Forget moderate vendor Kellwood Co. Welcome to the new Kellwood, brand manager.
The $1.96 billion vendor is out to recast itself over the next five years and said Tuesday that branded better-price-and-above business soon should equal its traditional nonbranded moderate offerings. The St. Louis-based company also took a major stride in its strategic plan Tuesday by selling its dress shirts manufacturing division Smart Shirts.
"Whereas Kellwood was once seen as the maker of moderate apparel and a manufacturer because we own Smart Shirts, the future of Kellwood is to be a brand-focused marketing enterprise," Robert C. Skinner Jr., chairman, president and chief executive officer of Kellwood, told WWD. "Smart Shirts was the only part of the operation where we were a manufacturer, as opposed to a brand manager. We felt our cash was better invested in brands than mills."
Smart Shirts, which has about $450 million in annual sales, was sold for $161 million, which includes selling manufacturing assets for $120 million to Youngor Group Co. Ltd. and the related real estate assets in Hong Kong for $41 million to Bright Treasure Development Ltd. Kellwood plans to use the proceeds to reduce debt and repurchase shares with the cash.
Kellwood had planned to invest more than $70 million in the next four years — more than 40 percent of the firm's total capital plan — into Smart Shirts, which produced shirts in a licensed and private label capacity for men's and some women's. With the changing market, including competition from vertically integrated manufacturers, Smart Shirts lost its competitive advantage, Skinner said.
Skinner said no other division or brand stuck out as inconsistent with the company's model like Smart Shirts, but he did say he will reconsider the portfolio with time and that divestiture is one means to correct the portfolio.
Like Jones Apparel Group and Liz Claiborne Inc. did on their third-quarter earnings calls last week, Kellwood used slides for the first time to accompany its investor conference call Tuesday. "This is a way to be more transparent to our shareholders," Skinner told WWD. "Shareholders always want more transparency, and I think companies, including Kellwood, are providing more information than in the past, to make sure that our story is understood in the best possible way."The company spelled out where it hopes to see additional revenues and cost savings between now and 2012:
l Organic sales growth of 4 to 5 percent annually by expanding the four brands it acquired in the last year — Hollywould, Vince, Hanna Andersson and Royal Robbins — and other higher-margin brands including XOXO, the licensed Calvin Klein white label and Democracy, which it relaunched for spring 2007. Details include retail expansion with a few additional Hollywould stores, tester Vince doors, and 60 new stores for Hanna Andersson, a children's wear brand acquired in July, to total 78 stores by 2012.
l Operating margins of 9 percent for existing businesses, as the firm reduced costs through previously announced: 1) reorganization of the women's sportswear business; 2) transformation of Phat Farm men's into solely a licensing model and reporting Phat Fashions in the company's women's sportswear segment; 3) a reduction of costs by streamlining corporate functions to save $4 million in 2007 and $7.5 million in each year after, and 4) the implementation of supply chain changes of about $45 million in savings by 2012. Kellwood also hopes the greater percentage of sales in better- and above-priced brands will generate higher margins, as well as a 30 percent increase in marketing spending.
l Earnings per share growth of at least 25 percent, after an even more significant 2008 increase to $1.50 in earnings per diluted share, compared with 71 cents in 2007. This takes into account the predicted organic sales growth and operating margins, as well as reduction of debt and share repurchases, including those following the Smart Shirts sale.
At the conclusion of the five-year strategic plan in 2012, Kellwood hopes to be:
- Equally balanced between its traditional mainstream brands and better- and above-priced brands, as compared with moderate business making up 70 percent of sales today.
- Owned brands contributing to 70 percent of sales, from half today.
- Private brands dropping to only 10 percent of business, from 28 percent today.
- Direct-to-consumer retail sales contributing 15 to 20 percent, up from 8 percent today.
"We're never satisfied, and the changes will always continue," Skinner told WWD. "Good companies always change because the marketplace continues to change. To set a correct strategy, you have to be aware of your internal capabilities and the eternal environment."With retailers reporting tough comps in recent months that caused competitors like Claiborne to report third-quarter earnings drops of 65 percent, the environment is challenging and investor pressure is high.
Kellwood is facing particular pressure to prove to shareholders it can turn around its operations fast, after turning down Sun Capital's $21-a-share bid three weeks ago — a topic on which Kellwood's management did not take questions on the call Tuesday. Skinner said the timing of the call connected to the sale of Smart Shirts, rather than pressures from the investing community after Kellwood passed on Sun Capital's $543 million bid.
