Joe Gromek, president and chief executive officer of The Warnaco Group Inc., says he’s a retailer at heart.
This story first appeared in the December 27, 2010 issue of WWD. Subscribe Today.
He took over the top job at Warnaco in 2003, steering the company back to a growth track after it emerged from Chapter 11 in 2003 by building and maintaining powerful global brands such as Calvin Klein, growing the direct-to-consumer business and leveraging an international platform that generates more than 50 percent of the company’s revenues.
Gromek was chairman and ceo of Brooks Brothers from 1995 to 2002, and before that, oversaw merchandising in jeans and innerwear at Saks Fifth Avenue and Lord & Taylor.
As production costs rise, particularly for cotton, labor and freight, Gromek is concerned about the impact. But with $200 million in cash and no long-term debt, he said Warnaco next year will be in a strong position to hunt for strategic acquisitions of lifestyle brands with worldwide reach.
In the quarter ended Oct. 2, Warnaco’s net income grew 39.9 percent to $41.5 million, or 90 cents a diluted share, from $29.7 million, or 63 cents, in the year-ago quarter.
Revenues increased 14.6 percent to $596.8 million from $520.9 million, including 12 percent growth in both the Calvin Klein and international businesses. Wholesale volume improved 12.7 percent to $454.1 million as retail sales jumped 21 percent to $142.7 million and same-store sales rose 9 percent.
Warnaco operates 1,241 Calvin Klein stores worldwide, including 160 full-price and 112 outlet units, 967 in-store shops and three e-commerce businesses in the U.S.: cku.com, calvinkleinjeans.com and speedousa.com. There are more than 590 Calvin Klein retail stores operated by third parties under retail licenses or distributor agreements.
Gromek shared his thoughts on where retail and wholesale business is headed.
WWD: Where do you see the intimate apparel industry going in 2011?
Joe Gromek: I would suspect 2011 will continue to be an excellent year for intimate apparel, and consumers will continue to be back in the shopping malls. But one of the challenges in 2011 will be in terms of rising costs.…We will pass along 70 percent of rising costs through a combination of price increases and product expense reduction and margin out as good or better.…We are positioned for the first half of 2011, but we have not gone to market yet with fall 2011. We’ll do that in January. The second half will be the challenge.
WWD: How important are brands in a tough economy?
J.G.: Brands are incredibly important in terms of the confidence of consumers.…It’s important for companies to align themselves with their brand and a brand has to be relevant and have value today. Think about some companies.…In part, their value is determined on how relevant they are. We are fortunate because our brands are at the top of the trade in the number-one and number-two positions. Calvin Klein [underwear, jeans and men’s accessories] is now 75 percent of Warnaco’s revenue. Calvin Klein is the number-one global designer underwear brand and Calvin Klein is certainly the jewel of Warnaco’s crown. If you think about even Warner’s, it’s the leader in the underwire bra category, and Speedo is the number-one brand in competitive [men’s and women’s] swim with a 70 percent market share. And our licensed Chaps sportswear is the largest men’s business at Kohl’s.
WWD: Do you think the continuation of the Bush tax cuts will help build business, especially at retail?
J.G.: Absolutely. The continuation of the Bush tax cuts will continue to keep extra money in the wallets of people who will have more disposable income and will result in revenues for retailers. It’s a great thing for the economy.
WWD: What is your take on retail business as we approach 2011?
J.G.: I’ve been a retailer for 40 years.…2010 has been a recovery year for retailers, and most have been able to claim back a good portion of what they lost in 2009, but I’m not sure about 2008.…As for where the business is coming from, it’s apparel and accessories, which are seeing a major resurgence.…It seems to be one of the best Christmases for apparel in a long time.
WWD: Why is there such tremendous appeal for Calvin Klein underwear and jeans in China, which you have described as the largest single country outside the U.S., with a projected 40 percent increase in sales in 2011?
J.G.: The brand has been aggressively marketed for 40 years and there is already an understanding of the brand itself. It’s modern, minimalist, yet with an urban sensitivity, and it looks American. That look works just about everywhere.
WWD: Is Warnaco looking to do acquisitions in 2011?
J.G.: We have a very strong balance sheet. At the beginning of the fourth quarter, we had $200 million in cash on hand, no long-term debt, and one rating agency just raised us to investment grade. We’ve been building brand franchise and distribution worldwide.…We would be looking at strategic acquisitions at global lifestyle brands, and these kinds of brands would have to have a global reach. We are actively looking, given our balance sheet, at different product categories. The ideal brand would be dual gender in intimates, accessories and potentially swimwear.
WWD: Is there any truth that you might be leaving Warnaco anytime soon?
J.G.: That’s a bad rumor. I have a contract that goes to 2012.