NEW YORK — With gross margins continuing to grow, St. John Knits Inc. said third-quarter earnings increased 19.7 percent to $7.2 million, or 42 cents a share, from $6 million, or 35 cents, a year ago.
Wall Street, on average, had expected the firm to earn 40 cents a share. St. John’s shares closed Tuesday on the New York Stock Exchange at 44 15/16, up 15/16.
Sales for the three months ended Aug. 3 gained 17.8 percent to $54.8 million from $46.5 million. Gross margins rose to 58.7 percent of sales from 56.9 percent last year.
St. John noted that earnings were increased by 1 cent a share in the quarter and nine months from a change to first-in, first-out (FIFO) inventory accounting from a last-in, first out (LIFO) method.
Bob Gray, chairman and chief executive officer, noted that the increase in net sales for the quarter was “slightly below” the company’s internal projections. The shortfall in net sales was due to a failure to manufacture adequate product, not because of a decline in consumer demand, he added.
“Demand for the product remains strong and is reflected in the sales increase just reported by our retail division,” he said in a statement. “Sales increased 27 percent to $14.3 million for the third quarter and 27 percent to $46.7 million for the nine months.” Margaret Whitfield, analyst with Hancock Institutional Services, noted that the company “came through with the quarter, as expected.”
She said that in July, when the company announced that sales were not going to meet its expectations, she lowered her third-quarter estimate to 41 cents from 43 cents.
Whitfield noted that in a conference call St. John said that same-store sales in its own stores in August were ahead “in excess of 20 percent, with continued strong sell-throughs in the department stores.” The company operates 17 boutiques and seven outlets.
Turning to the firm’s new SJK Classics label, Whitfield noted the bridge line will be sold in 75 doors, and features “lower-priced, older designs.” SJK Classics will retail for around $600 for a three piece item, compared to the $1,000 price point of the SJK line, and should avoid cannibalization.
“This will open up potential new accounts for St. John, such as Macy’s and Bloomingdale’s that wouldn’t carry the higher price point items,” she said.
Whitfield said that she expects St. John to earn $2.01 or $2.02 a share for the year, depending on the response to the SJK Classic line.
Last year, St. John earned $1.59.
For the nine months, earnings jumped 26.9 percent to $23.4 million, or $1.37 a share, from $18.5 million, or $1.09.
Sales were ahead 20.2 percent to $170.5 million from $141.8 million.
Gross margins improved to 58.5 percent of sales from 55.6 percent in 1996.

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