Helen McCluskey’s first year as president and chief executive officer of The Warnaco Group Inc. got off to a less than rousing start.
Buffeted by weakness in South Korea and Europe, and a double-digit decline in its Calvin Klein Jeans business for women, the New York-based firm saw net income for the first quarter ended March 31 drop 18.4 percent to $35.9 million, or 86 cents a diluted share, from $44 million, or 97 cents, in the year-ago quarter. Adjusted EPS was 90 cents, below the consensus estimate of 92 cents expected by Wall Street.
Revenues receded 7 percent to $615.5 million from $662.2 million a year ago and were nearly $40 million below the consensus estimate of $654.1 million. Gross margin dropped to 36.4 percent of sales from 36.9 percent. Sportswear sales declined 11.4 percent to $300.8 million while swimwear fell 9.7 percent to $91.9 million. Intimate apparel managed a 0.9 percent increase to $222.9 million. Direct-to-consumer operations added 39,000 square feet of retail space during the quarter, allowing sales in that area to grow 7 percent despite a 2 percent decline in same-store sales, all of it attributable to declines in Korea.
Operating income slipped slightly in intimate apparel and rose 5.5 percent in swimwear but dropped nearly two-thirds in sportswear, Warnaco’s largest business, to $13.6 million.
Pointing out that earnings, unlike sales, were on par with the company’s plan, McCluskey reported that revenues in the quarter were up 3 percent for Calvin Klein Underwear but down 11 percent for Calvin Klein Jeans, with women’s jeans bearing the brunt of the slip. Offsetting declines in Korea, business in China moved up 30 percent on top of a 50 percent gain a year ago.
“We had anticipated a year-over-year decline in net revenues in the quarter due to planned reductions to value retailers and the impact of fluctuations in foreign currency exchange rates,” McCluskey said. “However, more challenging market conditions in Europe, higher markdowns in U.S. sportswear and softer than expected comparable-store sales in our owned retail stores, particularly in Korea, resulted in net revenues below our plan.”
During a late afternoon conference call, she told analysts, “Some of the shortfall was due to macro elements…and some was caused by our own underperformance, as we saw in our jeans business, particularly in women’s.” She noted that the recent appointment of Karyn Hillman as chief merchandising officer for Calvin Klein Jeans and Jeans Accessories and the promotion of Mark Whyman to chief commercial officer for Warnaco’s global Calvin Klein business “will address both near- and long-term needs in these areas.” Both Hillman and Whyman report directly to McCluskey.
The company reduced guidance for the fiscal year and now expects adjusted EPS of between $4 and $4.25, down from between $4.20 and $4.45. Revenues are budgeted to be flat to up 2 percent, below the 4 to 6 percent range provided in February.
Lawrence Rutkowski, chief financial officer, said that Warnaco this year would be a “second-half story,” with improvement expected in nearly all financial metrics during the back half of the year. Revenues and earnings for the second quarter are expected to decline.
Warnaco shares Thursday were down $2.12, or 4 percent, to $51.13 in New York Stock Exchange trading and unchanged in after-hours transactions following the release of results.
In addition to Calvin Klein Jeans and Underwear, Warnaco designs and markets Chaps men’s wear, Speedo swimwear and Olga innerwear, as well as other brands.