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New Launch Costs Hit Kellwood Net

Kellwood had a healthy sales bump thanks to a slew of new products, but saw third-quarter earnings drop 6.3 percent partly due to launch costs.

NEW YORK — Kellwood Co. reported a healthy sales bump Thursday because of new products — from the acquired Phat Farm fashions to licensed Calvin Klein sportswear — but third-quarter earnings dropped 6.3 percent, partly from the costs of launching the lines.

Net income for the three months ended Oct. 30 fell to $28.4 million, or $1.01 a diluted share compared with year-ago earnings of $30.3 million, or $1.11, when results from the discontinued hosiery and True Beauty businesses contributed a $619,000 loss.

Selling, general and administrative expenses rose 15.8 percent to $97.8 million during the quarter, attributed to increased spending on new marketing initiatives such as the licensed O Oscar brand.

“The moderate customer has been hardest hit with this economic environment,” chairman and chief executive officer Hal Upbin said in an interview. “With the gasoline and the heating oil [prices], the jobless rate, the moderate customer has been beaten up and that’s why the numbers are a little frailer than we would have liked.”

Buoyed by the new businesses, Kellwood’s overall quarterly sales advanced 11.3 percent to $716.8 million from $644.1 million. Sales of women’s sportswear rose 4.4 percent to $413.5 million, while men’s, helped by the February acquisition of Phat Farm, pulled in $206 million, a 33.9 percent increase.

For the nine months, Kellwood’s earnings jumped 10.1 percent to $63.6 million, or $2.27 a diluted share, from $57.8 million, or $2.14, a year ago. Sales rose 7.6 percent to $1.96 billion.

In October, the firm warned its earnings for the quarter would come in at $1 a diluted share, 15 cents below previous estimates. The weakness was blamed on tepid consumer demand for apparel, driven by lofty fuel prices, abnormal weather and fashion miscues.

Some of the brands, which were too traditional in styling for the tastes of consumers and stores, will be imbued with a more modern sensibility for fall 2005.

To help diversify its portfolio, which traditionally has been geared toward the moderate customers, Kellwood has invested in higher-priced businesses, such as David Meister and Bill Burns, as well as the Calvin Klein license.

“We know we needed to do this,” Upbin said.

The company is also looking to continue to branch out through acquisitions.

“We are very acquisitive, that hasn’t changed at all in our strategy,” Upbin said, declining to specify when the company might make another purchase. “I would say it’s fair to say it would be sooner than later, but not with any certainty.”

A move into the realm of retail is not out of the question.

“We have expanded our horizon to include, very selectively, a retail possibility,” he said. “It would not be transforming. We would not look to become a retailer.”

Unlike Jones Apparel Group’s deal for Barneys New York, where the manufacturer makes nothing that would be appropriate for the stores’ shelves, Upbin would look for a retailer that could be integrated vertically.

“[A situation] where we could service that retailer with product that we produce,” he said. “So you get a bigger bang for your buck.”