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Kellwood Net Plunges 51%

Kellwood's net earnings dropped 50 percent in the fourth quarter to $6.5 million compared with a year ago, as sales gained 14 percent to $592 million.

NEW YORK — The pain keeps coming for Kellwood Co.

A promotional holiday season and fashion missteps cut earnings for the fourth quarter ended Jan. 29 by 51.3 percent to $6.5 million, or 23 cents a diluted share, compared with $13.3 million, or 48 cents, a year ago.

The first quarter is expected to bring more of the same, as retailers reacted to the stumble by reducing their spring orders.

“We are obviously very disappointed,” chairman and chief executive officer Hal Upbin said in a statement.

“It typically takes two seasons to get back on track in the fashion business,” he said. “The company has taken the necessary corrective actions, including upgrading design and merchandising talent to get back on track by fall 2005, which will begin shipping in July.”

Kellwood, a specialist in moderately priced apparel, is also catering to a consumer that has room for little discretionary spending and is pressured by debt, higher energy and food costs and employment concerns. Kellwood produces a slate of its own brands, including Sag Harbor, Koret, Beliza and Jax, as well as Calvin Klein better sportswear and Liz Claiborne suits and dresses under license.

As the fourth quarter failed to jell and retailers cut back orders, the firm was forced to go to the off-price channel, which drove sales up 13.7 percent to $592.3 million from $521.1 million.

Other vendors were caught in a similar bind and also turned to the off-pricers to clear goods and keep inventory lean, saturating the market and making sales even less profitable. Competitor Jones Apparel Group reported that it was also hit hard by markdowns and off-price sales during the fourth quarter.

Kellwood on Jan. 24 warned that earnings would come in at less than half the $13.7 million projected on Dec. 2.

The reduction in spring orders is clamping down on the first quarter, which Kellwood sees producing a 48 percent drop in earnings to about $13 million, or 45 cents a share, from $25 million, or 90 cents, a year ago. Sales are projected to drop 6.7 percent to $640 million from $686 million.

“We expect sales for the remaining three quarters to be either essentially flat or up modestly versus last year,” Upbin said.

This story first appeared in the March 11, 2005 issue of WWD.  Subscribe Today.

Investors traded shares of Kellwood up 18 cents, or 0.6 percent, to $29.28 on the Big Board Thursday before the after-market report.

For the year, Kellwood’s earnings fell 1.4 percent to $70.1 million, or $2.50 a diluted share, from $71.1 million, or $2.62. Sales advanced 8.9 percent to $2.56 billion from $2.35 billion.

Going forward, the company will need to contend with the planned $17 billion merger of Federated Department Stores and May Department Stores, which is slated to be completed this year. The deal will create a giant retailer with an estimated $30 billion in sales and 950 department stores.

In addition to the tremendous clout Federated will hold over its vendors, Kellwood will be affected when, by 2007, the moderately orientated nameplates of May, such as Kaufmann’s and Filene’s, shift slightly upward and are melded into Federated’s Macy’s chain.

Kellwood has made moves to diversify its product assortment, snatching up the Calvin Klein better sportswear license from Phillips-Van Heusen Corp. and acquiring Phat Fashions last year, and more recently revamping the bridge-priced Bill Burns collection, giving it an item orientation.

The company is not as diversified as others in the field, such as Jones and Liz Claiborne Inc., both of which have made strong moves into retail. Jones’ portfolio includes Barneys New York and Nine West stores while Claiborne has Lucky Brand and Mexx stores, as well as a slate of other retail initiatives under way.

Upbin has recently acknowledged that Kellwood also might make a move into retail to better diversify, shielding the business further from the sometimes roller-coaster marketplace.

The first quarter is expected to drag down the year. For 2005, Kellwood is planning on earnings of roughly $68.5 million, or $2.38 a share, a drop of 2.3 percent. Sales are slated to drop approximately 2.2 percent to $2.5 billion.

The core women’s sportswear business is looking for a 6 percent drop in sales for the year to $1.4 billion.