Byline: Thomas J. Ryan

NEW YORK — The DKNY bridge line was a bright spot last year for Donna Karan International Inc., according to Karan’s just-released 10K, its first since the firm went public last June.
And in an otherwise tough 1996, it was a very profitable year for Donna Karan, chairman and chief executive officer, and Stephan Weiss, vice chairman and the designer’s husband, who were paid $13.9 million in royalty fees for the company’s use of Donna Karan tradmarks. Overall gross margins declined to 32.8 percent from 35.2 percent, primarily as a result of the royalty fees, which were set up when the firm went public.
Sales at the company’s hottest division, DKNY, rose 22.7 percent to $378 million from $308 million. The gains were led by an 83.6 percent sales hike in the DKNY men’s collection, to $67 million. The more established DKNY women’s collection generated a 15 percent sales gain, to $311 million.
Overall sales in Donna Karan New York designer lines were up 5.1 percent to $123 million from $117 million. Again, sales were led by the men’s line, which increased 27.3 percent to $51 million.
These gains were tempered by a 7.4 percent slide in Donna Karan New York designer women’s sales, to $72 million. The decrease resulted primarily from reduced domestic sales in its accessories business, which was converted from a collection-coordinated line to a “main floor” line, the 10K said.
Beauty products sales rose 46.7 percent to $44 million, reflecting continued growth of its women’s signature fragrance and bath and body line, and expanded product offerings, including the launch of Chaos in the fourth quarter. However, the business continued in the red.
Revenues from outlet stores and licensing activities grew 23.6 percent to $68 million because the company added more outlet stores and same-store sales were higher.
As reported, Donna Karan’s earnings last year dropped 31.7 percent to $12.6 million, or 59 cents a share, primarily dragged down by charges related to the termination of the DKNY jeanswear license with Designer Holdings Inc. and restructuring efforts at the money-losing cosmetics business.
Total sales advanced 21.4 percent to $612.8 million from $504.6 million.
Overall, selling, general and administrative expenses grew to 30.6 percent of sales from 26.8 percent as a result of costs associated with the termination of the jeans license and with the launch of the Chaos fragrance.
Karan noted in its 10K that it historically has been hurt by the introduction of products until those products become large enough to support a profit.
The company pointed out that its DKNY men’s line, established in 1991, logged cumulative losses of $16.1 million from 1992 to 1994, before reaching a profit in 1995, and net revenue and operating profit continued to increase in 1996.
Karan noted that although sales have continued to increase, its beauty division from 1992 through 1996 incurred cumulative losses of $28.1 million. Karan in the fourth quarter of 1996 decided to explore strategic initiatives for the beauty business, including a joint venture, license or sale.
The 10K also disclosed:
In the U.S., sales advanced 13.6 percent to $342 million and accounted for 62.7 percent of overall sales. This excludes $68 million in revenues from outlet stores and licensing.
Internationally, sales climbed 18.8 percent to $76 million in Japan; 28.1 percent to $73 million in Europe and the Middle East; 43.8 percent to $36 million in Asia (excluding Japan), and 80 percent to $18 million in other markets.
The company had 41 freestanding international retail stores at yearend and plans to add 17 this year.
Karan’s largest customer was Federated Department Stores, which accounted for 12.8 percent of sales, followed by Saks Fifth Avenue, 9.1 percent; Nordstrom, 7 percent, and Neiman Marcus, 6.8 percent.
Karan’s advertising costs jumped 57.4 percent to $53.2 million last year, up from $33.8 million.
On March 10, backlog was $247.6 million, compared with $148.5 million on March 4, 1996.
Karan had 37 outlet stores at yearend, and expects to have 48 in operation by the end of 1997. The outlets accounted for 9.9 percent of sales last year.
Karan is considering opening full-price, freestanding retail stores in the U.S. under a license or franchise program, joint venture or other arrangement.
As of Dec. 29, Karan had 1,580 employees, including 330 in executive and administrative positions, 125 in design, 230 in production, 460 in sales, 270 in distribution, 100 in merchandising and 65 in creative services, media, public relations and retail development.

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