NEW YORK — Kellwood Co. not only has a big appetite, but a big stomach, as well.
While the St. Louis-based firm was outbid for Kasper A.S.L. at auction last week, that doesn’t mean Kellwood has lost its hunger. Jones Apparel Group, as reported, snatched Kasper out of bankruptcy, along with its signature suit and Anne Klein businesses, with a total bid of $216.6 million. That bid is set for approval at a court hearing on Thursday.
Kellwood has a full plate even without another acquisition and at least a couple of deals are in the works, with one expected to go through by the end of the year.
To feed the beast of growth, Kellwood has taken on a myriad of new licenses recently. Among them are Liz Claiborne dresses and suits, a Calvin Klein better women’s line and an Izod moderate women’s line from Phillips-Van Heusen, XOXO junior apparel from Global Brand Holdings, Run Athletics and Def Jam University sportswear from Russell Simmons, and Dockers’ tops with Levi Strauss & Co.
Together, licenses for XOXO, Dockers tops, Run Athletics and Claiborne dresses and suits are slated to bring in revenues of $100 million next year for the firm. Kellwood also acquired pants and skirts maker Briggs New York Corp., a $200 million business, in February.
Last year, the company’s top line came in at $2.2 billion.
During the first quarter ended May 3, Kellwood’s net income shot up 143.7 percent to $20.8 million, or 78 cents a diluted share. Sales for the quarter increased 20.8 percent to $689.2 million.
With a vast corporate empire spreading from Sag Harbor moderate apparel and the forthcoming Calvin Klein line to the David Dart and David Meister bridge businesses, analysts said the coordination of so many moving parts brings along risk. However, the consensus is that Kellwood has the proper structure in place to manage its newer businesses.
Kellwood, along with other large apparel manufacturers, is forced to take on new projects and acquisitions to supplement the industry’s usually tepid organic growth.
“All of the major players are bound, forced to acquire,” said industry consultant Emanuel Weintraub. “They have to acquire because Wall Street is what the game is about. It’s not about making apparel. It’s about the stock and Wall Street’s opinion of that stock…and the stockholders want a return.”Investors acknowledged Kellwood’s growth initiatives by driving up its shares 36 percent over the last year to close at $33.93 on Tuesday. By comparison, the Dow Jones Industrial Average rose 7.1 percent during the same period. Among the firm’s competitors, which also have been actively vying for growth, shares of Liz Claiborne Inc. increased 21 percent while Jones’ stock slid 10.5 percent.
“At this point, I don’t see any problem with the increased risk due to the last couple of acquisitions and the licensing agreements,” Sidoti & Co. analyst Christopher Ragazzo said of Kellwood’s recent moves.
“The licensing agreements have very little risk because the customer base is already there,” he noted, adding that the new Klein license does bring with it some uncertainty while expectations run high.
Kellwood will hit the stores with a selective offering of better-priced goods under the Klein name for spring, with a major launch to follow in fall 2004. The collection, though, drops into the middle of a better turf war, with square footage in department stores and sales dollars up for grabs.
As reported, the spring will see the first showing of Lauren by Ralph Lauren under the administration of Polo Ralph Lauren Corp., which recently took control of the brand amid a flurry of legal actions. Jones, which had held the Lauren license, will meet the collection head on with Jones New York Signature. Also enhancing its position in better is Tommy Hilfiger Corp. with its expanded H line that falls into the higher end of the price zone.
With so many question marks in the better world this spring, Ragazzo said Kellwood is “looking at this as an opportunity.”
“I would think they’re going to try to grab as much of the market for this segment as they can right off the bat and try to get a foothold,” noted the analyst. “A lot of retailers are looking forward to getting the Calvin Klein brand in there.”
While Kellwood hasn’t officially stated its sales goal for the line, Ragazzo said he was assuming the Klein business would bring $50 million into the firm if it were up and running for the full year.The Klein license, though, is now just one of the higher-profile happenings at Kellwood.
Hal Upbin, chairman and chief executive officer, said last week that a couple of other acquisitions that were placed on the back burner during the firm’s pursuit of Kasper would come to the fore again.
“We’ll pick it up,” he said. “We’re looking at the men’s portfolio, young women’s and accessories portfolios.” The ceo expects to complete another acquisition by yearend. “We have the financial capability and have the interest.”
Wall Street’s keeping a close eye on the firm’s expansion.
“If it were up to one person to keep track of all of these new things that they added, yeah, my risk alarm would be going off,” said C.L. King & Associates analyst Thomas Lewis. “As long as every new property finds a home so you have one incumbent company being held accountable for its integration, it’s probably manageable. This is a company that spent a lot of years putting themselves in a position where they could be acquisitive like this.”
Though Lewis sees Kellwood successfully managing all of its various projects, he asked, “Could they go out and make a couple of more acquisitions and tip the balance? Absolutely.”
Lazard Frères & Co. analyst Todd Slater said, “There are clearly some risks, but the acquisitions and investments that the company has made have been low cost, therefore minimizing the risk of not achieving required return on capital.”
Neither Kellwood’s acquisitions nor its licensing deals have gone too far afield from its operating strengths, noted Slater, which also mitigates any possible risk. The abundant acquisition opportunities driven by a difficult economy should persist for a couple years, noted the analyst.
“Weak economic times are very active consolidation periods, very active acquisition periods, for apparel manufacturers, and so these big apparel companies are positioning themselves for their next leg of growth during the slow, soft economic environment,” Slater added.
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