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Kenneth Cole Swings to 3rd-Qtr. Profit

Kenneth Cole's sales for the quarter were below analysts' estimates.

Kenneth Cole Productions Inc. surprised Wall Street with a third-quarter profit on Tuesday, but sales in the period and fourth-quarter top-line projections were below analysts’ estimates.

For the quarter ended Sept. 30, the New York-based vendor said net income grew to $186,000, or 1 cent a diluted share, compared with a net loss of $1.6 million, or 9 cents a share, in the year-ago quarter. Revenue fell 21.5 percent to $103.8 million from $132.1 million in the 2008 period. Analysts surveyed by Yahoo Finance anticipated a net loss of 1 cent on sales of $104.2 million.

Exits from the Bongo and Tribeca businesses hurt sales, as did reductions in private label programs and off-price distribution, the company said.

Despite touting inventory and cost controls as instrumental in third-quarter results, the company issued fourth-quarter guidance that fell below analysts’ expectations. Kenneth Cole said it expects fourth-quarter operating earnings per share of between 4 cents and 8 cents, on sales in the range of $107 million to $112 million. Analysts projected earnings of 9 cents a share on revenue of $118.5 million.

“Our focus on quarter-over-quarter improvement is beginning to yield positive results,” chief executive officer Jill Granoff said on a conference call. “While we are continuing to experience top-line pressure, particularly in the wholesale segment, our heightened focus on inventory and expense management has led to improved gross margins and increased profitability.”

Quarterly selling, general and administrative costs fell $7.3 million, or 14.1 percent, to $44.6 million, and inventories were down 35.5 percent to $36.4 million. Gross margin as a percentage of sales improved to 43.3 percent, from 41.1 percent, driven by improved margins in the company’s retail business. Nonetheless, comparable-store sales slid 12.9 percent.

Granoff, who said both comps and margins were improving in the fourth quarter, pointed to the vendor’s need to make “progress towards citing a viable economic model” for its full-price stores.

“Full-price retail is an important part of the future of our company and represents the face of the brand,” she said, explaining that the firm is “pursuing a number of initiatives to optimize the fleet, including store closures, rightsizing and rent concessions.”