MANUFACTURING CHAMPS: KEEPING STRONG AND NIMBLE TO STAY AHEAD
NEW YORK — Strong women’s apparel firms expect to get stronger in 1996, forecasting sales and earnings gains of 15 to 20 percent, sparked by acquisitions, expansion abroad and new lines targeted at emerging lifestyles.
Intensifying retail consolidation and price pressures next year will favor apparel vendors offering a deep and timely supply of top brands. And they’re gearing up to seize share from smaller competitors in an increasingly brutal market.
As a result, double-digit growth was forecast by the financial executives of several publicly owned women’s suppliers contacted by WWD. The bullish, while hardly an all-inclusive list, include officials of such diverse companies as The Warnaco Group; St. John Knits; Norton McNaughton, Kellwood Co.; Donnkenny Inc. and The Sirena Apparel Group.
Recent financial reports have not been without setbacks for some of these firms, and not all of them are giants. Still, they are typical of companies that are betting on deep branded assortments — covering various categories — or a strong niche position, close ties to retailers via electronic data interchange plus economies of scale to drive growth despite a climate that will put a number of weaker companies out of business.
Growth for some will be generated internally, while others such as Kellwood and Sirena will be scouting acquisitions.
“We will make some acquisitions in our pursuit of double-digit sales growth in 1996,” revealed Roger D. Joseph, vice president and treasurer of Kellwood, which is based in Chesterfield, Mo.
Likely candidates to be snapped up by the mostly moderate-price women’s sportswear resource include makers of outerwear and branded lingerie, as well as manufacturers of better-price apparel.
“We’re largely in women’s sportswear, and we want to expand into related apparel and accessories, but this doesn’t mean we won’t acquire a women’s sportswear company,” he noted.
Kellwood expects to reap 6 to 8 percent of its growth next year from internal increases and the balance from acquisitions. Kellwood’s first-half sales for its fiscal year ending April 30, 1996, are up 13 percent, Joseph noted, projecting net income growth of 15 to 20 percent for the year. Since 1990, Joseph said, the apparel industry has had compounded sales growth of 4.4 percent, while Kellwood has expanded at a 12 percent clip, 9 percent from internal operations.
In fiscal 1995, Kellwood’s sales ran up 13.4 percent to $1.4 billion, but its net plunged 69 percent to $11.1 million or 53 cents a share. The steep decline, reversing three consecutive years of double-digit gains, stemmed from an operating loss in Kellwood’s Asia subsidiary, the sale of its Home Fashions unit and the consolidation of some domestic divisions.
While Sirena’s niche in swimwear has brought growth to the company thus far, “we’ve talked about synergistic acquisitions — companies that are less seasonal than the swimwear business and would also allow us to leverage our costs,” said Henry R. Mandell, chief financial officer. Suppliers of activewear, resortwear and loungewear are on Sirena’s list of possible takeover targets.
“We’ve talked with a few companies we could be interested in, but we’re not negotiating at the moment,” Mandell said. The chief financial officer said Sirena is comfortable with Wall Street estimates that its sales will expand 20 percent and its pretax earnings will surge 30 percent in 1996. In its fiscal year ended June 30, the swimwear supplier more than doubled its earnings, netting $2.9 million, or 93 cents a share. Sales surged 26 percent to $49.2 million.
Among the women’s apparel vendors looking mostly to internally generated diversification or existing business units to drive growth in 1996 are Norton McNaughton, Warnaco and St. John Knits. In addition, Kellwood and Sirena plan to expand their private-label businesses.
The casual Friday phenomenon should provide Norton McNaughton with strong growth opportunities next year, predicted Amanda J. Bokman, chief financial officer of the moderate-price career wear company.
To capitalize on what Bokman believes is a trend that has only just begun to take hold in the women’s market, in January McNaughton will ship its first NS Norton Studio product to retailers. The new line of related knit separates is aimed at casual Friday career customers and designed to go from workplace to weekend, she noted.
“We’ve planned for primarily internal growth, although we’re open to acquisitions,” said Bokman.
One benefit of internally driven growth, Bokman said, is that a mistake is less costly in a new division seeded with $1 million to $2 million than in a $20 million to $30 million acquisition.
McNaughton is comfortable with Wall Street estimates its sales will increase 15 percent and earnings will shoot up 20 percent next year. The company, which has been one of the strongest women’s apparel performers on Wall Street, got caught up in the promotional epidemic at retail this fall, and last month forecast its fourth-quarter earnings would take a slide. It cited thinner margins as it sold off inventory at break-even or below cost prices.
