, and the investments we have made in infrastructure and our new geographies have us poised for further global expansion. While we are clearly facing product cost and supply chain inflation, we believe our business model, anchored by our powerful Calvin Klein brand and our high margin International and retail operations, position us to address these challenges. We remain confident that the continued focus on our long-term growth initiatives will enable us to achieve our long-term goals and increased value for our shareholders.”

Fiscal 2011 Outlook

For fiscal 2011, on an adjusted, non GAAP, basis (excluding restructuring expense and assuming minimal pension expense) and based on recent exchange rates:

    * The Company anticipates net revenues will grow 7% – 9% compared to fiscal 2010 and
    * The Company anticipates adjusted, non GAAP, diluted earnings per share from continuing operations in the range of $3.85 – $4.05.

Schedule 7 of the accompanying tables provides a reconciliation of anticipated diluted earnings per share from continuing operations, on a GAAP basis, and based on 2010 average exchange rates, of $3.63- $3.77 per diluted share (assuming minimal pension expense), to the adjusted, non GAAP, fiscal 2011 outlook above.

Fourth Quarter Highlights

Total Company

Net revenues were up 17% to $591.5 million compared to the prior year quarter. The Company's international businesses grew 22% from the prior year quarter, driven by the continued expansion of its Calvin Klein and direct to consumer businesses. Worldwide Calvin Klein revenues grew 18% and comparable store sales in the Company's direct to consumer business increased 6%. The Company's Heritage (non-Calvin Klein) businesses achieved 14% net revenue growth compared to the prior year quarter, reflecting double digit growth in both Chaps® and Speedo®.

Gross margin decreased 80 basis points primarily due to lower domestic gross margins, resulting from increased dilution, higher sales to the off-price channel, and increased transportation expense. SG&A as a percent of net revenues increased 80 basis points to 34% of net revenues, and primarily reflects the growth of the Company's direct to consumer business and an incremental $7.5 million of marketing investment compared to the prior year quarter. Operating income was $45.1 million compared to $28.0 million in the prior year quarter. Operating income for the fourth quarter of fiscal 2010 was impacted by $8.6 million of pension and restructuring expense, compared to $20.3 million of pension and restructuring expense for the fourth quarter of fiscal 2009.

Income from continuing operations was $28.0 million, or $0.61 per diluted share, compared to $13.8 million, or $0.29 per diluted share, in the prior year quarter. On an adjusted, non-GAAP basis (excluding costs related to restructuring expenses, pension expense, certain acquisition costs, tax related items and other items), income from continuing operations was $ 34.1 million, or $0.74 per diluted share, compared to $30.1 million, or $0.64 per diluted share, in the prior year period.

The effect of fluctuations in foreign currency exchange rates for the quarter decreased net revenues by $3.9 million and increased income per diluted share from continuing operations by approximately $0.01.

Fiscal 2010 Highlights

Total Company

Net revenues increased 14% to $2.3 billion from the prior year. Our Calvin Klein revenues were up 14% fueled by continued international and direct to consumer growth. International revenues were up 16% and direct to consumer revenues increased 25%. Gross margin, increased 160 basis points to 44% of net revenues, and SG&A, driven by the significant growth in the direct to consumer business and increased marketing investment, increased 140 basis points to 33% of net revenues, in each case, compared to the prior year period. Operating income was $247.8 million for fiscal 2010 compared to $193.5 million for fiscal 2009 and includes $12.4 million and $33.0 million, respectively, of pension and restructuring expense.

The company's effective tax rate was 36% compared to the 38% for fiscal 2009. The decrease in the tax rate primarily reflects the shift in earnings from higher to lower taxing jurisdictions.

The company's income from continuing operations increased to $147.8 million, or $3.19 per diluted share, compared to $102.2 million, or $2.19 per diluted share. On an adjusted, non-GAAP basis (excluding costs related to restructuring expenses, pension expense, certain acquisition costs, tax related items and other items), income from continuing operations was $ 165.5 million, or $3.57 per diluted share, compared to $131.7 million, or $2.82 per diluted share in the prior year period.

The effect of fluctuations in foreign currency exchange rates for fiscal 2010 increased reported net revenues by $19.9 million and increased reported income per diluted share from continuing operations by approximately $0.27. An additional discussion regarding the effects of fluctuations in foreign currency exchange rates on operating results can be found in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2011, which will be filed with the Securities and Exchange Commission.

Balance Sheet

Cash and cash equivalents at January 1, 2011 were $191.2 million compared to $320.8 million at January 2, 2010. During fiscal 2010, the Company used $160.0 million to redeem its outstanding 8 7/8% Senior Notes and $116.4 million to purchase 2.4 million shares of its common stock, under its share repurchase programs, and invested approximately $35.0 million to acquire franchise and distributor businesses and pay acquisition and other related costs.

For the year ended January 1, 2011, net cash flow provided by continuing operations was $225.4 million.

The company was $159.1 million net cash positive (net of debt) as of January 1, 2011.

Inventories were $310.5 million at January 1, 2011 up $57.1 million compared to $253.4 million at January 2, 2010. The increase in inventories is consistent with the Company's growth expectations and reflects the Company's direct to consumer expansion, planned increases in inventory to enhance service levels to its customers, as well as some opportunistic positioning of inventory in anticipation of cost increases. The Company is comfortable with the quality of its inventory and has improved its inventory turns and aging compared to last year.

“We ended fiscal 2010 in a very strong financial position,”commented Larry Rutkowski, Warnaco's Chief Financial Officer. “Throughout the year our solid business performance and positive cash generation enabled us to continue to invest in our key growth strategies, and enabled us to redeem all $160.0 million of our long-term debt and repurchase $116.4 million of our common stock.”


THE WARNACO GROUP, INC.
NET REVENUES AND OPERATING INCOME BY SEGMENT
(Dollars in thousands)
(Unaudited)

 
Net revenues:
 
Three Months Ended
 
Three Months Ended
 
Increase /
 
%
 
Constant $


January 1, 2011
January 2, 2010
(Decrease)
Change
% Change (a)

Sportswear Group (d)


$

316,655



$

263,023



$

53,632



20.4

%


20.9

%

Intimate Apparel Group (d)



217,871




191,626




26,245



13.7

%


15.2

%

Swimwear Group (d)


 

56,966

 


 

50,796

 


 

6,170

 


12.1

%


11.4

%

Net revenues


$

591,492

 


$

505,445

 


$

86,047

 


17.0

%


17.8

%











 


Three Months Ended
% of Group
Three Months Ended
% of Group



January 1, 2011
Net Revenues


 

January 2, 2010
Net Revenues

Operating income (loss):










Sportswear Group (b), (c), (d)


$

21,216




6.7

%


$

24,017



9.1

%



Intimate Apparel Group (b), (c), (d)



29,552




13.6

%



28,765



15.0

%



Swimwear Group (b), (c), (d)



1,270




2.2

%



2,153



4.2

%



Unallocated corporate expenses (c), (e)


 

(6,940

)


na


 

(26,928

)


na



Operating income


$

45,098

 


na


$

28,007

 

About The Author

Thomas J. Ryan

Thomas J. Ryan Senior Business Editor | SGB Media tryan@sgbonline.com | 917.375.4699

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