The Warnaco Group Inc.
) reported third quarter 2012 adjusted earnings of $1.15 per
share, which beat the Zacks Consensus Estimate by a penny. Cost
control, coupled with strong business by brands like Calvin Klein
and Speedo led to the earnings beat. Earnings also grew 7.5% year
over year from $1.07 per share.
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Consolidated Revenue and Margins
Warnaco's quarterly net sales slipped 5% from the prior-year
quarter to $611.5 million. Net revenue, on a neutral currency
basis, was flat year over year. The sales decline was a result of
poor business in Sportswear and Intimate Apparel coupled with
macroeconomic headwinds in the U.S. and Europe and unfavorable
foreign currency translation. Sales missed the Zacks Consensus
Estimate of $640.0 million.
Gross profit decreased 5% from the prior-year quarter to $267.0
million in the third quarter, while gross margin grew 30 basis
points to 44% in the quarter owing to optimization of product
costs, positive product mix and increase in efficiency. Operating
income grew 4.7% year over year to $75.4 million. Adjusted
effective tax rate increased 170 basis points from the prior-year
quarter to 32.7% in the reported quarter.
Net sales in the
went down 5.7% year over year to $337.4 million in the third
quarter. Net sales grew 0.2% on a constant currency basis. The
segment reported a 9.5% year-over-year rise in operating income
to $29.5 million, representing 8.8% of net revenue.
Intimate Apparel Group
net sales declined 6.3% from the prior-year quarter to $232.2
million. Net sales declined 2.9% on a constant currency basis.
Operating income of the Intimate Apparel Group segment grew 6.7%
year over year to $41.2 million in the third quarter,
representing 17.7% of net revenue.
net sales went up 6.7% from the prior-year quarter to $42.0
million. Net sales climbed 9.2% on a constant currency basis. The
segment's operating loss widened by 8.5% to $429 million in the
Other Financial Updates
The company exited the quarter with cash and cash equivalents of
$311.0 million as of September 29, 2012 compared with $295.3
million as of June 30, 2012.
Inventories declined 1% from the prior-year quarter to $388.8
million in the third quarter of 2012.
Merger with PVH Corp.
On October 31, 2012, The Warnaco Group announced a merger
). According to the agreement, PVH will acquire Warnaco for $2.9
billion and will gain the rights of Warnaco's most popular brand,
Calvin Klein. PVH Corp will benefit from the acquisition over the
long term as its product portfolio will comprise some of the
leading apparel brands. Over three years, PVH expects annual run
rate synergies of $100 million from the acquisition. The merger
is expected to close in early 2013.
Based on third quarter 2012 results, Warnaco maintained its full
year 2012 adjusted EPS outlook in the range of $4.00 - $4.15.
Warnaco expects its reported earnings per share to be in the
range of $2.97-$3.00 compared with its previous guidance of
$2.94-$3.00 per diluted share. The Zacks Consensus Estimates for
the fourth quarter and full year 2012 are pegged at $1.24 and
$4.05 per share, respectively.
For 2012, Warnaco anticipates total revenue to be flat to down 2%
year over year.
Warnaco is poised to benefit from the fact that its peer
) is focusing on premium brands and increasing prices in these
categories while consumers prefer to opt for more competitively
priced brands. This provides the company an edge over its peers.
In addition, the new organizational structure of Warnaco is
geared to increase productivity, which will position the company
better in the international market. However, the high cost of
cotton has been crippling the performance of the company for
consecutive quarters. Moreover, the company's high dependence on
international sales makes it vulnerable to the macroeconomic and
currency headwinds in the global economy.
We currently have Neutral recommendation on Warnaco. The stock
carries a Zacks #3 Rank (short-term 'Hold' rating).