Nevertheless, if the company’s recent fourth-quarter estimates hold true, its earnings for all of 1995 will rise 13 percent to about $9.9 million or 30 cents a share, as sales rocket 36 percent to $228 million for the year ended Nov. 4.
Core lines are expected to produce about 50 percent of the gains anticipated in 1996, with the balance coming from Norton Studio; DPS, a weekend wear collection introduced late last year, and private label. Private label will deliver about $25 million of the firm’s estimated 1996 sales of $265 million, Bokman forecast.
Private-label growth for McNaughton will be sparked by its Lauren Alexandra line, launched in July for Federated Department Stores, and its Pant-her range introduced late last year for May Department Stores Co., the chief financial officer said.
The potential for expansion abroad next year looms large for Warnaco, said William S. Finkelstein, senior vice president and chief financial officer. “With only 11 percent of our sales offshore we have a lot of room to grow globally, especially with our Calvin Klein women’s intimate wear and men’s underwear,” Finkelstein said. “Also, we just signed a worldwide license with Valentino and we will look to take over some of our licenses in Europe and Asia as we did in Canada.”
In October, Valentino extended its lingerie license with Warnaco for the U.S. and Canada to one with global reach until 2002.
Sales at Warnaco, which makes men’s wear as well as intimate apparel, will climb 15 percent, and its operating earnings will surge 20 percent next year, Finkelstein forecast. He wouldn’t offer a specific forecast for 1995’s results, but in its most recent nine months ended Oct. 7, Warnaco’s sales rose 16 percent to $645.1 million; net earnings fell 4.5 percent to $37.9 million, or 89 cents a share, but year-ago earnings were not fully taxed. Analysts estimate the company will net 37 cents a share in the fourth quarter, up from 33 cents, bringing 1995 earnings to $1.25 a share.
Meanwhile, an American icon, Mickey Mouse, is expected to drive increases at Donnkenny, along with its acquisitions of Beldoch Industries Corp. in July and Oak Hill Sportswear in May.
The purchases were part of Donnkenny’s long-term plan to triple its sales to $450 million by 1998. As noted, Donnkenny also diversified this year to reduce its dependency on the highly fickle licensed-character business.
Analysts predict the vendor of sportswear, knitwear and cartoon licensed goods will notch sales of about $210 million this year, up 33 percent from $158 million in 1994; they also are projecting sales of $350 million in 1996, a 67 percent surge, estimates in line with Donnkenny’s plans.
“We’re excited about our Mickey & Co. in-store shops in J.C. Penney,” said Edward T. Creevy, Donnkenny’s chief financial officer. “The four shops we opened in October were successful, so Penney OK’d a rollout of 500 shops, starting in 1996. Some shops are already being built in the Pittsburgh area.” Reflecting the umbrella approach taken by many key suppliers, Kellwood’s Joseph observed, “A broad portfolio is especially important as retail continues to consolidate.” For its part, Kellwood can put together a variety of packages from over 40 divisions focusing on specific market niches.
Still, a broad portfolio is not absolutely necessary, as proven by St. John Knits, which targets a narrow segment of customer in the high-end business and succeeds, analysts agree, because it knows that customer well.
St. John is eyeing sales and earnings hikes of 20 percent next year. This year, analysts expect earnings of about $2.34 a share, up from $1.82 a share in 1994. In the first nine months of 1995, St. John’s netted $13.4 million, or $1.63 a share, up 36 percent from $9.9 million, or $1.20. Sales surged 28 percent to $114 million from $89.2 million.
Sparking growth next year, said Robert E. Gray, chairman and chief executive officer, will be its new St. John Sport line, which debuted at retail last month. Terming initial sales of the designer activewear line “phenomenal,” Gray predicted the line could produce sales of $6 million and possibly “considerably more” in 1996.
In addition, its T. Bear fake fur line bowed in the fiscal year ended Oct. 30 with sales of about $1.5 million, a figure St. John is “looking to double or triple next year,” Gray said.
Rounding out some branded portfolios is an expanding portion of private-label goods, with which apparel firms can target consumers hunting harder for bargains.
Private label accounts for about 30 percent of Kellwood’s mix, for example, “positioning us to do well as consumers downscale and seek value through private labels,” said chief financial officer Joseph.