NEW YORK — Kellwood Co. slashed its guidance on fourth-quarter profits in half after a disappointing holiday season spurred higher-than-expected markdown payments to retailers to support underperforming brands as well as lower spring orders.
The vendor said Monday that earnings from continuing operations for the quarter would fall to about $6.5 million, or 23 cents a diluted share. Heading into the holiday season, during which consumers ultimately were slow to buy apparel, and retailers cut prices to move merchandise, Kellwood told investors on Dec. 2 it would come up with earnings from continuing operations of $13.7 million, or 48 cents.
A year ago, the firm, which owns a slate of moderately priced brands such as Sag Harbor and produces other fashions such as Calvin Klein better sportswear under license, posted profits of $12.8 million, or 46 cents.
“Essentially all the drop in sales and earnings from our earlier forecast occurred in the women’s sportswear segment due to a combination of having to provide significantly more end-of-year markdown assistance for some of our brands, having to sell more units off price to liquidate seasonal inventory, and lower than expected spring 2005 orders,” said chairman and chief executive officer Hal Upbin in a statement.
The warning echoes a similar move by Jones Apparel Group, which said Friday its fourth quarter would produce earnings of 28 to 30 cents a share, as opposed to the 40 to 45 cents previously anticipated. Both Jones and Kellwood also reduced their projections midstream during the third quarter after strong consumer trends from the first half lost steam.
Kellwood sees several challenges negatively impacting its spring business.
The consumer for moderately priced apparel, which is a specialty of Kellwood’s, has yet to enjoy the benefits of the improving economy.
“Job uncertainty, higher energy and food costs and a relatively high level of consumer debt have put a damper on discretionary spending for apparel,” said Upbin.
Last quarter, the company said some of its core moderate brands needed to be more modern in styling. The company is working on changing this, but the results of those efforts won’t be seen on the sales floor until later this year.
This story first appeared in the January 25, 2005 issue of WWD. Subscribe Today.
Upbin also expects lower sales of dresses for spring.
The company will hold a conference call to discuss the year’s final financial tally on March 11.
For the full year, Kellwood is looking for continuing operations to post earnings of $70 million, or about $2.50 a diluted share. Previous guidance called for income of $77.5 million, or $2.75. During fiscal 2003, the firm posted net earnings of $72.6 million, or $2.68.
Sales for the year are slated to be about $2.55 billion, up from $2.35 billion in 2003.
“Given the current disappointing pace of consumer demand for moderately priced women’s sportswear, we expect sales in fiscal year 2005 to be flat with the level forecasted for fiscal year 2004,” said Upbin.