By  on March 23, 2012

NEW YORK — The Warnaco Group Inc. on Thursday laid out a five-year plan that calls on the maker of Calvin Klein underwear and jeans to grow sales by 10 percent a year, hitting $4 billion in revenue by 2016, up from $2.5 billion in 2011.

Key pillars in the strategy include dramatically growing the direct-to-consumer channel; ramping up international expansion; gaining market share with its heritage swim, sportswear and intimates brands, and managing cash to enhance shareholder value, said Helen McCluskey, president and chief executive officer of Warnaco, during a presentation to analysts here.

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The company is actively seeking a major acquisition to leverage its global infrastructure and experience. “We are well-equipped and well-positioned to make an acquisition of scale and consequence,” said Stanley Silverstein, executive vice president of international strategy and business development. The company has an underleveraged balance sheet and cash flow of $1 billion over the next five years to finance a deal.

Warnaco has been in active discussions with potential targets and is looking at both established brands and younger brands that would bring fresh talent, competencies and business models to the company. Access to capital has gotten easier in the current banking climate, but one hurdle to potential deals is the increased valuations for private companies, with some emboldened by the stock market run-up of Michael Kors Holdings Ltd. shares, noted Silverstein.

The company is considering opening a slew of new Calvin Klein underwear stores in the U.S. There are currently two stores — in New York and Washington, D.C. — and Warnaco could open 50 new units in key urban street and mall locations in the coming years. A rollout would revive a previous retail plan that was shelved due to the 2008 financial crisis and recession. McCluskey said Warnaco has been heartened by the performance of the SoHo unit in New York, which has been “terrific over the last 18 months.”

Asked by an analyst about the rationale for exiting its European ck Calvin Klein bridge business, which will be taken in-house next year by PVH Corp., McCluskey said Warnaco had been losing money on it. Due to the anemic economy in Europe, Warnaco did not want to open 50 stores for the brand, as required under the license. Warnaco was failing to meet minimum sales thresholds under the license, forcing it to pay “sizeable” penalties to Calvin Klein Inc., a unit of PVH.

Under the five-year plan laid out by Warnaco executives, operating margin will advance from 11 percent last year to 14 percent in 2016, as earnings per diluted share climb from $3.96 to $8, a 15 percent compound annual growth rate, or CAGR.

Over the next five years, Warnaco’s Calvin Klein underwear and jeans business is mapped out to grow from $1.9 billion last year to $3.1 billion in 2016, international sales from $1.5 billion to $2.8 billion, direct-to-consumer sales from $700 million to $1.7 billion and heritage brands — encompassing Speedo, Chaps, Warner’s and Olga — from $600 million to $900 million.

Asia will double in size by 2016 to become the company’s largest market, said newly promoted chief commercial officer Mark Whyman. This year, China will surpass South Korea as the company’s largest Asia market and become the second biggest market globally for the company, after the U.S. By 2016, China will account for $400 million in revenue, with store count there jumping from 129 today to 280.

Warnaco’s direct-to-consumer channel is expected to grow from $700 million in 2011 to $1.7 billion by 2016, with a CAGR of 18 percent. The company operates 1,760 stores, a number slated to swell to 2,710 in five years. Asia and Latin America are the primary areas of store growth, with Europe focused on improving store productivity.

Warnaco’s chief financial officer Lawrence Rutkowski pointed out the company’s shareholder return over the past five years was 97 percent, beating out Ralph Lauren Corp. (81 percent), VF Corp. (81 percent) and Coach Inc. (47 percent).

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