ACQUISITIONS LIFT KELLWOOD SALES, BUT BOTTOM LINE FALLS IN QUARTER

Byline: Vicki M. Young

NEW YORK — Recent acquisitions by Kellwood Co. produced the lion’s share of a fourth-quarter double-digit sales increase, but the costs of repositioning initiatives and liquidation of its Montgomery Ward inventories resulted in a loss for the period.
For the quarter ended Jan. 31, the firm posted a net loss of $1.6 million, or 7 cents a diluted share, against earnings of $5.4 million, or 20 cents, in the comparable year-ago quarter. Sales for the quarter jumped 17 percent, or $79.1 million, to $540.3 million from $461.2 million.
According to Hal J. Upbin, chairman, president and chief executive officer, 60 percent of the quarterly sales increase, or $48 million, came from acquisitions and the remaining $31 million from organic growth.
In 2000, the St. Louis-based apparel firm acquired BiFlex International Inc., Romance du Jour Inc., Dorby Frocks Ltd. and Group B Clothing Co., which was formerly known for its Democracy line of sportswear.
Upbin told Wall Street analysts during a conference call last week, “Our core brands, while mature, still offer opportunities for growth.” He said licensing opportunities were available for the Sag Harbor, Koret of California and Kathie Lee lines. Product extensions, such as Koret dresses and separates, also represent expansion potential.
He disclosed that the Ivy, David Dart and Melrose lines underperformed during the holiday season. The company shut down the Ivy and David Dart Design Group divisions, with David Dart now part of the Group B division. Melrose was acquired by the Koret division for use in the launch of a new line of Koret separates targeting a younger consumer than the more mature Koret customer.
In spite of the weak retail climate, Kellwood is projecting earnings for the first quarter ending April 30 to be $23 million, or $1 to $1.05 a diluted share, compared with earnings of $29 million, or $1.17 a share, in the year-ago period. Sales are expected to increase 4 percent, or $30 million, to $675 million, with recent acquisitions expected to account for the entire increase.
For the current year, earnings are expected to finish in the range of $63 million to $67 million, or $2.75 to $2.90 a diluted share. Sales are projected at $2.5 billion, or a 5 percent increase.
For the latest quarter, women’s sportswear sales were up 9 percent to $353.8 million, due primarily to acquisitions. While a number of the company’s women’s sportswear brands were up in the quarter, with internal growth of 7 percent from the company’s more traditionally styled core brands, the gains were offset by an $18 million drop in volume from the closure of two branded divisions. The two divisions are being repositioned within Kellwood’s other operating units. Men’s sportswear sales were up 10 percent to $93.6 million, with all the growth coming from the Smart Shirts private label business. Other soft goods, which include intimate apparel, posted a 76 percent increase to $92.9 million, with acquisitions contributing nearly half of the increase. In intimate apparel, organic growth of 51 percent came from the launching of new products, new and expanded private label programs and new brands.
In the quarter, the company had to provide a higher level of markdowns on core brands than in the year-ago period because of the softer retail environment. Kellwood was also affected by costs incurred to reposition three of its women’s sportswear brands and divisions, as well as the establishment of reserves to liquidate inventory connected to Montgomery Ward after the discounter filed for bankruptcy in December.
For the year, Kellwood posted income of $60.8 million, or $2.57 cents a diluted share, compared with $10 million, or 36 cents, in the same period last year. Excluding special items, earnings in the year-ago period would have been $66.6 million, or $2.39. Sales were up 8 percent, or $168 million, to $2.4 billion from $2.2 billion. Acquisitions contributed 37 percent, or $62 million, of the year’s growth in sales, with organic growth contributing 3 percent, or $106 million.
Women’s sportswear sales were up 3 percent in the year to $1.6 billion, with the bulk of growth coming from acquisitions. Women’s sportswear represents 70 percent of total company sales. The top three brands, Sag Harbor, Koret of California and Kathie Lee, together represented over 60 percent, or $1 billion, of total women’s sportswear sales.