ST. LOUIS — Robert C. Skinner, chairman, president and chief executive officer of Kellwood Co., told shareholders during the company’s annual meeting Thursday that the firm is optimistic about its turnaround efforts, but bottom-line improvements are not expected until the second half of 2006.

After the stock market closed, the company posted a 22.2 percent decline in first-quarter profits.

For the quarter ended April 30, net income dropped to $9.2 million, or 36 cents a diluted share, from $11.8 million, or 42 cents, in the same year-ago quarter. Included in the three months were restructuring and other related nonrecurring costs in connection with the company’s earlier announced strategic initiatives. Sales dropped 6.6 percent to $516.9 million from $553.5 million, which included a 9.8 percent decrease in sales of women’s sportswear to $304.4 million, and a 3.4 percent gain in sales of men’s sportswear to $133.4 million. Sales in its other soft goods segment fell by 9.2 percent to $79.1 million.

Kellwood, whose net sales for fiscal 2005 were $2.06 billion, down 6.4 percent from the prior year, attributed the majority of the sales erosion for 2005 to women’s sportswear, which saw a 10 percent decline.

In his letter to shareholders in the company’s annual report, Skinner said, “While we are pleased with the efforts to date, we do not expect to see meaningful, positive comparable results until the second half of fiscal year 2006 and beyond. Overall sales, operating earnings and net earnings are expected to be flat with 2005 at approximately $2 billion in sales, $105 million of operating earnings (not including $4.3 million of stock option expense) and $44 million of net earnings, or $1.70 per diluted share.” He added that women’s sportswear sales are expected to decrease by approximately 6 percent, primarily due to fallout from recent consolidations at retail and a planned reduction in sales of off-price merchandise.

During the meeting, Skinner discussed changes to the Baby Phat, Calvin Klein, Koret and Sag Harbor lines. Baby Phat has new licensees for swimwear, loungewear and lingerie. Calvin Klein has a new team and has expanded distribution significantly for the fall. Koret has been repositioned to improve brand performance through the use of consumer research and brand audit and will launch a new marketing campaign. Skinner also showed a video of the new Sag Harbor advertising campaign featuring model Christie Brinkley.

This story first appeared in the June 2, 2006 issue of WWD. Subscribe Today.

After the meeting, Skinner told WWD about plans to open Sag Harbor shops.

“I would call 2006 the year of experimentation. We will be opening some full-price stores and outlet stores, but on a limited test basis,” he said. “The exact number has yet to be determined.” The stores will be located where there are significant pockets of Sag Harbor consumers, primarily on the East Coast and in the Midwest.

In 2005, Phat Farm opened its first three flagships in the Middle East. Skinner said the line’s expansion would continue this year. Along with new licensees for both women and men, there are plans to open additional retail outlets. “There will be stores coming in Europe and in the U.S. Currently we have one store, our flagship store, in SoHo in the United States and we have plans on the drawing board to open a few other U.S.-based stores,” said Skinner. He said the time line for opening the stores stretches from the second half of this year through 2009, but plans call for the domestic stores to open toward the end of this year.

Skinner expressed optimism about the Calvin Klein better sportswear line, which Kellwood produces under license with Phillips-Van Heusen.

“We have a whole new team there that came on board in fall of 2005,” Skinner explained. “They designed the fall 2006 line that we’ve been showing for the last few months. The reaction from retailers has been gratifying. It’s been wonderful — very positive. Now, that product they’ve designed won’t be on selling floors until August of 2006 so the consumer hasn’t voted on that yet, but we’re very gratified by the reaction of retailers. We’ve expanded the number of stores in fall 2006 that Calvin Klein will be distributed in substantially.”

In other Kellwood news, three directors were reelected to the board, consisting of Ben B. Blount Jr., former executive vice president and chief financial officer of Oxford Industries, Janice E. Page and Skinner. Martin Bloom, who served on the board since 2000, has retired. His successor hasn’t been named yet. Shareholders also ratified the appointment of PricewaterhouseCoopers LLP as Kellwood’s independent registered public accounting firm.

Also at the meeting, Gregory W. Kleffner was named senior vice president, finance, and vice president, controller. Formerly, Kleffner was vice president, finance, and vice president, controller. He joined Kellwood as vice president, controller, in 2002, and was named corporate vice president, finance, in June 2005.

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