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Warnaco on Track for $4B in 2016

At the Deutsche Bank Global Consumer Conference in Paris, ceo Helen McCluskey said she sees "organic growth potential ahead" despite international challenges.

Helen McClusky

Overseas financial problems notwithstanding, The Warnaco Group Inc. remains on track to hit $4 billion in revenues by 2016 even if it’s unable to acquire another brand.

This story first appeared in the June 22, 2012 issue of WWD.  Subscribe Today.

Helen McCluskey, president and chief executive officer of the New York-based marketer of Calvin Klein Jeans and Underwear, among other brands, told attendees at the Deutsche Bank Global Consumer Conference in Paris Thursday that the firm could maintain its projected revenue growth rate of 9 to 10 percent a year with or without adding a brand to a stable that includes Calvin Klein Underwear, Warner’s and Olga.

“We’ve got a lot of organic growth potential ahead of us,” she said. “We believe we can continue at the same pace of growth that we’ve experienced over the last five years into the next five years, and that’s all within our own business and our own brand portfolio that we have without an acquisition other than franchises and distributors.”

 

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Warnaco posted 2011 revenues of $2.51 billion, 9.5 percent higher than in 2010, while earnings dropped to $3.01 a diluted share from $3.19 in the prior year. However, since outlining its expansion plans to analysts in March, it disappointed Wall Street with first-quarter profits that dropped 18.4 percent, to $35.9 million, as revenues fell 7 percent to $615.5 million. Hurt by weakness in southern Europe and South Korea, both sales and earnings fell short of consensus estimates.

McCluskey told the Deutsche conference that the situation in Europe is “not getting worse, but it hasn’t changed substantially from where it was.” There’s been “stabilization” in South Korea after a “very negative performance” through the first quarter.

Investments made to improve its direct-to-consumer and global businesses have provided infrastructure ample to support an additional label, she noted.

“We believe we have the long-term potential to add another brand; to continue to diversify our portfolio; leverage our expertise and considerable position in emerging markets into another brand; leverage our global platforms, the country platforms that we have in place; use our strong teams, and enable us to accelerate the growth of an additional new global brand within our portfolio,” she said.

Warnaco has outright ownership of the Calvin Klein brand for intimate apparel and underwear, holds a long-term license for Calvin Klein Jeans and the rights in perpetuity to Speedo in North America and the Caribbean. The European CK Calvin Klein apparel and accessories businesses previously managed by Warnaco under license will move in-house to PVH Corp.’s Calvin Klein division beginning next year.

Warnaco shares pulled back 28 cents, or 0.6 percent, to $43.90 Thursday.

Also at the Deutsche conference Thursday, Jonathan Ramsden, executive vice president and chief financial officer of Abercrombie & Fitch Co., provided some details about the firm’s decision, first disclosed in February, to close nearly one-fifth of its U.S. stores by 2015.

The 180 closures — focused on the namesake and abercrombie kids’ operations but also including some Hollister stores — are in addition to the 135 units shuttered by A&F in the last two years. Ramsden said the majority would come through lease expirations but that the company has “also had a limited number of buyouts.”

At the end of its first quarter on April 28, A&F operated 1,049 stores. The 942 units in the U.S. include 279 A&F stores, 154 abercrombie units, 491 Hollister stores and 18 Gilly Hicks units.

“We’ve committed to only opening stores in Europe that we expect to achieve a 30 percent four-wall margin based on realistic but conservative volumes and after cannibalization,” the cfo said, adding that the chain’s top 250 stores in the U.S. all operate at or above the 30 percent “target margin.”

However, last year U.S. stores operated at about a 17 percent margin. By contrast, he noted that a store just approved a few weeks ago, to operate outside Paris, is expected to generate $8 million in first-year sales: “Even if it only does 75 percent of the target volume, it would still do a 30 percent four-wall margin, so there is room in the model.”

Overall margins should benefit from the availability of less expensive cotton as well as from higher margins from operations outside the U.S., where A&F’s recent expansion plans have been focused.