CHESTERFIELD, Mo. — Kellwood Co. will continue to grow in 2003 through acquisitions and building on its existing brands, the company’s chief executive officer said at its annual shareholders meeting here Thursday.
“As demographics and taste levels continuously change, it’s up to us to take the challenge to our retail partners,” said ceo Hal J. Upbin at the firm’s headquarters here. “A lot of this year was laying the pipes for the future.”
Most projects take 12 to 18 months to complete, he said, “so we’re going to whip into ’04.”
In the next two weeks, Kellwood expects to announce it has obtained licenses for another urban line of apparel and a women’s branded swimwear line, said Bob Skinner, who heads the men’s sportswear and other soft goods divisions. Skinner would not elaborate.
Later on Thursday, Kellwood reported that net income for the first quarter ended May 3 rose a hefty 143.7 percent to $20.8 million, or 78 cents a diluted share, from $8.5 million, or 37 cents, in the year-ago quarter. Last year’s quarter included a $7.2 million charge for realignment of the firm’s operations. During the period, sales rose 20.8 percent to $689.2 million from $570.7 million.
At the meeting, Stephen Ruzow, president of Kellwood’s women’s wear division, and Skinner each reviewed their divisions and made several announcements of the company’s plans: This fall, the firms will launch the Izod women’s sportswear line licensed from Phillips-Van Heusen Corp. at May Co. stores, the Lucy Pereda line exclusively at Sears, a David Meister sportswear line at Neiman Marcus and Saks, and DLG, a moderate updated collection, at department stores.
In the spring of 2004, Kellwood will launch Liz Claiborne women’s suits at department stores after recently obtaining its suit and dress license, XOXO dresses and intimate apparel — licenses it obtained this month — at May and Federated Department Stores Inc., Sag Harbor sleepwear at department stores, and Beliza, a new moderate misses’ line.
Ruzow said the women’s wear division is aiming for operating earnings at 9 percent of sales for this year. In 2002, the division posted operating earnings at 7.8 percent of sales.The goal is to reach operating earnings of 10 percent by 2006, Ruzow said, adding that it is a commitment that he has made to the company’s board. But, “We think we can accelerate it by a couple of years,” he said in an interview after the meeting.
Reviewing the past year’s results, Kellwood chief financial officer Lee Capps said 2002 sales fell 3.4 percent from a year ago, amid a difficult year for retailers. But net earnings rose 11.3 percent on better management of inventory. Sales of women’s apparel fell 13 percent, while sales of men’s apparel and soft goods rose 4 percent and 9 percent, respectively.
Sales for Gerber Childrenswear were $115 million in the seven months since the acquisition in June 2002, Capps said.
Throughout 2002, the retail industry has had numerous hurdles, such as deflation and lower consumer spending on apparel, but “every morning when I get up and look out the window…people are still wearing clothes,” Skinner said.
During the meeting, Ruzow and Skinner gave sales projections for some apparel lines:
Izod will have sales in excess of $50 million in its first year.
DLG expects $10 million in sales in 2003 and more than $30 million in sales for 2004.
Sangria, introduced for spring at 800 stores, will have just over $9 million in sales in 2003.
The Lucy Pereda line, to be sold at 229 stores this fall, is expected to have $30 million in sales in 2004, and the company is negotiating whether to keep the brand’s exclusivity at Sears next year.
The David Meister sportswear line is expected to have $8 million in sales for 2004.
XOXO women’s sportswear is expected at $20 million in sales for 2003 and more than $50 million in 2004. XOXO junior sportswear expects more than $50 million in 2004. XOXO dresses are expected to take in $7.5 million in sales in 2005.
The licensed Docker’s knitted women’s tops expects sales of more than $15 million in 2004 and more than $30 million in 2005.
Pantology, a pants line, will take in $4 million in sales in 2004.The Run Athletics line and the other yet-to-be-announced urban brand is expected to take in over $20 million in sales in 2003.
A recent decision to lower prices of Gerber Onesies, the one-piece underwear for children, resulted in sales increases, Skinner said. His division is also considering extending the Gerber brand to J.C. Penney, Sears & Kohl’s. Kellwood acquired Gerber in June 2002.
Upbin, in response to a shareholder’s question about the effects of the lowering of dividend taxes on Kellwood, said the company’s board will continue to look at Kellwood’s dividend payments. However, the company will not be paying down debt, as it is “not a good use of our dollars,” he said.
In 2003, Kellwood expects net earnings to grow 37 percent to about $19 million to $20 million. Earnings per share for the year are expected between 72 cents to 75 cents.
“We’ve got a lot of positive things going on and we’re a major player of the game,” Upbin said.
In the first quarter, all divisions showed increases: Women’s sportswear rose 15.1 percent to $415.8 million from $361.2 million; men’s sportswear exploded by 42.2 percent to $126.7 million from $89.1 million, and other soft goods, which includes its intimates business, rose 21.8 percent to $146.7 million from $120.4 million. Some of that growth was attributable to the company’s acquisition of Gerber Childrenswear in June 2002 and Briggs in February 2003.
Briggs provided $49 million of sales with organic growth of 2 percent. Kellwood’s core brands — Sag Harbor, Koret, My Michelle and Dorby — were up 8 percent, with Sag Harbor and My Michelle showing exceptional strength. The increase was partially offset by lower private label volume and some erosion in the firm’s better-to-bridge price point brands. Gerber Apparel provided $36 million of growth, partially offset by an 8 percent drop in the soft goods division. Gerber Hosiery, included in the men’s sportswear business, contributed $13 million of sales, with broad-based organic sales growth of $25 million, or 28 percent.
The company was able to reduce its total debt at the end of April to $307 million, down $23 million from a year ago to 34 percent of total capital versus 42 percent at this time last year, despite the acquisitions of both Gerber and Briggs during the last 12 months. The company said that the improvement in its capitalization was because of an increase in free cash flow, improved working capital management, and $80 million of new equity issued in conjunction with the Gerber and Briggs acquisitions.The company expects second-quarter sales to grow by between 12 and 14 percent, or to $525 million from $463 million last year, and for earnings per share to be in a range of 20 to 23 cents, versus 18 cents a year ago. For the year, sales are expected to land between $2.55 billion and $2.6 billion, with an EPS range between $2.70 and $2.80. Due to marketing initiatives, Kellwood said EPS is expected in the lower end of the range, compared to last year’s $1.69 per share.
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