NEW YORK — Margin pressure and tough year-ago comparisons slashed Russell Corp.’s third-quarter earnings by more than a fifth, but the firm did easily surpass the Wall Street forecast.
For the three months ended Oct. 5, the Atlanta-based branded athletic and outerwear manufacturer said net income fell by 21 percent to $18.5 million, or 56 cents a diluted share, from $23.4 million, or 72 cents, a year ago. Earnings per share eclipsed analysts’ expectations by 8 cents. Excluding special charges in both years, net income would have decreased 27.2 percent to $19.3 million, or 59 cents, from $26.5 million, or 82 cents, last year.
Net sales for the period ticked up 0.3 percent to $388 million. By segment, the acquisitions of Spalding and Bike fueled a 20.5 percent increase in the athletic channel’s revenues to $121.1 million, but mass retail sales slipped 0.2 percent to $147.8 million, and the artwear and careerwear channels dropped 20.5 percent to $91.1 million.
The absence of sales momentum and a 210 basis-point retraction in gross margin to 29 percent of sales contributed to the depleted bottom line.
In related news, Russell said it’s realigning its operations to increase focus on both its athletic and activewear businesses. Manufacturing, distribution and some administrative functions will be combined with sales and marketing to create separate athletic and activewear groups. As part of the project, Russell will build for the activewear group a $50 million textile facility in Choloma, Honduras, which is slated for completion by late next year. The company said once the facility is fully operational in 2006, it should initially realize annual pretax savings of $15 million to $20 million.
On a conference call, chief executive officer Jack Ward outlined plans for “an additional operational improvement program targeting $50 million in pretax cost reductions to offset anticipated price decreases, higher fiber costs and other cost increases for fiscal 2004. This comprehensive plan includes improving operating efficiencies and asset utilization, while streamlining processes in both our manufacturing and administrative areas.”
For the year to date, Russell said net earnings improved 43.9 percent to $28.6 million, or 87 cents a diluted share. By comparison, in the first nine months of last year the firm recorded profits of $19.8 million, or 62 cents. Net sales for the period increased 3.3 percent to $883.9 million from $855.9 million a year ago.Looking ahead, Russell raised its full-year guidance to $1.31 to $1.39 a diluted share exclusive of costs for its operational improvement program. Previously, the firm had forecast earnings of $1.25 to $1.35.
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