HILFIGER NET DROPS, BUT TOPS ESTIMATES
Byline: Vicki M. Young
NEW YORK — Tommy Hilfiger Corp. on Monday posted first-quarter income and revenue below last year’s level, but earnings per share were still two cents ahead of consensus estimates.
For the three months ended June 30, income was down 7.3 percent to $9 million, or 10 cents a share, from $9.7 million, or 10 cents, in the year-ago quarter. Revenue dropped 11 percent to $355.7 million from $399.9 million. Earnings were in line with Wall Street’s consensus estimates, and were slightly ahead because of the shifting of certain shipments from the second quarter into the first quarter.
Shares of Tommy on Monday closed at $14, up 90 cents, or 6.9 percent, in trading on the New York Stock Exchange as the market happily digested the news.
Joel Horowitz, chief executive officer, told Wall Street analysts during a conference call, “We are pleased to report revenues and earnings slightly ahead of our expectations for this first fiscal quarter. Although partially due to the acceleration of certain shipments originally planned for the second quarter, these results also reflect improvements in our product offerings, streamlining of our operations and continued strong inventory management. These initiatives were fundamental to repositioning our business last year and continue to be among our main priorities for the current year as well.”
He said that the acceleration of shipments into the first quarter was “pretty much across the board. It was a matter of stores wanting [early shipment of product] where inventory was low.” The additional $8 million to $10 million in sales added between 1 and 2 cents to the EPS result. The same numbers will in turn reduce second-quarter EPS by between 1 and 2 cents.
Dennis Rosenberg, apparel analyst at Credit Suisse First Boston, wrote in an earnings note Monday, “The positives in the quarter included strong regular price sell-throughs of women’s and juniors, a favorable response to the plus-size introduction, improved outlet store profitability despite lower comps, and clean inventories in all categories at both wholesale and Tommy retail stores.”
The analyst maintained his “strong buy” recommendation, noting that women’s, juniors and Europe will be the primary growth drivers. The company on July 6 completed its acquisition of its former European licensee, T.H. International NV.
Despite a drop in its revenues to $83.4 million from $92.6 million in last year’s first quarter, Horowitz said that the company is “very encouraged” by the performance of the women’s wholesale business. Horowitz said that both women’s and juniors had reduced shipments of off-price goods and that sell-throughs are “well ahead of last year.” In addition, given the current retail environment, the women’s categories are the ones showing signs of strength, he noted, and the company is capturing a portion of available market share.
Among the top sellers were novelty prints and patterns, as well as classic silhouettes. Alternative length bottoms were also top sellers, with capris a hit in the juniors category. The company in June also began shipping its plus-size Tommy Hilfiger women’s line in 300 doors.
The misses’ business, Horowitz added, was close to the company’s desired benchmark of a 40 percent gross margin rate internally for any division, with the juniors business running in second place.
“I expect an increase going into holiday and beyond in both the misses’ and junior businesses. I don’t like to get too optimistic in times like this when retail gets too difficult, but our misses’ and juniors business is very strong.”
Wholesale revenues in the men’s business were $129 million versus $154 million last year. “Men’s continues to be challenging for us. We overcompensated and we became too basic,” the ceo noted.
Revenue from the retail segment was up 6.6 percent to $72.3 percent from $67.8 million. The increase was driven by contributions from newly opened and expanded outlet and specialty stores, which offset negative comparable-store sales in the period. At the end of the quarter, the company’s total store count was 116, which consisted of 96 outlet stores and 20 specialty stores. The total store count in the year-ago quarter was 96, which consisted of 90 outlets, four specialty stores and two flagships.
The ceo said that the company, taking advantage of the greater availability of retail sites, is going ahead with its plans to step up store openings for the year, even though the retail climate is depressed and men’s and children’s categories are underperforming.
Jeffrey Edelman, apparel analyst at UBS Warburg, wrote in a research note Monday that the company planned to open between 30 and 35 stores this year, and have 40 to 45 in operation by the end of its fiscal year. “Acceleration in the opening of retail stores is important to reach sales growth targets, but it also represents the potential for increased volatility,” he cautioned.
Horowitz said that licensing income, which includes royalties and buying agency commissions from Tommy Hilfiger Europe, were flat relative to the same quarter a year ago at $14 million.
When asked during the call about tax rebates, the ceo observed, “I’m not that confident that that’s going to be the magic wand. It may have a percent or two impact overall. From our vantage point, is $300 to $600 going to be spent on apparel, assuming [consumers] spend it? There’s a lot of different options. If you asked me six months ago, I would have been a lot more optimistic.”
Still, the ceo is feeling confident about the company’s ability, including the contribution from Tommy Europe, to meet First Call consensus EPS estimates of $1.60 for the full year ending March 31, 2002. Tommy Europe is expected to contribute between $110 million to $115 million in revenue for the balance of the fiscal year, net of about $12 million in licensing revenue adjustment to reflect the unit’s status as a wholly owned subsidiary of the company.