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Klein Integration Bites Into PVH Net

NEW YORK — Phillips-Van Heusen Corp. is on track with its integration of Calvin Klein, though the cost of combining the two businesses helped drag down profits in the second quarter. <br><br>Net income available to common stockholders for the...

NEW YORK — Phillips-Van Heusen Corp. is on track with its integration of Calvin Klein, though the cost of combining the two businesses helped drag down profits in the second quarter.

Net income available to common stockholders for the three months ended Aug. 3 dropped 50.3 percent to $3.9 million, or 13 cents a diluted share, from $7.9 million, or 28 cents a year ago.

Results were dragged down by aftertax integration costs of $4.1 million, or 13 cents a share, related to the acquisition of Calvin Klein, which closed in February. The costs included the operating losses of some Klein business, which the firm will close or license, and some duplicative personnel and facilities used during the integration of various logistical and back-office functions. PVH also recorded an aftertax gain of $1.5 million, or 5 cents a share, for the sale of its minority interest in Gant Co.

During the quarter, PVH paid out $5.1 million in preferred stock dividends to Apax Partners Inc., which helped fund the Klein acquisition and holds the preferred stock. The businesses are expected to be fully integrated by the end of the year.

Sales for the three months increased 13.9 percent to $377.1 million from $331.2 million a year ago.

Exclusive of the integration costs and the one-time gain, profits for common stockholders fell 16.8 percent to $6.5 million. Sales, without the Klein businesses that are being discontinued, rose 12.4 percent to $372.4 million.

Licensing revenues during the quarter shot up to $28.8 million from $2.3 million a year ago.

On its own, the Calvin Klein segment produced sales of $8.6 million, $4.7 million of which came from businesses that are not considered ongoing, and $25.6 million in royalty and other revenues.

The revenue runup was principally due to additional royalty revenues from the Klein licensing business and an increase in PVH’s wholesale apparel businesses, especially Izod, Van Heusen and Arrow.

“The strong performance of our Calvin Klein and wholesale apparel businesses continued to help minimize the earnings decline in our retail divisions which suffered from negative comp-store sales and higher promotional selling,” said chairman and chief executive Bruce Klatsky in a statement.

This story first appeared in the August 21, 2003 issue of WWD.  Subscribe Today.

“The integration of the Calvin Klein operations, as well as the goals we set for the brand, continue to proceed on plan,” he noted.

Emanuel Chirico, executive vice president and chief financial officer, in a telephone interview said the “numbers came right in line” for the quarter.

While retailing has been difficult for PVH, Chirico sees some light at the end of the tunnel. As he noted, “Hope springs eternal with retailers.” Comparisons are favorable for the fall and the cfo said the “tone” of the retail environment seems to be improving.

“What’s going to be critical for everyone is the next five to six weeks,” he noted of the traditional back-to-school selling period. PVH is not planning any big increases for the season, however.

“The world’s become more of a buy-now, wear-now society,” he noted of the consumer’s proclivity for buying closer to the need, which could restrain the b-t-s and early fall seasons.

For the six months, PVH tallied losses, available to common stockholders, of $2.7 million, or 9 cents a share. This compared with year-ago earnings of $7 million, or 25 cents. Sales advanced 10.8 percent to $754.1 million from $680.6 million a year ago.

Excluding costs of the Klein integration and discontinued businesses, net income for common shareholders bounded up 40.6 percent to $9.9 million while sales increased 9.2 percent to $743.4 million.