JEANS LICENSE NETS $32.6M FOR CALVIN KLEIN IN ’96

Byline: Thomas J. Ryan

NEW YORK — Calvin Klein Inc. received $32.6 million in design and royalty fees from Designer Holdings Inc. in 1996 for licensing the Calvin Klein Jeans label, according to the Designer Holdings 10K.
In all, Calvin Klein received $49.2 million, of which $16.6 million represented advertising expenditures owed under the licensing agreement for the CK jeans line.
Under its licensing agreement, Designer Holdings is required to pay Calvin Klein royalties of 7 percent on net sales of the CK jeans line.
Total sales under the CK jeans line ramped up 29.4 percent to $466.7 million from $360.6 million, the 10K said. By division, sales of men’s rose 29.1 percent to $193.2 million; juniors surged 67.3 percent to $165.6 million, and women’s gained 29.6 percent to $106.6 million.
Children’s wear sales declined to $1.4 million from $17.3 million following the sublicensing of the line late last year. However, royalty income catapulted to $6.9 million from $800,000 as a result of sublicensing the children’s line and the Bill Blass Jeans. Royalties also came from the licensing of its own Rio label.
Of the $6.9 million in royalties, $2.3 million came from sublicensing CK jeans in Canada, Mexico, Central America and South America, and $2.4 million from the children’s sublicense.
Designer Holdings also received $2.2 million in royalties primarily from the Rio and Bill Blass label products.
The Blass jeans license expires at the end of this year, and Designer Holdings said it is in negotiations with Bill Blass Ltd. to continue the license. If negotiations are unsuccessful, Designer Holdings said, it would write down its goodwill related to the Bill Blass Labels, which, at Dec. 31, was $10.4 million.
Designer Holdings’s earnings in 1996 surged 50.3 percent to $30 million, or 96 cents a share, as a result of robust sales gains and an improvement in gross margins to 38 percent of sales from 30 percent in 1995.
Margins under the CK jeans line improved to 37.7 percent from 36.3 percent as a result of better sourcing and operating efficiencies. Overall margins also improved because of the absence of sales of Bill Blass and Rio products — since both are now licensed to other manufacturers — which had margins of 7.2 percent in 1995, the 10K said.
At March 25, the backlog for CK jeans products fell to $90.9 million from $100.3 million a year earlier. The decline reflects a strategic decision announced March 19 to discontinue distribution to the County Seat chain and a distribution shift in Latin America in order to reinforce its department store business.

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