Byline: Thomas J. Ryan

NEW YORK — Donna Karan International Inc. began 2000 with a bang, reporting earnings soared 53.9 percent in the first quarter, even though the women’s business continued to struggle.
The performance was driven by vigorous sales gains in a number of wholesale businesses — men’s wear, footwear, and international jeans, as well as continued strength in licensing and its new full-price stores. This offset weak performances in women’s wholesale and outlet stores.
“We continue to benefit from the change in the revenue mix, with our higher-margin businesses driving improvements in gross margin,” said John Idol, chief executive, in a statement. “For the remainder of fiscal 2000, we will move forward with our plan for a more balanced company, and are encouraged by the revenue growth experienced in all three of our business segments so far this year.”
Earnings in the period ended April 2 rose to $3.3 million, or 15 cents a share, from $2.2 million, or 10 cents, a year ago. Results beat Wall Street’s average estimate of 12 cents a share.
Sales rose 7.5 percent to $172.8 million from $160.7 million.
By segment:
Wholesale apparel rose 3.8 percent to $135.4 million as robust gains in men’s wear, footwear and international jeans offset double-digit declines in women’s.
Licensing soared 52.9 percent to $10.4 million aided by new launches in fragrances, juniors, pants and watches under the DKNY name.
Retail sales grew 15.3 percent to $27 million due to additional full-price stores. Comparable-store sales rose 1 percent at its full-price stores, but dropped 7 percent at the outlets.
Shares of Donna Karan rose 1/4 to 6 15/16 Thursday on the New York Stock Exchange. Analysts said strong licensing launches and continued strength in DKNY jeans shows the Karan name still carries positive name recognition with consumers. The wholesale gain also topped Wall Street’s targets calling for a flat performance.
Harvey Robinson, an analyst at The Chapman Co., based in Baltimore, was particularly impressed with the continuing improvement in higher-margin licensing and full-price retail businesses.
“They appear to be putting it all together,” said Robinson, “They’re not completely out of the woods yet, but my outlook is certainly brighter at this point.”
On a conference call, Idol said women’s wholesale apparel sales fell 14.2 percent owing in part to the transition of DKNY Japan to a licensing business as well as lower sales at retail.
Men’s wear sales jumped 19.1 percent and Idol said DKNY men’s “continues to be a solid performer at retail, experiencing high double-digit increases.”
Shoes and accessories registered a 13.7 percent wholesale gain, primarily because of continued growth in footwear, particularly comfort, jeans and active shoe styles. International jeans vaulted 93.8 percent as the line keeps successfully rolling out.
Idol, who was calling from Spain where he was meeting with European accounts, said the women’s wholesale collection lacked enough career clothing, but added that the line will feature more jackets, suits and coordinated looks for fall. He said the company continues with its previously announced plans to pull the women’s line from certain underperforming doors in the latter half of this year.
The firm told analysts it doesn’t plan to change stockkeeping units to improve results, noting that sku’s were slashed between 40 and 50 percent in 1999.
“The difficulties that we are feeling right now at retail are not inconsistent with where the line had been trending, unfortunately,” Idol acknowledged. “It’s more that we picked up on the fact that we really do not have enough career assortment in the line.”
Idol said the company is now adding some career looks to the stores, but the whole fall collection will feature the new approach. He noted that although the firm doesn’t see women’s as a “growth vehicle” in its wholesale area, DKNY women’s internationally “is growing very nicely and we’re getting door expansion.” In addition, women’s overall is growing domestically, if combined with sales in its full-price retail stores, he said.
“The women’s line is doing over 50 percent of the freestanding store business and performing very nicely in there,” Idol said.
The ceo noted that the bulk of Karan’s wholesale businesses, pointing to men’s wear and footwear, “is performing at very, very strong levels.”
“So we believe that the continued growth in those businesses on the wholesale side is going to enable us to hit our projected wholesale targets for the year. And we believe that the declines that we had originally projected in the women’s business will remain consistent with where we anticipated.”
Idol said it probably would take until the fourth quarter to see if the women’s business has stabilized.
Turning to licensing, Idol said DKNY jeans, made by Liz Claiborne, continues to do well, and sell-throughs of the recently launched DKNY watches, through Fossil, “have been just extraordinary.” He highlighted positive results from launches of a new DKNY fragrance from Estee Lauder and DKNY pants from Haggar Corp. And, the company reached a deal for licensed stores in Asia during the quarter.
The retail business was impacted by the shift in Easter to late April this year, but Idol noted that the firm continued to see strong margins in its 14-unit full-price chain business. It plans to add five more stores by yearend, and sees the potential for 100 units.
“Our full-price stores are planned to be profitable this year and have higher margins than our wholesale segment,” said Idol. But he said he was “discouraged” by results in the outlets as a planned reduction in sku’s and inventory caused the mix to be “too narrow and too deep.” Going forward, the outlet area will broaden assortments and increase inventory levels. Idol pointed out that the outlets are showing “significant margin improvement” and should post break-even results this year.
Overall, Idol said the firm continues to benefit from increased emphasis on higher-margin areas such as licensing and retail. Gross margins improved to 32.4 percent from 29.4 percent. Selling, general and administrative expenses increased to 28.8 percent of sales from 26.4 percent as a result of additional full-price stores, costs for the rollout of international jeans, and certain other initiatives.
The company told analysts its balance sheet is strong, with cash borrowings under its $150 million revolving credit line at $4.3 million at the end of its quarter versus $31.7 million a year ago. Inventories were down 21.7 percent to $64.8 million from $82.8 million.