A report from UBS called Kellwood's selling of Smart Shirts "an easy decision to raise profitability, although it eliminated an earnings contribution."
Brad Stephens, an analyst for Morgan Keegan & Co. Inc., agreed selling Smart Shirts was a good decision. "It was too difficult to compete in Asian manufacturing from St. Louis," Stephens said. "This got them out, which gives them a shot — price doesn't matter."
"When there's low levels of confidence, you need to give more clarity if you think you've got a story to tell," Stephens said, adding he thinks pressures in light of the Sun Capital bid influenced the timing of the call.
Without Smart Shirts and with the cost-saving initiatives, the company revised its 2008 outlook. Its sales prediction of $1.55 billion held steady, but its earnings almost doubled to $32 million, or $1.50 a diluted share, from previous forecasts of $17 million to $20 million, or 66 to 67 cents.
"We believe it's fair to say all of these assumptions...are optimistic, an apparent reaction to the recent bid by Sun Capital, with very little evidence the new business structure and merchandising issues are yet making a positive impact," said analyst Jeffrey Edelman in a UBS report released Tuesday.
Stephens of Morgan Keegan questioned whether the decline in sales of the legacy brands can be held at only $15 million. He pointed to both Kellwood's track record for execution and to the general retail climate.
"If they execute on all of what they have laid out, the stock price could double in the next few years, but for the stock to be basically flat today, there's clearly not a lot of faith here," Stephens said. "In the wholesale universe, we've heard it all before — and that's the markets lack of reaction today."Kellwood's stock closed up 26 cents Tuesday at $15.48.
“What he has done at Vuitton is really exceptional,” said @gameofthrones’ actress Gwendoline Christie on @mrkimjones’ final show for @louisvuitton. “He has rebooted luxury in terms of making it commercial, viable and contemporary. And most importantly artistic. He has never compromised his artistic vision for the sake of commodity.” (📷: @zefashioninsider)
After seeing a demand for men’s wear from its customers, British contemporary women’s wear label @ariesarise has added a men’s wear component and will launch a unisex collection with @mrporterlive. The 20-piece collection includes jackets, denim, logo T-shirts and more with deconstructed ‘90s vibes. Set to launch on January 18, you can shop the pieces on Aries’ website and on mrporter.com. #wwdfashion
“And so spending so much time with a character who thinks like that, inevitability you try and analyze yourself and go back and think about your own demons and dark chapters that you had in your life,” says @thedanielbruhl of his role in TNT’s “The Alienist.” The show, set in the Gilded Age of New York, also stars Dakota Fanning and Luke Evans. Head to WWD.com to read about how 39-year-old Brühl prepared for the role and why he thinks the show is so relevant to today #wwdeye ( 📷: @Eriktanner)
Now that Celine Dion’s collection has topped $10 million in sales, the pop superstar, fashion icon and newly-minted industry player is eyeing growth in Asia. Read the full report by @tiffanyap, link in bio. #wwdnews #celinedion
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
Among the familiar faces at @off____white’s show was a surprise figure: Japanese artist @takashipom, pictured here on Wednesday morning. Other show-goers included @jerrylorenzo, who spoke about his upcoming project: a @nike collaboration for back to school, with designs inspired by his childhood on the West Coast. Sitting in the front row were Future, Don Crawley, @miguel and more. See the rest of the photos on WWD.com #wwdeye (📷: Stephane Feugere)
According to @laurentsai, former “Terrace House: Aloha State” cast member, she didn’t know she was auditioning for the Japanese version of “Real World.” “I was telling a couple of my friends and someone’s like, ‘That sounds a lot like Terrace House.’ I was like, ’No it can’t be.’” Turns out, it was. But Tsai isn’t just a reality star — she’s an illustrator who has worked with Starbucks Japan and most recently, she’s dipping her toes into the fashion world. Head to WWD.com to read about her time on the show, modeling and her art. #wwdeye (📷: @danieldorsa)
More changes are coming to New York Fashion Week: Beginning with the spring 2019 collection, @alexanderwangny will move his New York show to June from September, adopting a biannual schedule with collections shown in June and December. Additionally, the @cfda is planning for an official summer/winter fashion season taking place as soon as June and December 2018. Read more about the upcoming changes on WWD.com. #wwdnews #wwdfashion (📷: @slovekinpics)