The Warnaco Group Inc. posted higher third-quarter earnings and revenues on Thursday, but trimmed its profit forecast for the year in preparation for a weaker fourth quarter.

This story first appeared in the November 7, 2008 issue of WWD. Subscribe Today.

For the three months ended Oct. 4, Warnaco’s net income increased to $26.5 million, or 56 cents a diluted share, from $4.4 million, or 10 cents, in the same year-ago period.

Excluding restructuring charges and other expenses, earnings from continuing operations climbed to $34.7 million, or 74 cents, beating consensus expectations of 72 cents.

Revenues increased 16 percent to $548.7 million from $473.2 million, led by a 20 percent sales gain in Warnaco’s Calvin Klein business, which benefited from growth internationally and direct-to-consumer.

“We’ve stayed very close to our strategies, focusing on the Calvin Klein brand and the international opportunities it provides us, as well as the owned retail opportunity there,” said Joe Gromek, Warnaco’s president and chief executive officer.

But going into the fourth quarter, Warnaco cited weakening economic conditions and lowered its expectations for adjusted earnings to a range of $2.50 to $2.65 a share this year, compared with previous guidance of $2.80 to $2.90. The company projected revenue growth of 12 to 14 percent over last year, versus the prior guidance of 13 to 15 percent.

Warnaco shares fell more than 30 percent on Thursday to close at $17.80.

“Expectations in general for the fourth quarter are more challenging,” Gromek said. “First, we have the impact of the U.S. dollar strengthening against several foreign currencies, which will negatively impact our revenue growth with our global businesses, and then we expect a continued slowdown of the global economy.”

Warnaco is not scaling down its retail rollout plan to increase store expansion by 25 percent for 2009.

In the third quarter, Warnaco’s sportswear group saw sales climb 20 percent to $316.8 million, because of double-digit sales gains for Calvin Klein Jeans, as well as strong growth in Chaps. Intimate apparel sales rose 14 percent to $200.3 million, buoyed by the Calvin Klein Seductive Comfort launch and the Calvin Klein Body relaunch. Swimwear revenues dipped 4 percent, despite the publicity the Olympics generated for Speedo. Warnaco holds the North American license for Speedo in perpetuity.

“For the channels of distribution that we trade in, our brands are doing 10 to 15 percent better than the stores as a whole,” Gromek said. “It comes down to the product. Our design team has been in place for a couple of years now and is really delivering superior product, and the sell-through at retail is quite strong.”

Warnaco’s “international operations, while the company’s key driver, are also their Achilles’ heel,” Eric Beder, senior vice president of Brean Murray, Carret & Co., said in a report. “More than any other apparel player, Warnaco is dependent upon international revenue to drive business; over the first three quarters of 2008, international revenue was 53.6 percent of total sales.”�

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