NEW YORK — Shares of Tommy Hilfiger Corp. were one of Wall Street’s biggest losers Wednesday after the company said it would close 37 of its 44 U.S. stores and lowered earnings-per-share guidance for the second half of 2003 and full-year fiscal 2004.
Tommy’s stock closed Wednesday at $7.50, down $1.85, or 19.8 percent, in trading on the New York Stock Exchange, the NYSE’s second-largest percentage loser of the day. In intraday trading, shares came within 5 cents of Tommy’s 52-week low of $7, reached on Oct. 8.
The closures and lowered guidance overshadowed earnings for the second quarter ended Sept. 30, which jumped 27.3 percent to $61 million, or 67 cents a diluted share, from $47.9 million, or 53 cents, in the same year-ago period. The company beat its own 61-cent-per-share estimate from July, as well as Wall Street consensus estimates of 59 cents.
Revenue was essentially flat at $546.5 million versus $546.4 million a year ago. Wholesale sales dipped 2.9 percent from year-ago figures. The women’s wholesale component rose 2.6 percent to $161.1 million from $157.7 million, but was more than offset by declines in men’s wear — down 8.4 percent to $174.1 million from $190 million — and children’s wear, which dipped 0.7 percent.
Joel Horowitz, chief executive officer, said on a conference call Wednesday that while the misses’ business was still healthy, women were becoming more conservative in their apparel spending. In addition, the company did not have enough stretch denim in the quarter to meet demand. The biggest “drag” on the women’s segment for the quarter was the junior business, he noted.
Horowitz said in a statement: “In spite of the difficult conditions across the industry, we reported financial results for the second quarter that were ahead of our previously announced expectations, largely due to the continued strong performance of Tommy Hilfiger Europe. Since we acquired this business in July 2001, we have built steady momentum in this market, reflecting a strong consumer response to the brand.”
For men’s, the business at retail continued to be challenging and was primarily markdown driven, Horowitz said. Bright spots included bottoms and fleece offerings.
Hilfiger’s retail business posted a 10.8 percent increase, boosted by revenue from new stores opened since Sept. 30 that offset low-single-digit declines in same-store sales. Licensing revenue jumped 8.5 percent in the quarter.
The ceo said that the company will close 37 of its 44 U.S. specialty stores following the holiday selling season. Revenues from the 37 stores to be shuttered were $7.7 million and their operating losses $4 million in the quarter.
“These stores have not met anticipated performance measures and we now believe that a better use of our management and investment resources is to meet the needs of our U.S. core businesses and to pursue our growth opportunities in Europe,” he said.
The company will continue to operate seven specialty stores — three in New York and four in Los Angeles — which will serve as vehicles to test exclusive product lines for men’s and women’s apparel. Standard & Poor’s said the company anticipates special charges related to the closures in the range of $75 million to $95 million, about half of them noncash, to cover the write-down of fixed assets, lease termination costs and employee costs.
For the second half of 2003, the company provided EPS guidance at between 45 and 65 cents, before special charges. The company said that it expects decreases in both men’s wear and women’s wear wholesale sales, offset by increases in children’s. Third-quarter EPS is expected to land between 32 and 42 cents, with fourth-quarter EPS at between 13 and 23 cents, both before special charges.
Guidance was lowered, executives said, due to overall consumer sentiment, implications for holiday apparel spending and the company’s belief that promotional pressures will be greater than previously expected in the second half.
Full-year EPS was lowered to $1.15 to $1.35, before the cumulative effect of a change in accounting principle, the deferred tax charge reported in the first quarter and the expected third-quarter charges in connection with the store closures. In July, the company had upped its full-year estimates by 3 cents to $1.67. While the company won’t provide outlook for fiscal 2004 until after it reports third-quarter results, it said Wednesday that the current First Call consensus EPS estimate of $1.77 is “unrealistic” and that results were more likely in the same range as those for fiscal 2003.
S&P said Tommy’s credit rating of “BBB-negative” wouldn’t be affected by the closures or downward revisions. In a statement, S&P’s Susan Ding said her firm “expects the company to continue generating material free cash flow and maintain its solid liquidity position.”
As reported, Horowitz will leave the ceo post when his contract expires in March 2004, although he will remain a director of the firm. On Wednesday’s call, he indicated he might relinquish the ceo post earlier if the right candidate to succeed him were to emerge.
Separately, the company said Joseph Scirocco, senior vice president and treasurer, will assume the additional role of chief financial officer. Joel Newman, who was cfo, will continue as executive vice president, finance and operations, attending to operations and strategic planning. James Reilly, senior vice president and corporate controller at Tommy Hilfiger USA, was named vice president and corporate controller of Tommy Hilfiger Corp., a new position.
For the six months, the company posted a loss of $377.8 million, or $4.16 a diluted share, versus income of $56.9 million, or 63 cents, in the same year-ago period. Excluding the cumulative effect of a change in accounting principle and a deferred tax charge, income was up 11.8 percent to $63.6 million. Revenue inched up 1.2 percent to $912.8 million from $902.1 million.