NEW YORK — Declines in its wholesale business outweighed gains at retail as St. John Knits International Inc.’s earnings slid by nearly two-thirds in the third quarter.

In the three months ended Aug. 3, the Irvine, Calif.-based sportswear maker reported net income of $1.9 million, or 29 cents a diluted share, 66.3 percent below the year-ago mark of $5.8 million, or 76 cents. Preferred stock dividends in the 2002 quarter subtracted an additional $737,000 from income allocated to common stockholders.

Sales in the quarter declined 5.1 percent to $83.5 million from $88.1 million in the like period last year.

While gross margin increased to 57.6 percent of sales from 57.4 percent last year, a $4 million increase in selling, general and administrative expenses, to 46.6 percent of sales from 39.7 percent, drove down operating margins to 11 percent of sales from 17.7 percent.

St. John, in a Form 10-Q filing with the Securities and Exchange Commission, attributed the SG&A increase to new store costs and higher sampling and design salary expenses, only partially offset by a $900,000 decrease in advertising expenditures.

Dogged by lower unit sales of its Knit and Sport product lines, wholesale volume fell 6.7 percent to $69.1 million while the unit’s operating income sank a heftier 27.9 percent, to $12.1 million. The firm said the liquidation of Jacobsons reduced sales by about $1.7 million versus the prior year.

“In addition, sales to the company’s three largest wholesale customers decreased during the quarter by approximately $7.5 million, due to a reduction in their inventory balance from the end of the third quarter of fiscal 2003,” the firm said in the filing.

Some of that contraction was offset by an increase in international sales of about $2.1 million, but a more significant factor was growth, both through store openings and same-store sales increases, within St. John’s retail operations. Retail sales expanded 14.7 percent, to $35.4 million, as comparable-store sales rose 7.2 percent during the quarter.

Operating profits in the retail segment skyrocketed 65.6 percent to $1.1 million.

In the past year, St. John has opened six boutiques and four outlet stores and closed two St. John Home stores and one St. John Home outlet. At the end of the third quarter, it operated 30 St. John boutiques and 14 outlets.For the nine months, net income declined 53 percent to $8.9 million, or $1.33 a diluted share, from $18.9 million, or $2.34. No preferred dividends were paid in the most recent period, versus $3.5 million of such disbursements in the year-ago period.

Sales rose fractionally to $269.4 million, 0.4 percent above last year’s $268.3 million.

Although privately held since a July 1999 buyout, some of St. John’s stock remains in public hands and it continues to report its financial results.

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