By  on February 13, 2006

NEW YORK — Maidenform Brands Inc. lowered its fiscal 2005 and 2006 sales and operating earnings projections last week, saying high promotional activity and "aggressive" retail consolidation were negatively affecting financial performance.

In fiscal 2005, Maidenform, which went public in July, said net sales were expected to reach $381 million to $383 million, up 13 percent from last year's $337 million. The intimate apparel company previously forecast annual sales to be $385 million to $390 million.

Maidenform cited the launch of its Dream franchise, new product rollouts and store growth from certain customers as benefiting sales, but said a strong promotional environment in the end of the fourth quarter hurt revenue. The company also said sales were negatively affected by certain customers who drove down inventories at yearend. In addition, the company said it had product shortages late in the fourth quarter, particularly in its Flexees and Lilyette brands. Maidenform is consequently securing additional capacity from its sourcing partners to deal with the increased customer demand for those products.

By division, annual net sales in its wholesale segment rose about 16 percent to $281.7 million in 2005, Maidenform said, including international sales of $18.2 million, an increase of 46 percent. Sales from department stores and national chain stores were up 7 percent to about $202.6 million. Mass merchant channel sales were up about 60 percent at $46.7 million, while sales in the "other" group, which includes sales to specialty and off-price retailers, as well as licensing income, totaled $45.7 million, up 9 percent.

In the retail segment, sales fell 1.5 percent to about $54.5 million, partly because of select store closings, especially among the company's outlet stores.

Same-store sales were up 5.5 percent, however, and Internet sales almost doubled to about $2.4 million, the company said in a statement.

Maidenform said operating income on a generally accepted accounting principle, or GAAP, basis is expected to hit $33 million to $34 million in 2005, which would be up significantly from $1.7 million in 2004.

On a non-GAAP basis, Maidenform sees adjusted operating income at $44.5 million to $45.5 million — down from a previous estimate for $46 million to $48 million — which compares with non-GAAP operating income of $39.7 million in 2004. The expected non-GAAP adjusted operating income for 2005 reflects the elimination of $7 million in charges that relate to the company's initial public offering, restructuring expenses, a special cash bonus and the elimination of $6 million in plant closing costs.Thomas J. Ward, chief executive officer of Maidenform, said in the statement that the company "accomplished a great deal in 2005," but that he decided not take his 2005 incentive bonus.

"Some of the business challenges that we encountered in late 2005 are with us in 2006," Ward said, adding that the company "is taking the actions necessary to build and grow the business, such as introducing speed teams to be first to market with our innovative products and to best serve our customers."

Maidenform will announce financial results on March 7 after the close of the market.

Looking to 2006, Maidenform said net sales are seen rising 5 to 7 percent, down from a prior expectation of a 7 to 10 percent increase. It said that the 144 door closures expected in 2006 by Federated Department Stores and Mervyns made up about 8 percent of volume in 2005.

Operating income growth in 2006 is seen in the range of 8 to 12 percent, down from a previous forecast for a 12 to 18 percent increase.

Goldman, Sachs & Co. analyst Margaret Mager noted that the company's lower financial guidance is the "second earnings disappointment in little more than six months as a public company." The analyst wrote in a Feb. 8 research report that investors were disappointed in the company's third-quarter results and in "the impact of unexpected promotional activity in the company's line of full-figure bras."

As a result, Mager said, "We expect the decrease in 2005 and 2006 guidance to compound these concerns as existing problems are further aggravated by new challenges." She also noted that shares of Maidenform are down more than 50 percent from the company's 52-week high of $20.74. After falling almost 20 percent on Thursday, the stock closed up 11.1 percent in Friday trading to $9.73; the shares were down 10.6 percent for the week.

On the positive side, Mager noted that Maidenform "does have some legitimate growth opportunities, including increased mass channel penetration, new category and product development and market share gains in better department stores."

As for specific merchandise initiatives in 2006, Maidenform expects to introduce the Lite Collection, which is made up of products that are 20 to 30 percent lighter than traditional styles. It also plans to expand the Dream Collection and One Fabulous Fit franchises, reintroduce the Full Support product featuring Flex-to-Fit and launch a new "sew-free" technology for Flexees and Lilyette product extensions, including push-up bras. The company said it expects to actively pursue private label opportunities in 2006 with certain customers.Maidenform also announced that its board has approved a $20 million share repurchase program in an effort to enhance shareholder value.

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