HILFIGER NET OFF IN 3RD QUARTER
Byline: Vicki M. Young
NEW YORK — Tommy Hilfiger Corp. posted a third-quarter profit that surpassed Wall Street’s estimates by 2 cents, but still fell short of year-ago results.
The company on Thursday reported $42.7 million in net income, or 47 cents a diluted share, for the quarter ended Dec. 31, compared with $59.1 million, or 62 cents, in the same 1999 period. The First Call/Thomson Financial consensus was 45 cents. Revenue for the quarter was down 8.7 percent, to $475.8 million from $521.2 million.
Shares of Tommy closed Thursday at $14.75, up 55 cents or 3.87 percent, on the New York Stock Exchange. In the early morning, shares had reached $15.20, near the 52-week high of $15.50. The low was $6.31.
Joel Horowitz, chief executive officer, said in a conference call that the 12.6 percent increase in revenue to $109.7 million in the company’s retail segment was driven by sales in newly opened and expanded outlet stores. Comparable-store sales were down in the mid-single digit range. “Promotional activity at department stores and high-energy prices resulted in lower traffic affecting the entire outlet sector,” he said.
He noted that the company had cash and cash equivalents of $329.7 million as of Dec. 31. In response to an analyst’s query on how the company would use its cash and whether an acquisition is in the works over the next 12 months, Horowitz said that at present, the company didn’t have anything “hot on the table.”
Wholesale volume in the women’s business dropped 12.3 percent, to $131.3 million from $149.7 million a year ago. The ceo said the women’s casual line was the best performer during holiday sales. The company reduced its style count by more than 30 percent compared with the prior-year period, and the stockkeeping unit count decreased 15 percent. Juniors performed well, due in part to denim offerings. Men’s wholesale sales were down 16.1 percent, to $148.6 million from $177.2 million, consistent with expectations, Horowitz said. Children’s wear declined 13.7 percent, owing to unanticipated weakness in the category.
Horowitz pointed out in a statement: “This was the first full season of the year in which we had an opportunity to see the effects of our repositioning efforts, and the results indicate that we are clearly on the right track.”
The ceo said that current expectations are to achieve earnings per share of 33 cents for the fourth quarter, with net revenue expected to be below last year’s in the mid-single digit range. The EPS guidance is in line with First Call’s consensus estimate.
Horowitz noted in the call that the company is “encouraged” by the favorable reaction of consumers to its traditional “classics with a twist” Tommy Hilfiger products, which have been the cornerstone of its repositioning efforts.
For fiscal 2002, the company said it expects net revenue to be flat with, or slightly higher than, fiscal 2001. First-half revenues are expected to decline between 5 and 10 percent, but will be offset by second-half increases. Horowitz said he anticipates an ongoing challenge in the industry, with the backdrop of a softer economy along with the likelihood of an equally promotional selling environment throughout the apparel sector.
Second-half increases are expected to come largely from a “15-to-20 percent” growth in its retail segment from the opening of 25 full-price specialty stores. Horowitz said the company will have a total of 35 stores by the end of March 2002. He disclosed that one-third of the stores will be based on a jeans concept, with the balance centered on sportswear.
Joseph Teklits, equity analyst at Ferris Baker Watts, said: “My concern is that the company is relying on opening 25 full-price stores to achieve low double-digit EPS growth. It doesn’t have a good history of operating full-price stores.” Hilfiger’s massive flagship in Beverly Hills is set to close Saturday and the company already closed its London flagship.
Teklits explained that the company’s improvement has been at the department store level in sales of its sportswear line. “It’s the 40-year-old woman buying product, most likely markdowns for herself and her husband. The company is healthier, but still down year-over-year.”
Hilfiger is opening stores in Miami’s South Beach and in Santa Monica,Calif., targeting the young, hip consumer. “That’s the business that’s the toughest, and the productivity and profitability of those stores out-of-the-gate might not be too healthy. That risk has to be taken into account,” the analyst said.
Revenue in the women’s business, Horowitz said, is expected to be up 1 to 5 percent due to strength in women’s casualwear and juniors, as well as the line’s extension into plus sizes. Tommy Hilfiger Woman will make its debut this fall in up to 350 department store doors, with 80 styles and 200 sku’s. Men’s wear wholesale volume is projected to be flat to down 5 percent, driven by a reduction in men’s jeans and a substantial reduction in off-price sales.
For the nine months, the company posted $97.4 million in net income, or $1.06 a diluted share, versus $173.9 million, or $1.81 cents, in the comparable year-ago period. Revenue declined 6.2 percent, to $1.41 billion from $1.50 billion.