NEW YORK — The Warnaco Group Inc. is seeing a few signs of light on the other side of the Atlantic.
Warnaco, among the first U.S.-based apparel firms to feel the force of the European downturn last year, doesn’t expect a rapid recovery. Still, it’s grateful for signs of stabilization.
“What I can say about Europe is that it’s not getting worse,” Helen McCluskey, president and chief executive officer of the firm, told WWD following a late-afternoon conference call. “We have such big businesses in Spain and Italy that we felt the downturn a bit more than others.”
The company’s business in France is smaller “but our comps continue to be positive there,” she said.
Coupled with that, northern and eastern Europe have performed well, with second-quarter comps “strong” in Germany and the Benelux countries and double-digit growth in Russia.
McCluskey’s comments came after the New York-based firm — which markets Calvin Klein Jeans and Underwear and Speedo swimwear, among other brands — reported second-quarter earnings that, while down sharply, exceeded analysts’ consensus estimates, even as revenues failed to meet Wall Street’s expectations.
In the three months ended June 30, net income dropped 78.9 percent to $9.6 million, or 23 cents a diluted share, from $45.5 million, or $1.01, in the year-ago quarter. Excluding numerous charges, such as impairment of a note from its 2008 divestiture of Lejaby, adjusted earnings per share were 72 cents, 8 cents better than the mean estimate of analysts.
Failing to meet consensus estimates, sales declined 4.7 percent to $563.9 million from $591.4 million in the 2011 period and were flat at constant currency. Gross margin fell to 42.4 percent of sales from 43.7 percent.
The company narrowed guidance for adjusted EPS for the year to a range of $4 to $4.15, with the high end 10 cents lower than previously forecast. Revenues, originally expected to be flat to up 2 percent, are now seen coming in between 2 percent down and flat, with unfavorable currency translation driving the downward revision.
Warnaco expects a degree of second-half relief — and margin improvement — from lower product costs and the impact of growth in its direct-to-consumer business, blunted by the promotional environmental at retail.
It also expects to realize savings of about $5 million in the second half, most of it in the fourth quarter, from the decision, disclosed last month, to streamline elements of the European business.
“There will be head count reductions,” McCluskey said, “and some of that is consolidating operations and approaching efficiencies on a regional rather than country-by-country basis. We’ve taken on some system implementations and areas like customer service and even the rigor we bring to minimum order quantities.”
Direct-to-consumer accounted for 31 percent of quarterly revenues, up from 29 percent a year ago. In Europe, McCluskey said, foot traffic was down while conversion and units per transaction rose.
“We can’t control foot traffic but we were pleased to see that all that efforts we’ve made at point-of-sale — from signage to training — were paying off.”
The ceo felt the company will benefit from what is essentially the one-year anniversary of the European downturn in the second half. “We’re up against lower comps,” she said. “We really started to feel the slowdown in last year’s third and fourth quarters.”
The company will continue to convert franchisees and distributors when possible. “We have a couple planned for the second half,” she said, “and we’ve built that into our projections for the balance of the year.”
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