NO RETAIL DOLDRUMS FOR ST. JOHN KNITS AS FOURTH-QUARTER EARNINGS RISE 21.4%
Byline: Thomas J. Ryan
NEW YORK — St. John Knits Inc., continuing to defy the sluggish retail climate, reported earnings rose 21.4 percent in the fourth quarter ended Oct. 29, beating Wall Street estimates.
The results include strong gains in its own boutiques as well as major accounts, and on tap for 1996 is a near-doubling of the size of the firm’s New York store on Fifth Avenue.
Earnings in the quarter came to $6.2 million, or 75 cents a share, up from $5.1 million, or 62 cents, a year ago, and ahead of Wall Street’s average estimate of 72 cents a share. The firm’s stock closed Tuesday on the New York Stock Exchange at 53 1/8, up 1 1/8.
Sales gained 23.6 percent to $47.9 million from $38.8 million. Gross margins improved to 55.7 percent from 54.3 percent. For the year, earnings rose 31 percent to $19.6 million, or $2.38, from $14.9 million, or $1.82, a year ago. Sales gained 26 percent to $161.8 million from $128 million.
Bob Gray, chairman and chief executive officer, said the women’s apparel manufacturer was helped by “continued strong demand for all product lines.” In the core knits category, sales at its major retailers — which include Saks Fifth Avenue, Neiman Marcus, Nordstrom and its own retail boutiques — grew 19 percent in the fourth quarter, 27 percent in the year and 23 percent thus far in the current quarter, according to Karla R. Guyer, senior vice president of marketing.
In accessories, sales at major retailers rose 24 percent in the fourth quarter, 25 percent in the year and 23 percent in the current quarter, she said.
Gray noted that the St. John’s retail boutique division continued to exceed expectations, “especially during a period when many established retailers are facing Chapter 11 proceedings or consolidation.”
Sales at its retail boutiques increased 44 percent in the quarter to $11.4 million, with same-store sales ahead 17 percent. In the year, sales at retail surged 46 percent to $38.8 million, with same-store sales up 21 percent.
The company plans to expand its boutiques. A 6,000-square-foot boutique in Beverly Hills, Calif., is expected to open next spring. Gray said this will be St. John’s 17th store and its third flagship store, in addition to New York and Chicago.
St. John also plans to almost double the size of its New York flagship store at 53rd and Fifth by expanding the store to the corner. The store currently has about 6,200 square feet. The additional retail space will not be available until the second half of fiscal year 1996.
The company has also opened its fifth outlet store in Sawgrass Mills Mall near Fort Lauderdale, Fla.
The new St. John Sport collection, a line of dressy warmup sweats made in Europe, has been received “‘sensationally,” according to Guyer. The line, introduced to 70 select stores in November, will be expanded to 229 doors this spring. St. John currently has 445 wholesale doors.
Gray said the line will probably generate sales of $6 million this year and has the potential to reach 50 percent of total sales over the next few years. The Tyber by St. John faux fur line, introduced in the quarter, was also received well.
Meanwhile, the Griffith & Gray woven line performed “a little below plan,” and Gray admitted that the line was hampered by some fit and quality problems, partly stemming from manufacturing problems with its Italian supplier. He also said the line may have been expanded too quickly. Gray said the company has addressed these issues and is “looking for some nice growth” in Griffith & Gray this year.
International sales expanded 26 percent, with particular strength in Europe.
Orders for delivery from December through April 1996 in Europe reached $2.9 million, up 93 percent over year-ago levels and well above the $2.3 million company forecast.
Overall, the company’s order backlog for the same period is $62 million against $58 million, only a 7 percent increase. However, Gray said the backlog is “right where we want to be” and St. John remains on track for its target of 20 percent sales growth.
He said the lower backlog reflects the fact that the company intends to ship 95 percent accurate this year versus 80 percent in the prior year. He said the consolidation of production and administrative facilities, which will be completed by Christmas, has improved the company’s ability to meet orders.
“Our retail stores are literally screaming for merchandise,’ Gray said. “We happen to be in a lucky position to be able to guide where our backlog will be.”
Analysts expect the company will earn $2.90 a share in its year ended October 1996, versus $2.38, and is projecting about $3.35 the following year.
Margaret Whitfield, an analyst at Hancock Securities, said St. John’s continues to benefit from its classic lines that appeal to many different age groups, line extensions, and the success of its retail stores. She also said that the company, like Gucci and Tiffany’s, is benefiting from recent strength in the upper end of the market. Saks, Neiman’s and Nordstrom accounted for 52 percent of sales last year.
“Neiman’s and Nordstrom are faring better than the run-of-the-mill department stores,” Whitfield said. Jennifer Black Groves, at Black & Co., called St. John’s “a phenomenal company,” and said the new sport line is “a huge opportunity.” She also pointed out that the company’s focus on its customer has helped the company establish a long track record of consistent growth even when most upper end lines were doing poorly.
“They’ve done a great job of building the company with the consumer,” Black said. “People are just panting to get the product.” — Fairchild News Service