As Kellwood Co. posted a second-quarter loss from continuing operations of $66.3 million, the company laid out plans to streamline its women's sportswear business and restructure its executive suite.
The $2 billion vendor is dividing into moderate (Lifestyle Alliance), better and above (Designer Alliance) and junior and contemporary (Modern Alliance) divisions — going from seven to three operating divisions within women's sportswear, and from 12 to eight in the total company.
Lifestyle Alliance will house moderate brands, including Sag Harbor, Koret and Briggs New York. Designer Alliance will include most of Kellwood's better-and-above price point brands, including Calvin Klein women's better sportswear, ck Calvin Klein women's bridge sportswear, O Oscar, David Meister and Hollywould, which it acquired last year. Modern Alliance will be the junior and contemporary lines, including XOXO, My Michelle and Vince, which Kellwood also bought last year.
Leading Lifestyle Alliance will be group president Patrick J. Burns, vice president of marketing and strategy since October and former head of the Gerber Childrenswear division, which has been one of Kellwood's only consistently strong brands.
Burns effectively succeeds Paul A. Robb, ceo of Kellwood's Lifestyle Design Group, which included O Oscar and Sag Harbor, who was let go Wednesday. Robb joined Kellwood in 2001 as president of its Slates licensed tops division, then became president of Kellwood Menswear in 2002 and ceo of Sag Harbor in 2005. Before Kellwood, he served as president and ceo of Block Corp., a men's sportswear firm, and Duck Head Apparel Co. He also was director and executive vice president of Eddie Haggar Ltd., a women's wear company.
In addition to Robb's exit, sources speculate that pressure is mounting on Steven L. Ruzow, president of Kellwood's Calvin Klein division, who was formerly the president of Kellwood Womenswear, due to disappointing sales of the Calvin Klein licenses. Ruzow could not be reached for comment Thursday.
James S. Weinberg, ceo of the Halmode division since last year, has been named group president of the Designer Alliance. Arthur K. Gordon, ceo of Kellwood Western Region division, has been named group president of the Modern Alliance. Burns, Weinberg and Gordon will report to Robert C. Skinner, chairman, president and ceo of Kellwood."I have complete confidence in Pat, Jim and Arthur as the heads of our Lifestyle, Designer and Modern Alliances," Skinner said. "These executives are proven winners who are uniquely suited to lead their respective alliances. Under new leadership and through this new organizational structure, we expect our design, merchandising, production and marketing teams to deliver outstanding product offerings, effective marketing and faster retail sell-through. We also expect to reduce expenses, as we take advantage of efficiencies in scale to eliminate redundant costs and improve our supply chain. We remain committed to a transforming strategy that leads to consistent sales and operating margin improvement, and we believe this announcement brings us closer to reaching this goal."
Skinner added, "This focused and more agile organization will allow us to swiftly adapt and grow our diversified portfolio of women's brands based on the ever-changing needs of both our retail partners and consumers. Today's announcement is a crucial step forward in executing our corporate strategy to reinvigorate our core business; expand our penetration into higher profile, better-and-above price point brands; connect more directly with consumers, and utilize our operating infrastructure more efficiently to fund our growth."
Regarding its second-quarter results, the company posted a net loss from continuing operations of $66.3 million, or $2.56 a diluted share, which compares with net earnings of $7.9 million, or 31 cents, in the prior year, on sales that dropped 1.3 percent to $459.6 million from $465.4 million. Net earnings "on an ongoing basis" came in at $10.1 million, or 39 cents, which compares with $9.5 million, or 37 cents, in the prior year. The net loss for the quarter was $65.8 million, or $2.54, which compares with net earnings of $7.2 million, or 28 cents, last year.
The company said in its quarterly report that the restructuring costs related to the reorganization of the women's sportswear business, as well as the previously announced "refocusing" of its Phat Farm business and other actions, will be between $30 million and $40 million before tax during the third quarter through next year. Savings gained from these business changes will be significant.
"On a preliminary basis, the company expects annual savings associated with the reorganization of women's sportswear, refocusing of the Phat Farm business solely on licensing and distribution center closure, to range from $25 million to $35 million on an ongoing basis before tax," Kellwood stated, adding the estimates of restructuring savings and costs "will be refined over the next quarter as detailed plans are put in place."On Thursday, shares of Kellwood fell 1.4 percent to close at $18.95. Kellwood released results and made the restructuring announcement after the market closed. In after-hours trading, shares of Kellwood were down 14.5 percent to $16.20.
"The magnitude is gargantuan — this is one of the two worst quarters I have ever seen, behind the Liz Claiborne results earlier this summer," said Brad Stephens, an analyst for Morgan Keegan & Co. Inc. "The restructuring is going to help a lot, but the fundamentals still have to improve. If your brands aren't working, just being faster with them doesn't mean a lot."
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