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Special Issue
WWDStyle issue 03/01/2011

NEW YORK — Shares of Kenneth Cole Productions Inc. fell 7 percent Monday after the company said chief executive officer Jill Granoff had resigned and it posted fourth-quarter results that fell below analysts’ expectations.

This story first appeared in the March 1, 2011 issue of WWD. Subscribe Today.

Granoff resigned her posts as both ceo and director. The company said her resignation was by mutual agreement.

Kenneth Cole, chairman, founder and chief creative officer, will become interim ceo. He was ceo prior to Granoff’s arrival from Liz Claiborne Inc. in May 2008.

Additionally, Paul Blum returned to the company as vice chairman. Blum, a 15-year veteran of KCP and president from 2002 to 2006, became ceo of David Yurman in February 2006. His plans to leave the firm were announced last June.

Known for her operations acumen, Granoff is credited with engineering KCP’s turnaround. She spearheaded the deal that saw Kenneth Cole Reaction men’s wear become a Macy’s exclusive brand and the move to bring the design of the company’s women’s wear collection in-house, following a licensing arrangement with Bernard Chaus Inc.

“Over the past three years I’ve worked with a great team on a great brand,” Granoff said. “Together we’ve returned the company to double-digit growth and profitability within a challenging business environment. I look forward to the future and exciting opportunities ahead. I wish Kenneth and the team continued success.”

According to Cole, the firm hasn’t yet initiated a ceo search.

Speaking of Blum, Cole said, “One role Paul will play is helping us focus and execute on our strategic agenda, and our intention is to stay focused and maintain our current focus on efficiency [as] we continue to manage the company in a fiscally responsible way. We will explore strategic opportunities in leveraging the brand.”

He pointed out that in the last few years, KCP has become more efficient, and that will continue.

Steven L. Marotta, analyst at C.L. King & Associates, commented, “Paul Blum was an integral part of the company’s growth strategy. Bringing him back adds a new dynamic that is viewed as a net positive. The company has been absolutely aggressive in closing underperforming stores. While that’s a good thing, there is some pain ahead from an inventory liquidation standpoint. There is also an additional aspect of uncertainty with management tenure [at KCP typically] being short-lived. The proof will be how the company executes six to 12 months from now.”

In a note sent to clients on Monday, he said Blum is “seen as the ‘front-runner’ for the permanent ceo role.”

The reshuffling came as KCP said it lost $2.7 million, or 15 cents a diluted share, for the fourth quarter ended Dec. 31, compared with a loss of $52 million, or $2.88, a year ago. The results reflect the acceleration of the closure of underperforming stores. Nonrecurring charges for lease terminations and severance were $6.3 million, or 35 cents a share on a pretax basis.

Even adding back the charges, profits fell well short of the 31 cents a diluted share Wall Street expected.

Revenues rose 10.5 percent to $120.8 million from $109.4 million, which includes a 9.5 percent increase in sales and a 1 percent increase in wholesale volume. Consumer direct revenues were up 16 percent, reflecting a 14.1 percent gain in same-store sales from liquidation and clearance activity with the store closings.

For the year, earnings were $2.1 million, or 11 cents a diluted share, against a loss of $63.2 million, or 52 cents, last year. Revenues rose 11.4 percent to $457.3 million.

Shares of KCP closed at $13, down 98 cents, in trading Monday on the New York Stock Exchange.

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