Recession or not, The Warnaco Group Inc. is putting its Calvin Klein jeans and underwear retail businesses on the offensive.
This story first appeared in the May 13, 2009 issue of WWD. Subscribe Today.
The company, which has a long-standing licensing arrangement with Calvin Klein, said its first-quarter results, which included net income that more than doubled, were strong enough to warrant adding 120,000 square feet in stores and shop-in-shops this year. That’s an increase from the 100,000 previously planned, but a slowdown from 2008 when the company added 140,000 square feet and ended the year with 500,000 square feet in international retail space.
“We have an opportunity to take some market share from some of the competition and move forward more aggressively,” Joe Gromek, president and chief executive officer of Warnaco, told WWD. He said the company was using its financial position to expand in markets such as Germany and China.
“There’s an aspirational customer out there,” Gromek said. “They know Calvin Klein. They want the brand, and underwear and jeans are affordable.”
The ceo said business conditions were more predictable than they had been, but still not improving. “It’s not getting any worse,” he said. “There’s a stability.”
At the end of the first quarter on April 4, Warnaco had 960 stores in its direct-to-consumer channel, a unit that saw a 5 percent comparable-store sales boost. Eighteen percent of Warnaco’s revenues came from the retail business in the first quarter. The firm also produces an array of goods under the Calvin Klein name and other brands for wholesale distribution.
Net income for the quarter rose to $37.6 million, or 81 cents a diluted share, from $17.7 million, or 38 cents, a year earlier. Adjusting for restructuring and other charges, earnings fell 17.4 percent to $45.1 million, or 98 cents a share, well ahead of the 73 cents Wall Street analysts projected. Revenues for the three months fell 5.1 percent to $538.4 million from $567.7 million.
Sales of Calvin Klein — which account for about 75 percent of the firm’s top line — fell 5 percent for the quarter, but were up by a double-digit percentage on a constant currency basis.
Jason Asaeda, equity analyst at Standard & Poor’s, raised his rating on the firm’s stock to “buy” from “hold.”
“We see [Warnaco] gaining share in the global sportswear and intimate apparel markets based on Calvin Klein’s positioning as an affordable luxury brand, plus on continued retail expansion,” Asaeda said.
Eric Beder, an analyst with Brean Murray, Carret & Co., raised his target price on Warnaco to $40 from $28 and said the firm has “material expansion opportunities.”
Warnaco narrowed its financial guidance for the year and is now looking for adjusted earnings of $2.50 to $2.66 a diluted share, instead of $2.40 to $2.66.
Shares of the company fell 1.1 percent to $28.51 Tuesday.