NEW YORK — The lowering of both expectations and expenses helped many apparel and accessories manufacturers post surprisingly robust earnings for the third quarter.
This story first appeared in the November 4, 2002 issue of WWD. Subscribe Today.
Both Russell Corp. and Bernard Chaus reversed year-ago losses to post profits, while Columbia Sportswear added to an already strong profit profile. Accessories makers Oakley and Tandy Brands Accessories had lower earnings, with the latter’s driven by a change in accounting principle.
Last year’s restructuring program paid off for Russell Corp. as the company swung to black from red in the third quarter.
For the three months ended Sept. 29, the Atlanta-based athletic apparel manufacturer reported net earnings of $23.4 million, or 72 cents per diluted share. That compares with last year’s net loss of $15.4 million, or 48 cents. Earnings matched the Wall Street estimates and included an aftertax charge of $3.1 million, or 10 cents, related to increasing the Kmart bad-debt reserve to 90 percent on its pre-Chapter 11 accounts receivable balance. Excluding that charge, earnings per share would have been 82 cents.
Excluding restructuring charges and other special items in the year-ago quarter, Russell’s comparative profits would have gained 30 percent from last year’s $18 million, or 56 cents.
Sales for the period grew 10.2 percent to $387 million, from $351.3 million a year ago. The increase in sales was driven primarily by new and expanded fall programs, such as women’s fleece at Kohl’s and men’s and boys’ fleece at J.C. Penney and Sam’s Club.
“There is no question that this quarter’s results reflect the benefit of our six-point profit growth plan and is demonstrated not only by our sales growth but by the significant improvement in gross margin,” said chief executive officer Jack Ward on a conference call with analysts.
Greater efficiencies resulting from the restructuring included a gross margin improvement of 360 basis points, as well as a 23 percent decline in inventories to $99.4 million.
Looking ahead, Ward said the company expects fourth-quarter sales to grow between 3 and 6 percent and for EPS to come in at 42 to 46 cents.
Overall, for the first nine months of the fiscal year, Russell recorded net income of $19.8 million, or 62 cents per diluted share, versus the prior-year net loss of $24.7 million, or 77 cents.
Excluding the extraordinary charge associated with the early retirement of debt in the 2002 second quarter and the 2001 restructuring charges, net income for the first nine months of fiscal 2002 was $32.5 million, or $1.01 per share, versus $26.8 million, or 83 cents per share, in the comparable nine-month period of fiscal 2001. Excluding the extraordinary charge associated with the early retirement of debt in the 2002 second quarter and the charge related to increasing the bad-debt reserve on its pre-Chapter 11 accounts receivable balance for Kmart in the 2002 third quarter, earnings would have been $1.10 per share for the first nine months of fiscal 2002.
Sales for the period nudged up 1.1 percent to $855.9 million from $846.2 million last year.
In guidance, Ward said full fiscal-year sales are projected to be in the range of $1.18 billion to $1.19 billion with EPS, excluding the Kmart charges, of $1.50 to $1.60.
Columbia Sportswear Co. beat third-quarter profit estimates and said efforts to accelerate spring orders from retailers were succeeding.
Profits advanced 14.7 percent to $56.9 million, or $1.42 per diluted share, for the quarter ended Sept. 30. This compares with year-ago earnings of $49.6 million, or $1.24. Results beat Wall Street’s expectations of $1.34 by 8 cents.
Sales for the quarter plumped up 8.5 percent to $331.5 million from $305.6 million. The period’s sales came in about $4 million ahead of plan, due mostly to early shipments.
Domestic sales grew 4.5 percent to $234.2 million, while sales in Canada increased 15.9 percent to $41.5 million and Europe posted sales growth of 25.1 percent to $32.9 million.
By product category, outerwear sales rose 10.2 percent to $214 million, sportswear sales increased 7.7 percent to $62.9 million and footwear sales stayed flat at $37.9 million.
Overall backlogs of future deliveries as of the end of the quarter grew by 5.9 percent compared with year-ago levels. The backlog of spring orders alone was up 15.2 percent.
President and chief executive officer Tim Boyle, in a statement, stressed the resurgence in the firm’s spring business globally as seen in the order book. The spring business’ backlog was up only 3.4 percent at the end of the third quarter last year. “Through a combination of management restructuring, innovative product development and sharper merchandising strategies, we have been successful at this point in driving order growth in our key spring businesses of sportswear and footwear globally.”
During the nine months, profits advanced 13.6 percent to $73.4 million, or $1.83 per diluted share, from $64.6 million, or $1.62, a year ago. Sales for the period were up 6 percent to $599 million from $565.3 million a year ago.
