KENNETH COLE PROFITS DROP 41% IN QUARTER

Byline: Vicki M. Young

NEW YORK — Kenneth Cole Productions Inc. on Thursday posted first-quarter earnings that were slightly ahead of its revised plan, but still below last year’s results.
For the quarter ended March 31, the company reported income of $4.6 million, or 21 cents a diluted share, versus $7.8 million, or 35 cents, in the same period last year. Revenue was up 2.7 percent, to $97.2 million from $94.7 million.
Wholesale revenues, however, dropped 10.3 percent, to $55.1 million, which was more than offset by a 27 percent increase in consumer-direct operations, to $36.6 million from $28.8 million. The increase in the consumer-direct operation was attributed to both new retail locations and an expansion in some existing locations, but offset by a drop of 5.3 percent, or $1.2 million, in comparable-store sales. Licensing revenue jumped 27 percent, to $5.1 million.
In a conference call to Wall Street analysts, Kenneth Cole, president and chief executive officer, said that there’s been a consumer shift to a “less dressy, more conservative style.” He noted that the company has consciously avoided “aggressive promotional activity [because that] hurts brand equity.”
Cole also discussed the licensing deal signed during the quarter with LVMH Moet Hennessy Louis Vuitton to produce fragrances under the Kenneth Cole New York and Reaction Kenneth Cole brand names. Both fragrances are a natural extension of the product lines, and provide additional exposure, he said.
Company executives reiterated earlier guidance for the second quarter of a revenue increase of 15 percent, with earnings per share of 34 cents. Revenue growth for the second half is projected at 20 percent.
Paul Blum, chief operating officer, told analysts that while the retail environment continues to be in an “overstock mode,” that wasn’t the case for Kenneth Cole. Sell-through, he said, remains good. “We have planned our inventory tightly, preferring to be in an industry where we are chasing sales [rather] than clearing inventory,” Blum pointed out.
Blum added that comp results are beginning to improve, and that the company “expects same-store sales to be profitable in the back half of the year.”
In the quarter, Kenneth Cole’s selling, general and administrative expenses increased 20 percent, to $37.3 million from $31.1 million in last year’s same period. Blum said increases in its consumer-direct division were the result of greater real-estate costs from its retail-store expansion.
According to Cole, the firm also made some merchandising mistakes in the quarter by “not anticipating some of the seasonality appropriately.” .
The company said that consolidated inventories as of March 31 rose only 2.2 percent, to $49 million from last year’s $48 million. Wholesale inventories were down 20.6 percent, to $24.5 million, while consumer-direct inventories skyrocketed 43 percent, to $24.5 million, in line with a 58 percent growth in square footage.
Kenneth Cole said it repurchased 606,700 shares of stock for $16 million during the quarter.
According to the company’s proxy statement filed Thursday with the Securities and Exchange Commission, Cole received $1 million in salary last year, a 43 percent increase over his 1999 salary of $700,000. The ceo also received a $1.375 million bonus compared with the $950,000 bonus in 1999. He also received 150,000 stock options at an exercise price of $30.67, which expires on Feb. 19, 2010.
Shares of Kenneth Cole stock on Thursday closed at $26.24, down $2.01 on the New York Stock Exchange.

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