We recently reiterated our Neutral recommendation on
Warnaco Group Inc.
), a manufacturer and seller of intimate apparel, sportswear and
swimwear products. Earnings of 90 cents a share in the first
quarter of 2012 missed both the Zacks Consensus Estimate as well as
the year-ago quarter results by 2 cents and 20 cents,
However, the upcoming Olympics event and the expected boost in
Sportswear segment under the flagship brand Speedo are anticipated
to pull up revenues in the near future.
The company commands a portfolio of well-recognized flagship
brands like Calvin Klein, Speedo, Chaps, Warner's and Olga. Most of
the trademarks are either owned or licensed in perpetuity and
generate a significant portion of the company's revenue. Calvin
Klein is Warnaco's most important brand, and has generated
double-digit revenue growth for several years.
Keeping the upcoming Olympic Games in view, Speedo, the flagship
brand of the Swimwear group, recently launched their Team Speedo
collection, a new line of deck wear and team apparel inspired by
their biggest swimming stars. This is expected to boost sales in
Push Positive, an innovative new product for women's Calvin
Klein underwear, which is to be launched in fall 2012, should also
boost the segment's revenue.
Warnaco's products are highly competitively priced. As the
Intimate Apparel/Innerwear industry is highly competitive and very
price sensitive, Warnaco could pose serious threat to
), which is now focusing more on premium brands and is raising
prices in these categories.
This strategy looks risky as consumers with a preference for
non-premium brands are shifting from Hanesbrands' high priced
apparels to Warnaco's more competitively priced brands.
Moreover, Warnaco has reorganized its management structure. A
new position of Chief Merchandising Officer for Calvin Klein Jeans
and Calvin Klein Jeans Accessories was formed for designing,
product development, merchandising and marketing for these global
businesses across all channels and geographies. This reorganization
will bolster the presence of the iconic brand across the globe,
which is expected to boost the company's overall sales in the near
However, the high cost of cotton is crippling margins and
hampering performance of the company. Moreover, high dependence on
international sales makes the company vulnerable to global economic
Austerity measures taken up by the European Union to combat the
economic crisis in the region has affected the margins and earnings
of the company and suppressed sales in the wholesale segment for
several quarters. Moreover, softer results in Korea are also
affecting revenues from Asia for the past few quarters.
Currently, Warnaco carries a Zacks #3 Rank (short term Hold
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