For the year, Portland, Ore.-based Columbia is looking at net income growth between 8 and 11 percent on a 4 percent uptick in revenues.
Oakley Inc. saw its third-quarter profits drop more than 10 percent, but land 2 cents above recently lowered estimates.
The sunglass and accessories firm on Wednesday said that income for the three months ended Sept. 30 dropped 14.5 percent to $12.3 million, or 18 cents per diluted share, versus income of $14.4 million, or 21 cents, in the year-ago quarter. Oakley last month lowered earnings-per-share guidance to 16 cents due to decreased sunglass sales.
Sales in the quarter jumped 15.7 percent to $131.9 million from $114 million, boosted in part by the renewed relationship with Luxottica’s Sunglass Hut retail chain. Sales from Sunglass Hut contributed $13.2 million, or 10 percent, to total net sales in the quarter, compared with last year, when shipments were temporarily suspended because of a dispute between the two firms.
New category gross sales grew 15.5 percent in the quarter to $38.4 million from $33.2 million, and accounted for 26.9 percent of third-quarter gross sales versus 28.3 percent a year ago. Sales of the fall footwear line, however, declined from the prior year, which was in part “exacerbated by delays in the receipt of product due to the West Coast port shutdown.”
Link Newcomb, chief operating officer, said: “Our backlog at Sept. 30, 2002 was a very strong $58.2 million, 45.1 percent above the $40.1 million level of one year ago.” The increased backlog reflects orders from the renewed relationship with Sunglass Hut and strong bookings for spring 2003 lines of footwear and apparel, he noted.
The company reaffirmed previous fourth-quarter EPS guidance of 10 cents, with sales growing 20 to 22 percent.
For the nine months, income was down 14.7 percent to $40.2 million, or 58 cents, from $47.1 million, or 67 cents, last year. Sales rose 14 percent to $386.6 million from $339 million.
TANDY BRANDS ACCESSORIES
Tandy Brands Accessories’ first-quarter earnings dropped largely due to a noncash charge related to an accounting change.
The Arlington, Tex.-based accessories maker also announced Stanley Ninemire has been appointed executive vice president of operations. Mark J. Flaherty, previously its corporate controller, has succeeded Ninemire as the chief financial officer.
For the three months ended Sept. 30, Tandy’s net income fell 16.9 percent from the comparable period last year to $1.8 million, or 30 cents per diluted share, from $2.2 million, or 40 cents. Excluding the accounting change, profits would have hit $2.4 million, or 40 cents. Sales shot up 10.9 percent to $60 million from $54.1 million.
Saying that Tandy’s year has gotten off to an “excellent start,” J.S.B. Jenkins, president and chief executive officer, said in a statement that he is pleased by the “strong performance of our women’s department store product line, whose sales were substantially above internal expectations.”
In addition, he noted Dockers-branded women’s accessories continue to be well received and the rollout of its Levi’s-branded women’s belts and small leather goods this fall is exceeding initial estimates. Both the Levi’s and Dockers labels are licensed to Tandy by Levi Strauss & Co.
Also driving sales was a double-digit sales gain in Tandy’s men’s business, Jenkins said in a telephone interview. He noted small leather goods are selling well, especially a collection of wallets, The Magic Series, with a special attached compartment for a driver’s license or other form of identification.
“The design and value we are giving are being recognized. Everyone knows you have to show ID and we have the right product for that,” he said.
Jenkins also said he anticipates higher freight costs due to the West Coast dock labor situation and continued pressure for customer allowances due to the retail economy.
Higher gross margin and lower operating costs allowed Bernard Chaus to reverse a year-ago loss, despite a double-digit decline in sales in its first quarter.
The New York-based better sportswear maker said it recorded income of $1.6 million, or 5 cents a diluted share, for the three months ended Sept. 30. That compares with a loss of $582,000, or 2 cents, in the same period last year. Sales notched downward 11.8 percent to $34.8 million from $39.5 million.
“As evidenced by the significant increase in our gross margin to 27.2 percent from 20.9 percent in last year’s first quarter, we are operating more efficiently and that is directly translating into increased profits,” Josephine Chaus, chairwoman and chief executive officer, said in a statement.
Despite caution about the holiday season, the ceo said she believes the combination of operational changes and the ongoing success of the firm’s design strategies will enable it to be profitable for the full year.
“While the second quarter is historically our weakest period, we are on track at this time to report a significant improvement in results versus last year’s second quarter,” Chaus said.
Nick DiPaolo, chief operating officer, noted that Chaus has benefited from better sourcing and inventory management, particularly in a reduction of unprofitable off-price sales. “With the decrease in off-price sales, we expect revenues for the first half of the year to be lower but more profitable,” he said.