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Warnaco Net Up 7.5% in Third Quarter

Continued progress in Asia and Latin America more than compensated for softness in U.S. and southern Europe.

Continued progress in Asia and Latin America more than compensated for softness in U.S. and southern Europe as Warnaco Inc. matched analysts’ estimates with a 7.5 percent increase in third-quarter profits.

In the three months ended Oct. 1, the New York-based apparel marketer generated net income of $44.6 million, or $1.03 a diluted share, versus profits of $41.5 million, or 90 cents, in the year-ago period.

Revenues expanded 8.1 percent, to $645.1 million from $596.8 million, led by a 28.6 percent increase in Asia, to $130 million, and 30.3 percent increase in Central and South America and Mexico, to $62.8 million. Without currency fluctuation, the increases in the two regions would have been 21.7 percent and 24.4 percent, respectively.

Meanwhile, revenues in the U.S. declined 3.3 percent, to $241.8 million, and in Europe rose 9.3 percent, to $182.3 million. Excluding currency impact, European increases would have been 0.4 percent higher, with strength in northern Europe offset by weakness in critical markets like Spain and Italy.

The Calvin Klein jeans and underwear businesses accounted for 80 percent of company revenues and generated double-digit revenue growth, the company said. Calvin Klein Jeans revenue was up 8 percent, with international up 19 percent.

Excluding special items, EPS came in at $1.07, in line with analysts’ consensus estimates, which also called for revenues of $656.4 million.

Joseph Gromek, president and chief executive officer, said on a Thursday conference call that international revenues accounted for 63 percent of Warnaco’s business in the quarter. “Asia and Latin America continue to lead the growth,” he said. “Our China business, approaching $200 million by yearend, remains a dynamic growth vehicle as we aggressively expand our direct-to-consumer penetration.”

Retail revenues overall rose 30.5 percent, to $186.2 million, with comparable-store sales up 2 percent. “Direct-to-consumer revenues now represent 29 percent of total company sales and we expect that percentage to climb significantly in the fourth quarter,” Gromek added.

Asked by an analyst to quantify pockets of resistance to higher prices this year, Helen McCluskey, chief operating officer, said there’s been “no resistance whatsoever” in Latin America and Asia. To respond to growing price sensitivity in southern Europe, “we’ve been much more promotional to make sure that we’re keeping inventory cleared.”

She also acknowledged that “it’s been difficult to pass on price increases” within U.S. value channels. “We’re not planning any additional price increases going into the fourth quarter,” she said.

While spring Calvin Klein underwear bookings were up at a double-digit pace, McCluskey said that global jeanswear booking were “probably close to flat.”

For the nine months, net income rose 12.3 percent to $134.1 million, or $3 a diluted share, while revenues grew 11.4 percent to $1.9 billion.