NEW YORK — Sara Lee Corp.’s Intimates and Underwear unit, the subject of structural streamlining on Wednesday, was clearly the corporate culprit on Thursday as it bore the brunt of the blame for lower earnings in the fourth quarter.
Apparel operating income was down in the quarter, although up for the year, and apparel was the only unit to endure a sales decrease in the fourth quarter and full year.
No change in fortunes is expected anytime soon — the Chicago-based consumer goods giant identified apparel as the only one of its five business units not expected to register gains in operating profit in the new fiscal year.
In the quarter ended June 28, Sara Lee’s net income dropped 15.6 percent to $296 million, or 37 cents a diluted share, 1 cent below consensus estimates. In last year’s fourth quarter, net income was $351 million, or 43 cents. Net sales rose 3 percent to $4.63 billion from $4.5 billion.
At the Intimates and Underwear unit, fourth-quarter operating income fell 35.5 percent to $156 million from last year’s mark of $242 million, an $86 million slide that exceeded the $81 million drop in the aggregate operating income of Sara Lee’s five businesses.
Sales at Intimates and Underwear receded 5 percent to $1.54 billion from $1.62 billion. The lower results came despite beneficial exchange rates and a 37 percent increase in advertising and promotional spending, as unit sales dropped 9 percent, “reflecting weak global markets and reduced legwear and underwear inventory levels at retail accounts,” the firm said in a statement.
However, marketing efforts paid off with gains in market share in several apparel categories. Sara Lee said it had increased its number-one share in the domestic bra, legwear and men’s and women’s underwear markets. Sara Lee’s apparel brand stable includes Hanes, Hanes Her Way, Playtex, L’eggs and Champion.
The gains in share came in markets that, without exception, appear to be contracting. Global intimate apparel units were off 7 percent and declines were also registered for underwear (7 percent), activewear (5 percent), sheer hosiery (21 percent) and socks (10 percent).As reported, Sara Lee on Wednesday consolidated the production, distribution, sourcing and purchasing functions of its apparel operations.
In guidance for fiscal 2004, the company said it expects first-quarter earnings per share to land between 23 and 28 cents, versus 38 cents in the 2003 quarter, including one-time gains from restructuring and disposition activities in apparel. For the full year, EPS is expected to finish between $1.51 and $1.61.
“Intimates and Underwear operating segment income will be down for the year, although improving on a year-over-year basis in the second half as new product activity and an improved market environment drive performance,” the company said.
For the full year, Intimates and Underwear’s operating income rose 28 percent to $763 million from $596 million, while sales dropped 0.9 percent to $6.4 billion. Overall, Sara Lee posted net income of $1.22 billion, or $1.50 a diluted share, 20.9 percent higher than the $1 billion, or $1.23, logged in fiscal 2002. Sales perked up 3.8 percent to $18.29 billion from $17.63 billion.
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