ST. LOUIS — Kellwood Co. isn’t expecting a recovery for apparel in the second half of this year, but is optimistic that consumers will start filling their closets again in 2003 and is continuing to build its branded war chest in preparation.
In the short term, however, business remains tough, as Kellwood demonstrated separately Thursday when, after the close of the markets, it reported that its first-quarter profits dropped by two-thirds, reflecting ongoing cautiousness among its retail accounts and their customers.
The Chesterfield, Mo.-based apparel manufacturer expects to debut an Oscar de la Renta intimate apparel line in July, and is negotiating to get two licenses for its women’s wear business, said company executives at its annual meeting held at company headquarters Thursday.
Gerber Childrenswear is also in negotiations to sell its children’s apparel at drugstores and supermarkets, company officials said; Kellwood announced in mid-May that it is buying Gerber for $136 million.
Stephen Ruzow, president of Kellwood’s women’s wear division, said that women’s apparel sales will see a “slow recovery.” He added, “We’ll see a lot more movement to the casual side.”
The company expects “2003 as the time for recovery,” said Robert Skinner, president of Kellwood’s men’s wear division. Skinner said the Oscar de la Renta intimate apparel license, called Oscar de la Renta Pink Label, will be sold exclusively at Federated Department Stores.
The company also expects to sign a license for a `leading men’s label,” to produce apparel for men’s, women’s, boys and girls for J.C. Penney, Kohl’s, Sears and Mervyn’s, Ruzow said.
In addition, the company expects to sign a license for a “prestigious men’s brand,” to produce women’s apparel selling at department stores like Federated Department Stores, May Department Stores Co., Saks and J.C. Penney, he said. Ruzow said he anticipates the first license will be signed within the next three months, while apparel under the second license would debut in stores in 2003. He declined to name any brands.
In a review of Kellwood’s performance in the past year, Kellwood chief financial officer Lee Capps said 2001 sales fell $80 million, or 3 percent, to $2.28 billion. Net earnings fell by $23.1 million, or 38 percent, to $37.7 million.
Women’s apparel — Kellwood’s biggest division — saw the sharpest decline, with sales down 7 percent to $1.52 billion. This year, the women’s wear business expects operating earnings of $95 million on revenues of $1.3 billion, Ruzow said. It had operating earnings of $92.4 million on $1.5 billion in sales last year.
Kellwood is also trying to rejuvenate its moderate-priced Sag Harbor division, Ruzow said, having already announced its new focus on design and merchandising. Sag Harbor Handbags will debut in fall 2002. In addition, Kellwood’s Bice and Melrose brands will launch updated sportswear lines in spring 2003; the Sangria Dress Collection will also launch in spring 2003, and David Meister Sportswear will follow in fall 2003.
For the three months ended April 30, net income nosedived 66 percent to $8.6 million, or 37 cents a diluted share, compared with $25.1 million or $1.10 a share, in the year-ago period. Excluding an $8.9 million pretax charge for the realignment of its businesses, earnings still dropped by 44 percent to $14.4 million, or 62 cents, but were ahead of expectations.
Sales in the quarter plummeted 19.6 percent to $570.7 million, down from $709.4 million. Men’s sportswear was the highlight for the company, forging ahead by 9 percent, to $89.1 million, in the quarter. Women’s sportswear, however, was down 25 percent, to $361.2 million, while sales of soft goods, which includes Kellwood’s intimates division, fell by 17 percent to $120.4 million. The results for both women’s and soft goods were still ahead of plan.
Hal J. Upbin, chairman, president and chief executive officer, said in a statement, “The drop in volume was anticipated last fall when we placed orders with contractors for the spring 2002 season. We entered the spring shipping season in January with inventory down 28 percent from last year, and we ended the April quarter with inventory 40 percent below last year. Until we are convinced that the consumer has returned to a more normal and consistent level of consumption, we have elected not to speculate and carry inventory without an order.”
Earnings per share for the second quarter are expected in the range of 10 cents to 12 cents, according to the company. In the comparable period last year, EPS was 8 cents.
Second-quarter sales guidance pegged volume at between $440 million and $450 million, down 10 percent from year-ago levels. Similar to just-reported first-quarter trends, Kellwood said it expects men’s sportswear to continue to do well, with sales up 9 percent to between $80 million and $85 million. Women’s sportswear sales are expected to drop by 18 percent to between $270 million and $275 million, while sales of soft goods are expected to decline 7 percent to between $85 million and $90 million.
For fiscal 2002, which ends in January 2003, the company provided EPS guidance of between $1.80 and $1.90 with sales expected at about $2.1 billion, down 9 percent. The sales erosion year-over-year, the company said, is expected to occur mostly in the first half of 2002.”