KELLWOOD SEES FOURTH QUARTER LOSS
Byline: Evan Clark
NEW YORK — Kellwood Co. warned it will post a fourth-quarter loss of approximately 7 cents a share, a dime below previous forecasts and down from earnings of 20 cents in the year-ago quarter.
Investors reacted by pushing shares of the company down 69 cents to close at $21.97 on the New York Stock Exchange Friday. The warning was released after the market closed on Thursday.
Sales for the period ended Jan. 31 will come in “slightly ahead” of the earlier anticipated figure of $540 million. This compares to year-ago sales of $461 million.
The St. Louis-based firm blamed the expected earnings shortfall on higher markdowns in its core brands, costs associated with repositioning its updated women’s sportswear division and the liquidation of Montgomery Ward’s inventory.
Women’s sportswear accounts for about 70 percent of Kellwood’s overall business while men’s makes up about 20 percent.
In November, the company warned the fourth quarter would produce earnings per share of only 3 cents, due to the poor retail environment and its high apparel markdowns. The slower sales were expected to cause some spring orders to be pushed to February from January.
Thomas Lewis, an analyst with C.L. King & Associates, told WWD the warning “wasn’t terribly surprising, considering the way we’ve watched the economic statistics unravel.”
He noted that investors “understand that the consumer is being more cautious, retailers are being more cautious.”
Kellwood was “looking for pretty bad and got real bad,” said Lewis, who downplayed the shortfall a bit based on the season because of the season involved “There are two big quarters and two skinny quarters [in Kellwood’s fiscal year] and this is one of the skinny quarters,” he said.
As considerable as the underperformance is, it’s less significant in light of the company’s forecasts of earnings per share of $2.57 in the current year and at least $2.75 next year, he said.
As reported, during the quarter Kellwood acquired, for an undisclosed amount of cash, the Group B Clothing Co. which brought with it the Democracy label and annual sales of approximately $26 million.
Besides poor apparel sales and heavy markdowns, Lewis said part of the shortfall came from organizational changes which repositioned the David Dart Group under the Democracy label and put the Melrose line under its Koret business. He said the changes “involved expenses and that was a larger issue than the Ward’s inventory,” which he noted had labeled products in the pipeline as well when it liquidated.
He said, though, that Kellwood’s acquisition strategy made sense. While many companies leave something to be desired in the execution its of acquisitions, he said, “Kellwood is able to take companies and grow them fast.”
The firm’s typical acquisition is a small label that’s been built up from nothing and is having difficulty sourcing at costs that allow them to be competitive. Lewis said Kellwood has the purchase clout and is respected by retailers to make an acquisition more attractive to the acquired company “than a second mortgage.” The “hugely successful” Sag Harbor is one example.
The current economic market could also help the marketer of moderately priced clothing, which also makes clothes for companies such as Lands’ End and Nautica. “People who generally may have thrown down $100 for something, may look at something that’s pretty much the same, but $50, and go for the $50,” observed Lewis.
“Fashion at a price point that doesn’t break the budget,” as he describes Kellwood’s offering, is increasingly at a premium.
For the year, the firm expects earnings to drop 8.6 percent to $60.8 million, or $2.57 a diluted share, against a year ago. Sales for 2000 rose about 7.1 percent to $2.35 billion compared to 1999.
Looking forward to next year, Kellwood plans to add approximately another 6 percent to its top line with sales of $2.5 billion. Earnings per share for 2001 will be in the range of $2.75 to $2.90. Wall Street, before the warning, was looking for earnings of $3.17 a share for coming year.
Lewis said, “If the economy just continues to deteriorate than they might not make that, but it’s not like they’re not going to make money,” a prospect he noted was very real for other companies.