WARNACO POSTS STRONG GAINS IN NET, SALES IN 3RD QUARTER
Byline: Thomas J. Ryan
NEW YORK — The Warnaco Group reported earnings rose 26.2 in the third quarter ended Oct. 8, driven by strong across-the-board sales gains and lower interest costs.
Earnings rose to $21.7 million, or 52 cents a share, from $17.2 million, or 43 cents, a year earlier. The figures were in line with Wall Street estimates of 51 cents to 52 cents.
Intimate apparel profits climbed 9.2 percent, while men’s wear profits gained 8.3 percent.
Operating income rose 6.6 percent to $30.1 million, but declined as a percentage of sales to 13.8 percent from 15.3 percent. The slide reflected huge sales gains in lower-margin areas such as Fruit of the Loom bras produced under license and its private label bras for Victoria’s Secret.
The bottom line was aided by a 27.8 percent reduction in interest expense, to $7.9 million. Warnaco said it locked in $275 million of its $400 in debt at interest rates of about 6 percent for the next two years.
Sales gained 18.4 percent to $217.9 million from $184 million.
“The strong performance reflects the growth of our intimate apparel business as well as the improved profitability of our men’s wear operations,” said Linda J. Wachner, chairman, president and chief executive officer.
In the intimate apparel division, sales surged 39.5 percent to $152.9 million, reflecting the March 1994 acquisition of the Calvin Klein men’s underwear business. Excluding Calvin Klein, sales advanced 20 percent.
Wachner said intimate apparel’s results reflected strength in new product offerings, including the Not So Innocent Nudes line of molded seamless products, “excellent results” from the Calvin Klein men’s underwear business and a highly successful rollout of Warner’s and Fruit of the Loom bras in Avon’s catalogs through its distribution agreement with Avon Products Inc.
Fruit of the Loom bras “continue to perform extremely well in the mass merchandise market,” with sales more than double year-ago levels. Intimate apparel sales to Victoria’s Secret vaulted 131 percent, boosted by the Miracle Bra program.
Wachner said Warnaco plans to start shipping Calvin Klein women’s intimate apparel in January 1995, and she projected sales between $15 million and $20 million in its first year. Warnaco takes over these licensing rights on Dec. 31, 1994.
Men’s wear sales sank 15.5 percent to $53.9 million, reflecting lost sales from discontinued brands, but profits gained from streamlining. Excluding discontinued brands, men’s wear sales climbed 28.6 percent, powered by a 48.1 percent hike by Chaps by Ralph Lauren sportswear.
The order backlog at the end of the quarter was up 60 percent, excluding Calvin Klein. The backlog for Warner and Olga was up 50 to 75 percent, men’s wear’s increased 23 percent, and Fruit of the Loom’s was ahead 35 to 40 percent.
In the nine months, earnings before special charges rose 27.7 percent to $42.8 million, or $1.04 a share, from $33.5 million, or 84 cents. Operating income rose 2.8 percent to $68.3 million.
A $3 million charge related to damage sustained in the California earthquake in January reduced net earnings in the latest nine months to $39.8 million, or 97 cents a share. The year-ago net was $23 million, or 58 cents a share, after a $10.5 million charge for an accounting change.
Sales climbed 11.4 percent to $555.9 million from $499 million.
On the New York Stock Exchange, Warnaco’s shares closed Wednesday at 18 1/2, down 1/4.
However, Brenda Gall, at Merrill Lynch, was impressed with Warnaco’s ability to reach new distribution channels, calling its program with Avon “well above expectations.”
“Some of the lower margin products were exceptionally strong so gross margins were impacted, but the bottom line was fine,” Gall said.
— Fairchild News Service