By  on February 28, 2006

NEW YORK — Warnaco Group Inc. on Monday posted disappointing fourth-quarter results due to a modest decline in sales and an increase in general expenses, but managed to end the year with earnings up 22.4 percent.

For the quarter ended Dec. 31, net income dropped 42 percent to $9.4 million, or 20 cents a diluted share, from $16.2 million, or 36 cents, in the same year-ago period. Analysts were expecting a profit of 24 cents a share, according to Thomson Financial. Sales dipped 3.2 percent to $362.5 million from $374.4 million. For the year, net income rose to $52.1 million, or $1.11 a diluted share, from $42.5 million, or 93 cents, a year ago. Sales climbed 5.6 percent to $1.5 billion from $1.42 billion.

Joe Gromek, Warnaco's president and chief executive officer, said in a telephone interview that the shortfall was primarily due to lower-than-expected swimwear sales.

Last month, the company completed the acquisition of PVH's minority interest in the Calvin Klein jeans and accessories wholesale and retail businesses in Europe and Asia, as well as the Calvin Klein bridge sportswear and accessories businesses in Europe.

Warnaco is integrating the operations of the acquisitions, and is not looking for new businesses to buy. Gromek said its Calvin Klein businesses will exceed $900 million this year, primarily in wholesale sales.

The company last year launched CK39, a super premium denim line that has had positive reception in the market. Status jeans, not premium denim, represents the majority of the CK jeans business. "We are the number-one brand in men's status jeans, and number two for women. We hope to be the number-one status jean brand for women," Gromek said.

The company has improved the profitability of its core intimate apparel segment, although that sector had the biggest sales decline in the quarter, falling 10.2 percent to $144.1 million. This compares with a 1.3 percent gain in sales to $133.5 million at the Sportswear group, and a 3.5 percent increase to $85 million at its Swimwear group.

The company also had a successful launch of Chaps last year in the mid-tier channel at Kohl's. "We still have excellent growth in Chaps, with top-line revenue growth and margin opportunity," Gromek said.Gromek said the big story for Warnaco is its ability to grow internationally — now that it has completed the recent acquisitions. The company's international sales make up 38 percent of its business, up from about 28 percent in prior years, and its direct-to-consumer business has grown to 7 percent from 2 percent.

"We ended the year with a strengthened balance sheet, which reflects gains in net income and the success of our initiatives aimed at improving inventory turns and our collection cycle," said Larry Rutkowski, chief financial officer, in a statement.

Rutkowski expects revenue growth in 2006 to be at least in the low 20 percent range, and double-digit improvements in the operating margin percentage over the prior year.

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