TOMMY HILFIGER POSTS FIRST QUARTERLY LOSS SINCE GOING PUBLIC
Byline: Thomas J. Ryan
NEW YORK — Hit by an anticipated $62 million restructuring charge and heavy markdowns, Tommy Hilfiger Corp. reported its first quarterly loss since going public in 1992.
The loss of $1.5 million in its fourth quarter ended March 31 compared with earnings of $46.2 million, or 48 cents a share, a year ago. Excluding the charge, earnings slid 24.7 percent to $34.8 million, or 37 cents a share, reflecting promotions to clear inventories.
Hilfiger warned in February that earnings would range between 35 and 45 cents a share because of heavy promotions in its women’s and men’s apparel operations due to slack demand. The charge covered the closing of flagships in Beverly Hills and London and the consolidation of juniors sportswear and jeans divisions.
Revenues increased 12.9 percent to $475.3 million from $420.9 million.
On a conference call, Hilfiger said it wasn’t changing the guidance provided in April calling for earnings for the current year to slide between 30 and 40 percent and sales to be flat to down 5 percent.
But officials delivered some good news in saying retailers were responding positively to company efforts to return to more traditional design looks for fall and holiday.
“If it had been negative, they’d be in jeopardy of doing much worse than what all of us are projecting,” said Margaret Mager, at Goldman Sachs.
The big test will be whether the new looks work. “If Tommy Hilfiger disappoints people once we get to fall and holiday, then there is a risk of losing space at a much faster pace,” said Mager.
“If it’s good, then the business stabilizes and margins start to improve, and Tommy Hilfiger once again has a bright future,” she added.
A big concern was that Hilfiger would lose square footage as hotter brands and new names such as Kenneth Cole and Nine West were put in its spots. Joel Horowitz, chief executive officer of Hilfiger, said he expects square footage in men’s and women’s to be “relatively flattish” this year as it reduces space in some stores and adds in others.
“I have a high level of optimism based on the retail feedback to our product lines,” said Horowitz. His “only hesitancy” is that past-season inventories will not be cleared until early fall, but he said improvements should begin to be seen at back-to-school and be “more meaningful” in holiday 2000 and spring 2001.
“The lesson we learned is that Tommy has his own look,” he said.
“We need to stay tried-and-true to Tommy’s classic American attitude with a twist, which will always be what our product needs to represent. One of the reasons we’re in the jam we are in now is that we followed and ran after fashion as opposed to only using fashion as the sprinkles on top of the icing on the cake.”
The retail climate in the latest quarter, was “very promotional,” complicating efforts to thin inventories, he said.
Businesses by segment:
Men’s wholesale sales declined 8.9 percent to $177 million, primarily due to price adjustments and lower off-price sales.
Horowitz said the firm is “encouraged” by initial retail responses to changes, such as returning to more traditional looks, reducing sku’s up to 40 percent and emphasizing key items.
Women’s wholesale, consisting of sportswear and juniors, was up 29.1 percent to $144 million as a significant growth in juniors shops and, to a lesser extent, misses’ shops offset higher markdowns.
Children’s wholesale jumped 51.7 percent to $88.6 million.
Retail sales jumped 20 percent to $49.7 million, with same-store sales ahead in the mid-single digits.
Royalties were up 4.7 percent to $15.9 million.
Horowitz believes the main problem in men’s jeans is bloated inventories, noting “a nice pickup in regular-price selling.” But men’s sportswear “is more of a product issue.” In women’s, Hilfiger has “dramatically beefed up” management in recognition of the quicker trend shifts and will also refocus on traditional looks.
The fall marketing push will “clearly differentiate our different businesses” with jeans targeting teenagers and sportswear aimed at adults between the ages of 20 and 55. A past mistake, he said, was only sending one message.
Improved and broader assortments are aiding outlets, and four different full-price store concepts will be tested this year. One features men’s jeans and juniors, another men’s and women’s sportswear and children’s; a third combines sportswear and jeans, and a fourth is solely children’s. About six will open.
In licensing, strength in women’s shoes, socks and sunglasses offset weakness in men’s, particularly shoes and tailored clothing. Men’s shirts and ties “continued to perform well.”
While Freedom fragrance missed expectations, a “truly bright spot” was Tommy and Tommy Girl. Color cosmetics, and bath & body “performed well.” Europe “has been terrific” with men’s sportswear up over 50 percent and women’s to launch this year.
For the year, the charge pushed earnings down 2.9 percent to $172.4 million, or $1.80 a share. Before the charge, earnings increased 10.2 percent to $208.7 million. Sales rose 17.3 percent to $1.98 billion.