The Warnaco Group's Swimwear Group, which includes Speedo, reported sales in the first quarter fell 8.4% to $87.9 million from $96 million a year ago, primarily as a result of reduced sales to
membership clubs in the quarter. In constant currency rates, sales were off 10.1%.

Operating income eased 5.3% to $11.9 million from $12.5 million a year ago but operating margins improved to 14% from 13% of sales.
The increase in operating margin was driven primarily by improved sales
mix and reduced restructuring expense.

Overall, Warnaco reported net revenues were up 9% from the prior year quarter. Income per diluted share from continuing operations increased 23% to $1.03 compared to $0.84 in the prior year quarter, and includes 6 cents and 13 cents, respectively, of costs related to restructuring expenses, pension expense, certain tax related items and other items
  
Income per diluted share from continuing operations on an adjusted, non-GAAP basis (excluding the items above) was $1.09, a 12% increase, compared to $0.97 for the prior year quarter
 
Joe Gromek, Warnaco's president and chief executive officer, commented, “We are pleased with our strong first quarter results, which exceeded our expectations. Our revenue growth, higher gross margin and record earnings are a testament to the strength of our diversified global business model. Growth in our Calvin Klein businesses, led by double digit increases in all our key international geographies, as well as similar gains in Chaps® and our Core Intimates business, resulting from expanded distribution and new product launches, drove a 9% increase in total Company net revenues. We were encouraged by our strong brand performance as evidenced by the nearly 6% increase in comparable store sales, including a strong performance in Europe, and believe we are well positioned to gain market share as the global economies recover.”

“Looking ahead, we are optimistic about the prospects for our Company,” commented Gromek. “In addition to powerful brands, Warnaco possesses a highly efficient business model, an established global infrastructure and an experienced leadership team. Taken together, they provide our Company with significant opportunities to use its strong balance sheet to fund key growth initiatives while creating long-term shareholder value. In 2010, we will continue to focus on the global expansion of our direct to consumer footprint and opportunities to expand our direct operation through strategic acquisitions of key distribution and franchise partners.”

Fiscal 2010 Outlook

Based on its results to date and recent currency exchange rates, the company is raising its 2010 earnings outlook. For fiscal 2010, on an adjusted basis (excluding restructuring expense, certain tax related items and other items and assuming minimal pension expense):

  • The company now anticipates net revenues will increase 8% – 10% compared to fiscal 2009
  • The company now expects adjusted diluted earnings per share from continuing operations in the range of $3.30 – $3.40
  • The company's prior guidance was for net revenue growth in the range of 5% – 7% compared to fiscal 2009 and diluted earnings per share from continuing operations in the range of $3.10 – $3.20 per diluted share.

First Quarter 2010 Highlights

Total Company

Net revenues rose 9% in the quarter, 4% on a constant dollar basis, to $588.2 million. Double digit growth in the Company's Calvin Klein businesses, expanded distribution in Chaps and strong growth in Core Intimates, driven by new product launches and higher level of replenishment, more than offset a decline in Swimwear net revenues.

Gross margin increased 350 basis points to 45% of net revenues, driven by lower product costs, strong sell through and higher margin associated with our direct to consumer expansion. SG&A expense increased $26.6 million to $185.0 million and SG&A as a percent of net revenues increased 200 basis points to 31% of net revenues. Growth in the Company's direct to consumer segment ($18.4 million), planned investments in marketing ($7.8 million) and accounting for equity plan expense ($6.0 million) contributed to the $26.6 million increase in SG&A expense.

Operating income increased 24% to $79.5 million compared to $ 64.3 million in the prior year quarter. Operating income for the first quarter of fiscal 2010 and 2009 was adversely affected by $0.9 million and $8.8 million, respectively, of restructuring charges, pension expense and other items.

The company recorded income from continuing operations of $48.3 million, or $1.03 per diluted share, compared to $38.6 million, or $0.84 per diluted share, in the prior year period.

Income from continuing operations, on an adjusted non-GAAP basis (excluding costs related to restructuring expenses, pension expense, certain tax related items and other items), as detailed in the accompanying schedules, was $1.09 per diluted share compared to $0.97 per diluted share in the prior year period.

The impact of foreign currency exchange rates increased fiscal 2010 first quarter net revenues, gross profit, SG&A and operating profit by approximately $28 million, $16 million, $9 million and $7 million, respectively, and increased income from continuing operations by approximately $0.10 per diluted share.

Segment Results

Sportswear

Sportswear Group net revenues rose 14% to $306.3 million and were up 8% on a constant currency basis. Net revenues benefited from the continued ongoing global expansion of the Calvin Klein jeans business and expanded distribution in Chaps. Sportswear Group operating income increased to $50.9 million, or 17% of Sportswear Group net revenues compared to $37.5 million, or 14% of Sportswear Group net revenues, in the prior year period. A shift in business mix, favoring higher margin business, lower sourcing costs, less promotional activity and the effects of currency exchange rates contributed to the improved results.

Intimate Apparel

Intimate Apparel Group net revenues increased 12% to $193.9 million and increased 7% on a constant currency basis. Intimate Apparel Group operating income was $33.6 million, or 17% of Intimate Apparel Group net revenues, compared to $30.4 million, or 18% of Intimate Apparel Group net revenues, in the prior year period. New product launches and increased replenishment in the Core Brands were the key contributors to the gains in the Core business net revenues and operating income. Calvin Klein Underwear net revenues were up and continued to benefit from direct-to-consumer growth and global expansion. Operating results, however, were adversely affected by planned increases in marketing expense and the shift in timing of certain shipments to the value channel in the U.S.

Balance Sheet

Cash and cash equivalents at April 3, 2010 were $157.4 million, an increase of $35.3 million, compared to $122.1 million at April 4, 2009. At quarter-end the Company had net debt (total debt net of cash and cash equivalents) of $4.5 million compared to $166.1 million at April 4, 2009.

During the quarter, the Company purchased 1.5 million shares of common stock, for approximately $69.0 million, completing the 2007 Share Repurchase Program.

The company also redeemed $50.0 million of its 8-7/8% Senior Notes due 2013, and on May 7, 2010 notified Holders that it would redeem the remaining $110.9 million of Notes on June 15, 2010.

Inventories were $267.2 million at April 3, 2010, a 15% decline (19% on a constant dollar basis), compared to $316.2 million at April 4, 2009.

“We ended the quarter in a very solid financial position,” commented Larry Rutkowski, Warnaco's Executive Vice President and Chief Financial Officer. “Our disciplined working capital management, led by significant inventory reductions, contributed to our strong cash position. We will continue to evaluate the most effective uses of cash to maximize shareholder returns.”