Byline: Thomas J. Ryan

NEW YORK — Kellwood Co.’s third-quarter earnings more than doubled as tight expense controls and special gains offset a slight decline in operating earnings, largely caused by severe delivery problems.
The moderate-price apparel giant earned $5.4 million, or 20 cents a share, in the period ended Jan. 31, up from $2 million, or 7 cents, a year ago. Results missed consensus estimates of 21 cents. Sales gained 5.1 percent to $461.2 million from $438.9 million. Kellwood shares closed up 1/8 at 16 9/16 on the Big Board Thursday.
Hal J. Upbin, chairman, president and chief executive, said in a statement the earnings gain was “due principally to lower amortization of intangibles, lower interest expense resulting from improved management of working capital, other income from investing surplus cash, and a gain on the sale of a building.”
Operating earnings slid 4.3 percent to $15.6 million from $16.3 million.
On a conference call, Upbin said delivery problems from contractors in Mexico and Asia led to order cancellations and late deliveries, with many problems tied to hurricanes, earthquakes and floods.
Kellwood estimated that it lost about $5 million in sales in the quarter and will miss about $15 million in the current quarter. Gross margins in the latest quarter eroded to 19.3 percent from 20.8 percent due to chargebacks tied to late deliveries and the promotional climate at retail.
“The good news is that it’s all very fixable and I expect all of that will be behind us by next month,” Upbin said.
Upbin said demand for its major brands, including Ivy, Sag Harbor and Koret, remain solid, and he expects a better fall.
Sales in the quarter were broken out by its five operating segments:
Popular-to-moderate inched ahead 1.5 percent to $289.8 million.
Better-to-bridge was down 24 percent to $25.9 million.
Private label apparel rose 15.7 percent to $62.6 million.
Smart Shirts rose 35.6 percent to $54.6 million.
Recreation products climbed 13.5 percent to 28.3 million.
Kellwood plans to consolidate its business into three segments: women’s sportswear, which includes popular-to-moderate, better-to-bridge, and women’s private label; men’s sportswear, which includes Smart Shirts and men’s private label, and other soft goods, intimate apparel and recreational products.
The new segmentation allows Kellwood further to leverage its infrastructure and share core strengths, particularly in joining private label and branding operations.
Women’s sportswear has strong opportunities in petite and large sizes across many of its divisions. Upbin said stronger performers lately are recently repositioned or launched lines, including Components sportswear, Ivy dresses, David Meiser contemporary evening wear and Koret golfwear.
Planned new launches and brand extensions include Koret dresses, Plaza South sportswear, Lennie by Nina Leonard two-piece knit dresses, Harbor Nights and Studio Nights social dresses, and the Emme plus-size line. Upbin said the Perry Ellis women’s sportswear line, to launch this fall, is being well received by stores.
Upbin said Kellwood plans to more aggressively open in-store shops this year, including expanding David Dart and Polo accessories, and launching shops for Koret, Melrose, Ivy and Perry Ellis. The company is still looking to acquire women’s apparel firms with sales in excess of $100 million.
The January acquisition of Biflex International provides Kellwood with a good platform to expand in bras.
Kellwood does innerwear private label for Wal-Mart, Kmart, Express and Victoria’s Secret while Biflex does private label for Target.
Both firms do private label with Penney’s, Sears, Dillard’s and Mervyn’s. Upbin said the firm is working on a strategic alliance with a seamless daywear manufacturer, and still looking for a niche brand and new licenses in innerwear.

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