SPIEGEL ISSUES WARNING

Byline: Evan Clark

NEW YORK — Coming in ahead of Wall Street’s fourth-quarter earnings estimates, The Spiegel Group warned its next two quarters would be weaker than expected and that it’s pinning hopes for 2001 on a better economy and improved results from its Eddie Bauer division.
Net earnings for the quarter fell 12.5 percent to $65.4 million, or 50 cents a share, from $74.7 million, 57 cents, during the year-ago quarter. Though down, results topped Wall Street’s expectations of 48 cents a share by a couple of pennies.
Sales for the period ended Dec. 30 rose 4.1 percent to 1.08 billion from $1.04 billion a year ago.
Michael R. Moran, chairman of the office of the president, said on a conference call the firm could still meet its goal of 8 percent to 10 percent revenue growth and earnings of $1.00 to $1.05 for 2001, but noted, “the economic slowdown being experienced presents a more challenging environment and places even greater emphasis on improved performance in the second half of the year.”
Moran said the estimates include assumptions of an improving economy and “a significant earnings improvement” from the Eddie Bauer division.
For the first quarter, the firm expects modest revenue growth and a loss of 9 cents to 12 cents with earnings of 2 cents to 5 cents in the second quarter. Wall Street’s consensus estimates for the first and second quarters were 17 and 22 cents, respectively.
Investors didn’t punish the company’s stock, though, driving its price up 6 cents to $7.56 on the Nasdaq Thursday.
The firm’s merchandising segment saw operating income decline $34 million compared to the 1999 quarter. While the Newport News and Spiegel businesses reported increased revenue and operating income for the quarter, the ailing Eddie Bauer division faltered.
The specialty marketer of men’s and women’s casual wear saw sales decline 2 percent for the quarter, due to a weak response to its apparel offer. Its retail segment, which includes the slumping Eddie Bauer stores, was hit hardest with a 9 percent drop in comps for the quarter.
Moran said, the “disappointing sales led to higher markdowns, which resulted in lower gross profit margins.”
Apparel and marketing programs, which “failed to connect” with customers, were to blame for the division’s results. Moran said that Bauer’s “apparel collections were too casual and weekend-oriented, and did not provide enough versatility.” Additionally, the division’s marketing initiatives “did not provide adequate focus on its value message and high-volume basics business,” according to Moran.
Having instituted a host of top-level management changes reported in January, the Bauer division is now zeroing in on its apparel assortment which, according to Moran, “will emphasize classic styling, while providing greater versatility with a wardrobe that is multi-functional.” He added that the changes won’t be visible to the consumer until it rolls out its fall products.
Sales for the Newport News division were up 17 percent for the quarter on strong sales of brightly colored leather skirts, pants and jackets. The Spiegel division’s sales increased 13 percent and produced what the group described as a “strong contribution” to earnings growth.
Net income for year jumped 41.6 percent to $120.8 million, or 92 cents a share. This compares to year-ago results of $85.3 million, or 65 cents. The most recent year’s earnings incorporate a charge of $4.1 million, or 3 cents, due to an accounting change. Certain amounts from a year ago were adjusted to make them comparable. Sales were up 5 percent to $3.06 billion from $2.92 billion last year.
As reported, Martin Zaepfel will take over as president and chief executive of the company on July 1. Moran and James Sievers, officer of the president and chief financial officer, at that time, will retire and effectively end the firm’s three-year-old ceo-by-committee structure. Additionally, Jim Cannataro, currently with the Bauer division, will become chief financial officer for the group.

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