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Kenneth Cole Shares Climb 5.1%

Second-quarter results in which income fell 38.2% includes an impairment charge for the value of the firm's auction-rate securities.

Shares of Kenneth Cole Productions Inc. rose 5.1 percent following the company’s second-quarter earnings conference call as investors liked what they heard on third-quarter projections.

Kenneth D. Cole, chairman and chief creative officer, told analysts during the conference call to Wall Street that he and Paul Blum, the firm’s chief executive officer, have “collaborated on a vision for the future and are in the process of implementing the early stages of a new strategic plan. The company’s focused on building a global, highly profitable, design driven lifestyle business that we believe can set the international standard for New York style and social conscience.”

Blum told analysts the company is “confident that we will deliver much better results in the future.”

The company is expecting third-quarter earnings per share of 29 cents to 31 cents, compared with 11 cents a share a year ago, on revenue growth of 15 percent. Revenues in the third quarter ended Sept. 30, 2010 were $119 million.

For the three months ended June 30, income fell 38.2 percent to $579,000, or 3 cents a diluted share, from $937,000, or 5 cents, a year ago. The results also included an impairment charge of 2 cents a diluted share against the value of its auction-rate securities. Excluding the charge, diluted earnings per share would have been 5 cents, or flat compared with the year ago EPS. Total revenues decreased 5.3 percent to $102.2 million from $108 million, which includes a 5.4 percent decline in sales to $91.6 million from $96.9 million.

The company said wholesale sales were flat and direct-to-consumer sales were down 11.5 percent driven by the closure of 12 stores, including the one at Rockefeller Center. It also noted that excess inventory related to the store closures mostly have been cleared, with little spillover into the third quarter.

Shares of Kenneth Cole closed at $13.27, up 64 cents. In intraday trading, the shares climbed as high as $13.88.

According to Blum on the call, what’s energizing the company are some initiatives to improve product design as the focus on the merchandise becomes the number-one priority. “As our product improves, especially given the strength of the brand, we should see support for higher prices.…This should help both sales and margins,” he said.

The upbeat projections for the third quarter are based on new product lines for fall, such as its new women’s sportswear business. In addition, the company sees growth in the retail doors selling its Reaction Men’s sportswear line. Blum also described its international business as “underpenetrated throughout Asia and Europe,” an area the company wants to grow “very aggressively” over the next several years.

A source familiar with the company’s initiatives said the firm is moving forward on several fronts. While there’s been a shuffling of internal staffing to create teams to emphasize the new product and marketing direction, the company at the same time is scouting for licensing partners for international expansion as well as licensing opportunities for new product categories, this individual said.

For the six months, the loss was $16.6 million, or 91 cents a diluted share, against income of $2.8 million, or 15 cents, a year ago. Revenues inched up 1 percent to $219.7 million from $217.5 million.