MCNAUGHTON NET PLUMMETS

Byline: Arnold J. Karr

NEW YORK — Increased financing costs and a special charge sent McNaughton Apparel Group’s first-quarter net income down more than 80 percent despite strong topline growth.
Net income for the quarter ended Feb. 3 was $393,000, or 4 cents a diluted share, an 81.4 percent decrease from the $2.1 million, or 27 cents, reported in the prior-year quarter. The most recent results, which topped analysts’ consensus estimates by a penny, include a $548,000 posttax charge due to early extinguishment of debt as well as higher interest and amortization expense because of its acquisition of Jeri-Jo.
Gross profits increased 24.5 percent, to $29.7 million from $23.9 million in the year-ago period and operating income advanced 28.6 percent, to $9.9 million from $7.7 million.
Sales in the quarter rose 17.8 percent, to $103.3 million from $87.7 million. Peter Boneparth, chairman and chief executive officer, noted that all divisions contributed to revenue growth, with the Miss Erika division of moderately priced casual separates representing “the biggest growth driver during the quarter, as its early spring line was well received by our retail partners.”
Boneparth cited a number of operational criteria that had improved at McNaughton during the past year. Gross margin picked up 150 basis points to finish the first quarter at 28.8 percent. Selling, general and administrative expenses, as a percentage of sales, declined to 15.1 percent, a drop of over 100 basis points.
“From an operating perspective, we experienced tremendous growth in the quarter, as was evidenced by our significant increase in EBITDA [earnings before interest, taxes, depreciation and amortization],” the ceo said. “The decrease in income and diluted EPS before extraordinary item was anticipated and resulted from additional interest and amortization expense resulting from the Jeri-Jo earnout.”
As of March 3, McNaughton’s order backlog was more than 20 percent above its prior-year level.
Boneparth said that the company was continuing to capture market share in the moderate arena and reaffirmed financial guidance delivered in December, when the company said it expected growth of more than 20 percent in operating earnings but a drop in earnings per share, to between $2.20 and $2.50 a share from $3.05 in the year ended Nov. 4.
Sales are expected to grow 10 to 20 percent, to between $560 million and $600 million from $506.2 million last year, and gross margin should range between 28 and 29 percent.
As in the quarter, a drop in EPS for the year would be tied to the Jeri-Jo acquisition, which was funded by cash, notes and common stock.