Byline: Catherine Curan

NEW YORK — In its first financial release since announcing a sweeping three-year restructuring program, Sara Lee Corp. on Thursday reported a 2.5 percent dip in sales and a 1.4 percent decline in operating income in its personal products division for its first quarter ended Sept. 27. Results were dragged down by lower sheer hosiery volume and the impact of a stronger dollar.
As reported, Sara Lee on Sept. 15 said it would take a $1.6 billion charge in its second or third quarter to cover a “deverticalization” program that would include selling assets, such as its 13 U.S. textile plants.
A spokeswoman said Thursday the firm plans to take the charge in its second quarter, noting the writeoff will allow Sara Lee to report lower depreciation and amortization expenses, thus benefiting earnings growth. The aim is to pull out of a lot of manufacturing to focus on marketing.
Sara Lee expects to dispose of certain textile, intimate apparel or meat facilities by the end of December. Negotiations for possible sales are not as far along for intimate apparel as they are for some textile and meat businesses.
The spokeswoman said any deal related to the textile operations would involve all 13 U.S. textile plants. Former Sara Lee executive Jack Ward is no longer expected to be an investor; he exited negotiations two or three weeks ago. Asked who is now involved, she declined to specify, but said textile executives are likely to be involved in management positions.
Asked about the hosiery operations, she said only, “A lot of businesses, both food and nonfood, will have to be examined to reach the target of $3 billion worth of assets” Sara Lee plans to divest.
The spokeswoman declined to comment on strong market reports that the Coach leather goods division is up for sale, but said the division’s return “well exceeds the corporate minimum of 20 percent return on investment.” She said Coach’s sales are between $500 million and $600 million, with recent strong results from new products such as the Ergo Series of leather bags, introduced for spring 1997.
In the first quarter, operating income for personal products totaled $150 million against $152 million. Personal products sales dipped to $1.85 billion from $1.89 billion. The company said strong gains in operating profits for worldwide intimate apparel and knit products were overshadowed by a continued decline in sheer hosiery profitability.
Unit volumes for the three core categories — knit products, intimates and legwear — rose 4 percent in the three months. In legwear, though, the gain was in socks. Worldwide unit volumes for legwear were flat, reflecting a 9 percent decline in sheer hosiery units and a 28 percent gain in socks.
In the U.S., gains of more than 30 percent at the Sara Lee Sock Co. contributed to a 9 percent increase in overall legwear sales. Sheer hosiery sales slipped 5 percent, and increased volume in the Hanes brand was voided by lower volume for L’eggs products. Sheer hosiery and sock unit sales both declined in Europe, while volumes rose in the Asia-Pacific region.
The spokeswoman said the sheer hosiery market continues to be weak, but Sara Lee is forging ahead with its previously announced plan to focus on higher-margin products rather than unit volume growth. In the first quarter the company stopped producing about 25 sku’s, as planned, although it will take six to 12 months before these items are cleared from the shelves.
She said deleting these sku’s improves the availability of higher-margin products. Price increases are set to take effect; L’eggs prices will go up an average 5 percent this month, and Hanes’s will rise 8 percent in February. “We expect operating profits for sheer hosiery to be up, beginning in the second half of the fiscal year,” she noted.
Intimate apparel unit volume advanced 2 percent worldwide, with the Dim brand showing particular strength in the European market. Unit sales were also up in North America and Europe. Sara Lee said U.S. market share for intimate apparel rose to 29.9 percent in the 12 months ended in August, with a lead of more than three to one over the nearest competitor.
Aided by healthy gains in Hanes underwear in the U.S. and Champion activewear in Europe, unit sales of knit products rose 9 percent worldwide in the quarter. Sara Lee women’s and girls’ underwear market share increased to 30.7 percent in the 12 months ended in August against 26.5 percent last year. Men’s and boys’ underwear market share rose two points to 36.1 percent in the 12-month period.
While declining to comment on specific brands such as the licensed Polo Ralph Lauren Intimates line, the spokeswoman said underwear unit volume and market share have improved so strongly because of good response to new products, including the Polo and Michael Jordan lines.
In the quarter, total sales at Chicago-based Sara Lee were up 0.1 percent to $4.89 billion. Net income for the company, whose operations also include foods and personal care products, was up 9.2 percent to $225 million, or 46 cents a share, from $206 million, or 41 cents.

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