NEW YORK — Operating results improved at The Warnaco Group Inc. last year, but not its net.
This story first appeared in the April 7, 2003 issue of WWD. Subscribe Today.
The New York-based innerwear, sportswear and swimwear firm, out of bankruptcy for two months, on Friday posted fiscal 2002 results indicating a much-improved operating loss, and operating improvements at all business units, but a widened net loss because of an accounting change.
The company, in its annual report, or Form 10-K, filed with the Securities and Exchange Commission, also said it is still in discussions with the SEC regarding a settlement of the commission’s investigation over three years of financial restatements. As reported, the company in September filed a Wells Submission with the SEC indicating why an enforcement action should not be brought against the company in connection with alleged violations of federal securities laws.
For the year ended Jan. 4, the loss was $964.9 million, or $18.21 a share, versus a loss of $861.2 million, or $16.28, a year ago. From an operations standpoint, the loss before an $801.6 million charge resulting from a change in accounting principle, net of an income tax benefit, was just $87.3 million, compared with an operating loss of $580.9 million last year.
For the year, intimate apparel posted operating earnings of $64.1 million against an operating loss of $74.4 million a year ago. Sportswear showed operating income of $33.6 million versus a loss of $5.8 million last year, while swimwear had operating income of $34.1 million versus a loss of $6.6 million. The retail store division posted operating income of $126,000 versus an operating loss of $13 million.
Revenues for the year fell by 10.7 percent to $1.49 billion from $1.67 billion, but the company also exited certain non-core business as part of its restructuring during its tour of bankruptcy court, which ended on Feb. 4. The firm also improved inventory turns to 3.3 times versus 2.7 times in 2001.
The 10-K reported that intimate apparel revenues fell by 4.1 percent to $570.7 million from $594.9 million, while sales in its swimwear category dipped 2.2 percent to $305 million from $311.8 million. Sportswear sales dropped 8.4 percent to $525.6 million from $573.7 million. Retail revenues nosedived 52 percent to $91.7 million, from $190.9 million, but much of the drop-off was attributed to store closures as part of its restructuring last year.
Trademarks owned by Warnaco for sportswear include Calvin Klein, for men’s and women’s underwear, loungewear and sleepwear, and A.B.S. by Allen Schwartz. The A.B.S. business reportedly is on the selling block, according to sources who have been working with the company in trying to find a buyer. A Warnaco spokesman said, “We do not comment on marketplace rumors.”
The firm holds several swimwear and sportswear licenses: Calvin Klein jeanswear (through Dec. 31, 2044); Chaps Ralph Lauren men’s sportswear (through Dec. 31, 2008); Nautica women’s swimwear and accessories (through June 30, 2007), and Ralph Lauren women’s swimwear (through June 30, 2003).
Ralph Lauren swimwear — which includes trademarks for Polo Sport Ralph Lauren, Polo Sport/RLX, Lauren by Ralph Lauren and Ralph by Ralph Lauren — will not be renewed.
Within the intimate apparel category, the biggest sales gain was by the Calvin Klein underwear business, where revenues rose 13.5 percent to $239.7 million from $211.1 million. Lejaby revenues rose 12.8 percent to $90.5 million from $80.2 million. Revenues grew the least in the division made up of the Warner’s, Olga and Body by Nancy Ganz/Bodyslimmers labels, ascending 2.8 percent to $235.9 million from $229.4 million.
In the sportswear group, the hardest hit business was Chaps, which fell by 28.2 percent to $137 million from $190.9 million. The drop was attributed to lower sales to warehouse clubs, department stores and the loss of the Dillard’s Chaps account. White Stag/Catalina sales to Wal-Mart fell by 12.7 percent to $14.1 million from $16.1 million.
A.B.S. by Allen Schwartz was a standout during the year, jumping 56.2 percent to $42.9 million from $27.5 million. The Calvin Klein accessories business rose 2.5 percent to $14.4 million from $14 million, while the Calvin Klein jeans-kids business dipped by 2.5 percent to $317.2 million from $325.2 million.
In swimwear, revenues from Speedo rose 8.8 percent to $200.4 million from $184.1 million, while the designer group, including White Stag/Catalina wholesale swimwear, fell by 18 percent to $104.6 million from $127.6 million.
Retail revenues fell in all divisions, with a 54.8 percent drop in outlet sales to $56 million from $123.9 million and a 36.1 percent drop in Speedo Authentic Fitness stores to $34.7 million from $54.3 million. Included in the total retail figures were businesses that were either sold or liquidated.
Antonio Alvarez, president and chief executive officer, said in a statement, “We move forward with a restructured balance sheet, a diversified portfolio of leading brands and a strengthened management team, which should enable us to capitalize on the many opportunities that exist for our company.”
Warnaco, according to Alvarez, is in the midst of finalizing its recruiting efforts for a ceo and chief financial officer. A spokesman for the company said that there was “no set timeline” for the search, and that Alvarez and James Fogarty, cfo, would stay on until the right candidate is chosen.
Fogarty said in the statement, “As we pursue our targeted growth strategies, we intend to maintain strict operating and financial disciplines throughout each area of our company. At the same time, we will continue our efforts to increase efficiencies and have identified further areas for improvement.”
According to an employment agreement dated Jan. 29, 2003, attached as an exhibit to the 10-K, Alvarez is to receive $125,000 per month while employed as ceo and for a period of 15 days after the commencement of the employment of a new ceo. After that, Alvarez receives $750 per hour for transition services.
For the year, the company spent $141.3 million, or 6.3 percent, of net revenues on advertising and promotions, primarily through point-of-sale product displays, visuals and individual in-store promotions. Other promotion expenses include sponsorships of athletes on behalf of the Speedo brand, participation in cooperative advertising with its domestic retail customers, and between 2 percent and 3 percent of revenues derived from certain licensed businesses — per the contractual provisions in the Calvin Klein, Nautica and Chaps Ralph Lauren licenses — to promote the related brands.