Warnaco Group Inc. (
reported second quarter 2012 adjusted earnings of 72 cents per
share, which surpassed the Zacks Consensus Estimate of 65 cents by
10.8%. Cost control coupled with strong business by brands like
Calvin Klein and Speedo enabled the earnings beat. However,
earnings were short of the prior-year earnings of 82 cents per
share by 12.2%.
The adjusted earnings excludes restructuring expenses of 28
cents, and the impairment charge for the note receivable related to
the sale of Lejaby to Palmers Textile AG in 2008 of 29 cents.
It also included a benefit of 8 cents. On a GAAP basis, the company
reported earnings per diluted share from continuing operations of
23 cents compared with $1.01 in the prior-year quarter.
Consolidated Revenue and Margins
Warnaco's quarterly net sales slipped 5% to $563.9 million
compared with $591.4 million in the prior-year period. The sales
decline was a result of poor business in Sportswear and Intimate
Apparel coupled with macroeconomic headwinds in U.S. and Europe and
unfavorable foreign currency translation. The sales missed Zacks
Consensus estimate of $574.0 million.
Gross profit decreased 8.0% to $238.9 million in the second
quarter from $258.3 in the prior-year quarter, while gross margin
declined 130 basis points to 42.4% in the quarter owing to
increased product costs, increasing level of customer allowances
and weak business environment in select markets. Operating income
declined 38.0% year on year to $32.8 million.
Segment by Details
segment manufactures and sells premium priced men's, women's and
children's jeanswear, sportswear and accessories, which are
marketed under well-known brands like Calvin Klein and Chaps. The
segment's net sales went down 7.4% year over year to $265.0 million
in the second quarter compared with $286.3 million in the year ago
period. Net sales declined 1.2% on a constant currency basis. The
segment reported an operating loss of $11.3 million, representing a
negative 4.3% of net revenue compared with an operating income of
$15.9 million or 5.6% of net revenue in the prior-year quarter.
Intimate Apparel Group
manufactures and sells upper moderate to premium priced intimate
apparel and other products for women, and premium priced men's
underwear and loungewear, which are marketed under brands like
Calvin Klein Underwear, Warner's, Olga, Olga's Christina, Body
Nancy Ganz and Bodyslimmers. Net sales at Intimate Apparel Group
declined 6.3% to $212.1 million compared with $226.4 million in the
prior-year quarter. Net sales declined 2.7% on a constant currency
basis. Operating income of the Intimate Apparel Group segment came
down to $25.9 million in the second quarter, representing 12.3% of
net revenue compared with operating income of $34.5 million or
15.2% of net revenue in the prior-year quarter.
manufactures and sells premium priced swimwear, swim accessories
and related products, which are marketed under brands like Speedo,
Calvin Klein and Lifeguard. Net sales at Swimwear Group went up
10.3% to $86.7 million compared with $78.6 million in the
prior-year quarter. Net sales climbed 11.9% on a constant currency
basis. The segment's operating income also increased to $13.7
million in the second quarter, representing 15.7% of net revenue
compared with operating income of $10.7 million or 13.6% of net
revenue in the prior-year quarter.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of
$295.3 million as on June 30, 2012, compared to $294.8 million in
the prior year quarter.
Inventories came down to $330.6 million in the second quarter
from $355.4 million in the prior year quarter.
Based on the second quarter 2012 results, Warnaco lowered its
full year 2012 outlook to a range of $4.00 - $4.15 from the
previously announced guidance of $4.00-$4.25. Including one-time
expenses and based on foreign currency exchange rates, Warnaco
expects its reported earnings per share to be in the range of
$2.94-$3.00 per diluted share compared to previous guidance of
$3.32-$3.40 for full year 2012.
The current Zacks Consensus Estimate is $1.21 per share for the
third quarter and for full year 2012 the estimate is pegged at
For 2012, Warnaco anticipates total revenue growth to be flat to
up 2% year over year.
Warnaco designs, sources, markets, licenses, and distributes a
range of intimate apparel, sportswear, and swimwear worldwide. The
company offers its products primarily under the Calvin Klein,
Speedo, Chaps, Warner's, and Olga brand names.
The company operates in a highly competitive apparel industry
with tough competitors like
Limited Brands, Inc.
Maidenform Brands, Inc.
). Moreover, Warnaco depends on license agreements with third
parties for generating a significant portion of its revenues, which
have inherent risks.
Warnaco currently holds a Zacks #3 Rank, which translates into a
short-term Hold rating. On a long-term basis, we have a Neutral
recommendation on Warnaco.
LIMITED BRANDS (LTD): Free Stock Analysis
MAIDENFORM BRND (MFB): Free Stock Analysis
WARNACO GRP INC (WRC): Free Stock Analysis
To read this article on Zacks.com click here.