ROYALTY INCOME IS KEY IN HILFIGER EARNINGS JUMP
NEW YORK — With a strong contribution from the licensed women’s sportswear line, royalty income at Tommy Hilfiger Corp. soared 136 percent to $16.4 million in the second quarter ended Sept. 30.
The licensing income was a major factor in a 32.4 percent increase in second-quarter earnings to $31.9 million, or 84 cents a share, handily surpassing Wall Street estimates of 76 cents.
However, a problem may be developing with an inventory buildup, principally in men’s wear. Hilfiger stock reacted to the inventory news with a drop of 2 15/16 to 41 on the New York Stock Exchange Wednesday.
In the year-ago quarter, the company earned $24.1 million, or 63 cents a share. Revenues were up 25.5 percent to $224.5 million from $178.9 million. Gross margins held at 48 percent of sales against 47.9 percent a year ago.
In a conference call with analysts, Joel Horowitz, chief executive officer, said that the licensed women’s sportswear line and men’s denim lines “were outstanding performers at retail during the quarter, contributing to the licensing division’s growth.”
Allison Malkin, analyst at SBC Warburg Dillon Read, said that while the earnings for the quarter were great, she was concerned about a 76 percent jump in inventory. She said inventories in Hilfiger’s retail operations, which sell only men’s wear, were up 300 percent, while wholesale inventories were up 37 percent. Sales of men’s wear grew only 9 percent in the quarter, Malkin pointed out. “This buildup of inventory may result in reduced margins as the company tries to bring inventory growth back in line with sales growth,” she said.
However, Malkin said that, on balance, Hilfiger was still a great brand and she was raising her per-share estimate for the year to $2.86 from the $2.80 she was carrying. A year earlier, Hilfiger earned $2.28 a share.
Horowitz said in a statement that licensing and children’s wear produced the best gains during the quarter. These gains and continued strength in Hilfiger’s retail business “more than offset the slowing growth rate in our men’s wholesale division,” he said.
In the six months ended Sept. 30, earnings were up 34.6 percent to $49.4 million, or $1.30, from $36.7 million, or 97 cents. Revenues were up 31.5 percent to $398.3 million from $303 million.
Horowitz said that the results for the half demonstrate the company’s efforts to expand its consumer base are taking hold. For example, he pointed out, “We reached new female consumers in over 30 countries spanning the globe, through the international rollout of our Tommy Girl fragrance, licensed to the Aramis division of Estee Lauder.”