By  on January 11, 2006

NEW YORK — Warnaco Group Inc. said on Tuesday that fiscal 2005 revenue would be lower than projected, partly because of a decrease in high-margin swimwear sales and fewer orders in key categories such as denim and sportswear.

The New York-based apparel company said it expected sales of $1.5 billion in the year, an increase of 5.7 percent compared with last year, but lower than its forecast for a high single-digit increase.

The stock was off 13.6 percent in Nasdaq trading on Tuesday, closing at $24.13.

Warnaco said it had an estimated $15 million decrease in high-margin swimsuit sales in the fourth quarter, which are expected to instead ship during the first quarter. In addition, the company said the weaker-than-expected sales stem from lower replenishment orders of denim, sportswear and intimate apparel as well as its inability to deliver certain intimate apparel products on a timely basis to meet demand. There was no further explanation for the delivery lapses.

As a result, the company said its gross profit margin in the year is expected to improve less than its target for 100 basis points, which is also partly because of end-of-season markdowns. Operating income likely will be less than the previously expected double-digit improvement, while selling, general and administrative expenses may be slightly higher than last year.

"Although these preliminary results demonstrate improvement over the prior year, we are nonetheless disappointed that we did not reach all of our financial goals for 2005," Joseph Gromek, president and chief executive officer of Warnaco, said in the statement. Inventories at yearend are expected to be below last year's levels, he added.

"Our brands are performing to our expectations at retail, and we are enthusiastic about our new fall introductions, including Perfectly Fit and 365 from Calvin Klein underwear," Gromek added. "We also believe that actions taken throughout fiscal 2005, including further diversification of our distribution channels and development of our in-house global sourcing team, have set the foundation for future success."

Gromek anticipates revenue growth in 2006 similar to that of 2005, gross margins to rise at least 100 basis points and double-digit operating margin expansion.

Meanwhile, the company believes that its agreement to acquire Calvin Klein Jeans will accelerate growth. Gromek said that assuming the acquisition closes on Jan. 31, revenue growth in 2006 could reach 20 percent. In that case, operating margin would increase in the double digits and the transaction would be accretive to earnings per share.

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