Swank Q3 Profits Slip on Higher Sales

Net down 9.8% as sales rise 2.5% and gross margin holds steady.

Swank Inc. saw third-quarter profits dip despite an increase in sales.

In the three months ended Sept. 30, the New York-based men’s accessories firm registered net income of $1 million, or 18 cents a diluted share, down 9.8 percent from $1.1 million, or 20 cents, in the year-ago quarter.

Sales rose 2.5 percent to $33.4 million from $32.6 million in the 2010 quarter, with cost of goods sold and gross profit up at the same rate and gross margin flat at 31.4 percent of sales.

Selling, general and administrative costs rose slightly faster, up 4.3 percent to $8.6 million.

John Tulin, chairman and chief executive officer, characterized the small leather business as a standout for the quarter with belts and jewelry both performing well.

“If you can keep sales up a little, watch your expenses like crazy, fight the price increases coming out of Asia and hope that Italy and Greece don’t fold, you’ve got a chance,” he told WWD. “We’re doing our best to hold the line on SG&A, but we’re also trying to do the right thing by our employees, including a general wage increase and a bonus increase for the last four or five years, and doing our best to minimize any increases on medical expenses for them.”

He said SG&A also was hit by incidental expenses, such as business travel being shifted and a higher percentage of goods being flown in rather than sent by water.

Tulin doesn’t expect the tenor of business in the fiscal year’s final three months to change materially from the third quarter. “Everybody, including us, is watching their inventories like hawks,” he said, “treading that fine line between having the right amount of goods on the shelves and having too much on the shelves. Psychologically, it’s a little more threatening now because of everything else that’s going on in the world. This crisis is wider and deeper than anything we’ve seen in a long time, and it will be harder to navigate because there are so many intangibles.”

In the nine months, net income more than quadrupled to $2.5 million, or 45 cents a diluted share, from $611,000, or 11 cents, in the year-ago period. The year-ago period includes a pretax charge of $1.5 million in connection with the termination of Swank’s relationship with Style 365, and a benefit of $538,000 from a state income tax audit. Sales rose 4.6 percent to $91.7 million from $87.7 million with gross margin rising to 32.4 percent of sales from 29.2 percent in the 2010 period.