By  on October 24, 2005

NEW YORK — The long-term picture for the U.S. wholesale business at Tommy Hilfiger Corp. isn’t a pretty one.

Meanwhile, the chances of Hilfiger being acquired by Wal-Mart Stores Inc. no longer seems so far-fetched; one investment banker pegged them at “50-50.”

According to investment sources who have seen the company’s offering memorandum, Hilfiger is projecting that U.S. wholesale sales will drop by more than half, to just more than $400 million, by fiscal year 2009, from just under $900 million in fiscal year 2004.

Corporate earnings before interest, taxes, depreciation and amortization over that same period are expected to drop to around $7 million from nearly $40 million this year. 

In 2004, EBITDA in the wholesale area — which is around a $1 billion business — was more than $100 million. This year, that figure drops tenfold, according to one insider who has seen the book.

Men’s wholesale volume, which was approximately $200 million in 2004, will drop by more than 50 percent to less than $100 million by the end of fiscal 2006. Women’s and children’s sales are also projected to fall and “young men’s disappears,” the insider said.   

Wholesale sales are projected to grow, however, in Europe and Canada, along with the outlet business.

“Most books project growth, even if it’s not accountable,” said one investment banker familiar with the Hilfiger numbers. “I’ve never seen a book that projects down.”

Two weeks ago, the company released preliminary financial results because of an accounting restatement. For the fiscal year 2005 that ended in March, the firm said preliminary net income was $86 million, or 93 cents a diluted share. It added that it expects the restatements to reduce fiscal-year 2004 net income to $131 million from $132 million, and to increase the net loss for fiscal-year 2003 to $518 million from $513 million.

Hilfiger recently retained J.P. Morgan Chase to try to sell the company. Among those said to be interested is Wal-Mart, which is considering a bid. While Wal-Mart’s interest in the brand initially was greeted with skepticism, the investment banker said he now gives the world’s largest retailer a “50-50 chance,” and said it was likely Wal-Mart would work with someone else to purchase Hilfiger.

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