NEW YORK — Source globally, retail locally.

That was the underlying theme Monday as The Warnaco Group Inc. said that it has closed its two remaining domestic manufacturing facilities in an effort to cut costs and improve its operating flexibility, and that it’s gearing up to open its first CK underwear store in SoHo by yearend.

The disclosures came on the same day the company reported a substantial narrowing of second-quarter losses and expansion of gross margins, fueled by past cost-cutting initiatives.

For the three months ended July 5, the apparel firm lost $8.5 million, or 19 cents a share, compared with a year-ago loss of $32 million, or 60 cents.

The company exited Chapter 11 in February. On a pro forma basis, assuming the company exited bankruptcy proceedings at the beginning of its fiscal year, income would have been $169,000, or no cents a share, versus earnings of $14 million, or 31 cents.

Revenues in the quarter fell 12 percent to $335.8 million from $381.8 million last year. Intimate apparel sales in the three months fell 15.5 percent to $134.8 million from $159.5 million while the sportswear division revenue dropped 15.1 percent to $91 million from $107.2 million. Swimwear revenues declined the least, receding 4.3 percent to $110 million from $115 million.

Joseph Gromek, president and chief executive officer, pointed out in a telephone interview that the company’s gross profit for the first half was 33.9 percent of revenues versus 30.5 percent in last year’s first six months.

He said that the firm has ceased manufacturing in plants in Thomasville, Ga., and Los Angeles, although some distribution activity continues at the facilities. When completed, the closures will result in the loss of 427 jobs out of the firm’s worldwide workforce of 12,700.

“For intimate apparel, we’re sending our cutting to Honduras, where we have two facilities, and for swimwear, some will be in our facility in Mexico and some offshore in Asia,” Gromek said. He noted that the company plans to outsource 30 percent of its intimate production to Asia by the end of the year. Also on the agenda is the outsourcing of swimwear production to Asia at the same rate of 30 percent by yearend.According to the ceo, the company also enhanced its Calvin Klein relationship with Phillips-Van Heusen through an amendment to the jeanswear licensing agreement. Without revealing specifics about it, Gromek said the modification “has increased our flexibility to get to market quicker and be fashion-right first. Those processes have all been streamlined.”

As reported, Warnaco has a new CK license for swimwear. The Chaps by Ralph Lauren license expires in 2008 and periodically surfaces in market speculation as one of the brands that Polo Ralph Lauren Corp. would like to take back. Gromek disagreed, noting of the license, “We believe that we will extend it before it is up.”

Meanwhile, the company is busy building on its existing market share for CK underwear, which Gromek said has an opportunity to expand in Asia — particularly Japan and China — and in Latin America.

Closer to home, the company is putting together plans for its first CK underwear store, to open in SoHo by yearend. According to the ceo, the test site will sell both the men’s and women’s lines, but will feature a higher concentration of the women’s product.

While the focus in the industry has been on consolidation, Gromek ruled out any immediate plans for the sale of any brand, or even that Warnaco might look to add to its portfolio.

“We have our work cut out for us and our objectives are in sight. At this point, we have sufficient work to do to grow what we own and license today. During the bankruptcy proceedings, each of our businesses were thoroughly analyzed and some businesses were divested. In the future, we will [continue to] assess the situation and move accordingly,” he said.

Currently, 78 percent of Warnaco’s sales are derived in the U.S., and 22 percent internationally. Gromek identified the Speedo brand, which does about $250 million in the U.S., as possessing excellent growth potential.

“We have significant opportunity to expand on the heritage of Speedo. It is a 75-year-old brand that we can expand upon [by taking the] brand out of the water, out of the beach and to the shore for some fashion,” he said.During the company’s first quarterly conference call since exiting bankruptcy, Gromek told analysts that the company’s focus on inventory management, with confirmation of sell-ins to match retail demand, has meant that Warnaco was able to reduce end-of-season markdowns, decrease inventory obsolescence and lower sales days at retail.

Tom Wyatt, division president for intimates, said on the call that Warnaco was “challenged” in the first half by a reduction in replenishment reorders at retail. However, the company was moving forward on several initiatives, which include the reintroduction of petites by Olga and the latest introductions for full-figured women. Also on the agenda is a new brand called Olga’s Christina for fall 2004, an extention of the Olga brand featuring high-tech fabrics and construction. As for Lejaby, the company shuttered four manufacturing facilities in France, and is gearing for the spring 2004 launch of a Lejaby diffusion line called Lejaby Rose.

John Kourakos, who manages sportswear, observed that the company was “not pleased” with the performance of CK jeanswear, and has recently implemented changes in design, merchandising and sourcing similar to those implemented at Chaps. He added that on the agenda for CK underwear are the launches of Mesh for men and Motion for women. In addition, CK is set to announce a new phase for CK men’s underwear over the next few weeks, he noted.

Roger Williams, president of swimwear, observed that Speedo increased sales by expanding brand penetration through department and specialty stores with innovative styles such as waterproof pockets for all of its water shorts, and the launch of the first Speedo string bikini for women. Designer swimwear growth, he noted, was driven by the Anne Cole label.

For the six months, income was $14.2 million, or 31 cents a share, against a loss of $889.7 million, or $16.81, in the year-ago period, which includes a $801.6 million accounting-change effect. Sales fell 16.4 percent to $662.2 million from $791.8 million. On a pro forma basis, income jumped 25.7 percent to $32.1 million, or 71 cents a share, from $25.5 million, or 57 cents, last year. Revenues dipped 1.7 percent to $778.1 million from $791.8 million.

James Fogarty, chief financial officer, said that the company expects fiscal 2003 income on a pro forma basis to range between $44 million and $50 million, compared with fiscal 2002’s $31 million. The guidance, he said, includes $6.2 million of compensation expense related to grants of stock options and restricted stock pursuant to Warnaco’s 2003 stock incentive plan. The company said in May that it would expense stock options beginning in the first quarter of 2003.Separately, the company added three new board members: David Bell, chairman and ceo of Interpublic; Charlie Perrin, former chairman and ceo of both Duracell and Avon, and Sheila Hopkins, vice president and general manager of U.S. personal care at Colgate Palmolive Co. Warnaco’s board now includes five independent directors.

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