NEW YORK -- The Warnaco Group reported earnings from continuing operations rose 2.6 percent in the fourth quarter ended Jan. 8, as strength in intimate apparel offset weakness in men's dress shirts.
Earnings from continuing operations rose to $19.8 million, or $1 a share, from $19.3 million, or 95 cents, a year earlier.
After several special items, net income in the latest quarter was $1.1 million, or 6 cents, against $7.3 million, or 36 cents. Warnaco's latest quarter included a $22.5 million charge to cover expected costs for the restructuring of its men's shirt manufacturing operations.
Linda J. Wachner, chairman, president and chief executive officer, said the company is examining production levels at each men's wear plant and expects to provide further details on the restructuring in the near future.
The latest quarter also included a gain of $22.5 million from a tax-loss carryforward and a charge of $18.6 million related to the refinancing of its bank loan.
Sales in the quarter were up 10.6 percent to $204.7 million from $185 million.
In the year, income from continuing operations jumped 39.4 percent to $53.3 million, or $2.68 a share, from $38.2 million, or $2.01. After special items, net earnings totaled $24.1 million, or $1.21 a share, in the latest year. Besides the charges in the fourth quarter, the year included a $10.5 million charge related to a change in accounting for post-retirement benefits.
In the prior year, Warnaco showed a net loss of $20.2 million after $65 million in extraordinary charges. Sales in the year rose 12.6 percent to $703.8 million from $625.1 million.
Wachner said sales of intimate apparel, including the Warner's, Olga and licensed Fruit of the Loom brands, increased 10 percent in 1993 to $423.2 million from $384.8 million, "with increased profitability despite significant increases in marketing spending."
Wachner added that the exclusive three-year agreement with Avon to sell Warner's and FTL bras expands Warnaco's distribution channels. In a telephone interview, she said she expects the Avon agreement to generate "sales in excess of $30 to $35 million this year."
Wachner also cited the potential for "high profit contribution" from the acquisition of the licenses for the worldwide trademarks of Calvin Klein for men's underwear, women's intimate apparel, and men's accessories. This deal should be completed in March.Meanwhile, Wachner said, "the men's business posted double digits increases in Chaps by Ralph Lauren sportswear but was weak in all dress shirt areas."
Sales of men's wear rose 22 percent, but operating profits declined, hurt by the dress shirt and neckwear brands, she added. The company sold its Puritan license to Wal-Mart Stores Inc., Wachner said, "because we don't want to be in a low gross profit business." Wachner, however, denied reports that Warnaco is shuttering its Christian Dior men's shirt and neckwear business.
"We're not dissolving any businesses," she said. "We are reconfiguring our shirt manufacturing operations because shirts haven't been strong."
Todd Slater, an analyst at UBS Securities, said the quarter was "basically on target," but he reduced his estimates for this year because of Warnaco's more aggressive advertising plans.
Slater said the company's decision to exit underperforming men's wear lines will be "positive in the long term." He said the Christian Dior operation has been "the Achilles heel," with a "high-cost U.S. sourcing base."
Slater expects operating income to grow 18 percent in 1994.
Wachner noted the latest results benefited from the improved financial position, adding that interest expense was cut 21 percent in both the quarter and the year.
She said the firm expects to continue to benefit from lower interest as a result of the new $500 million bank facility signed in October 1993 at substantially lower rates.
Looking ahead, Wachner said that despite facing severe weather conditions in key markets and having to relocate its Olga distribution center as a result of the Los Angeles earthquake, she projected "another year of sales and earnings growth."
In another development, Warnaco has initiated a stock buyback program for up to $5 million in shares in the open market from time to time.
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