TOMMY’S PROFIT FALLS, BUT SOFTLY

Byline: Vicki M. Young / Anne D’Innocenzio

NEW YORK — The news wasn’t good, but neither was it surprising.
Previous guidance provided by Tommy Hilfiger Corp. to Wall Street cushioned the blow of a staggering 75 percent drop in first-quarter earnings and a 4.6 percent dip in revenues.
But what still could have been a dismally dark day in the company’s history was brightened by word that Tommy had actually beaten Wall Street estimates for the quarter by 2 cents and gained 104,000 square feet of real estate among its wholesale accounts. The brutal but better-than-expected performance sent the company’s shares up 3/4 Wednesday to close at 9 1/2 on the New York Stock Exchange despite the NYSE’s 183 point drop.
Net income for the quarter ended June 30 was $9.7 million, or 10 cents a share, compared with $38.7 million, or 41 cents, in the comparable period last year. Revenue dipped 4.6 percent to $399.9 million from $419.1 million.
Joel Horowitz, chief executive officer, said in a conference call Wednesday that results for the children’s division were strong, while the men’s wear and women’s wear businesses were hit by anticipated declines.
“As we expected, the promotional retail climate that has existed since last fall continues to prevail,” the ceo said. “It is also, as you know, too soon for our efforts to improve our product design and assortments to have any impact on our financial results.”
Horowitz guided the Street to a “modest growth rate in the second quarter.” The company also expects a strong second half.
In the latest quarterly results, he noted, “Sales in our women’s component dropped 19.6 percent to $92.6 million from $115.2 million last year, a decrease that is also consistent with our expectations for the year. We continue to expect revenue from our women’s component to fall below the prior year’s level somewhere in the high teens as we balance supply and demand and strive for an increase in the proportion of full-price selling.”
“Deep markdowns,” he explained, “were necessary to clear inventory. Even with all the markdowns on the floor, however, the consumer does pay regular price when she finds what she wants.” The ceo said that core denim jeans and basic key item knitwear were among the items that sold well at regular price.
On the men’s wear side, he said, wholesale sales were down 17.2 percent for the quarter to $154 million. He added, “Within the men’s component, however, athletics has been a consistently strong performer and comprises 12 to 15 percent of our sportswear business.”
Because of the promotional retail climate that began last fall and continued into summer, Horowitz said, the company was required to take substantial markdowns to clear inventory and selectively took returns to help clear the selling floor.
On the bright side, Hilfiger gained an extra 104,000 square feet in real estate in the first quarter, compared to the fourth quarter of 1999, despite naysayers’ predictions that competitors were going to be eating its lunch. Horowitz told analysts that he doesn’t “expect to have a loss in square footage” for fall.
“In the worst of times, they were able to gain real estate,” said Josie Esquivel, an analyst at Morgan Stanley Dean Witter. “That is encouraging.”
For the first quarter, Horowitz told analysts that the women’s business garnered 1 million square feet, up 22,000 square feet from the fourth quarter of last year; men’s was at 1.3 million, up 19,000; juniors was 694,000, up 33,000; children’s was 800,000, up 22,000, and jeans was at 862,000, up 8,000 square feet.
“Revenue in the retail segment was up 30.1 percent for the quarter to $67.8 million in fiscal 2001 from $52.1 million last year,” Horowitz said. “Increases in the outlet division drove growth with additional stores and larger store format offsetting softer comparable-store sales.” Comps were down in the low- to mid-single digits for the quarter, he said.
Horowitz noted that the London flagship store will close in mid-August, while the Beverly Hills store is likely to remain open through the holiday season and close before the end of March 2001.
The company is continuing to expand its existing freestanding specialty stores and add new units. It has closed its White Plains, N.Y., store for renovations. Its Dallas store will soon be under construction, and the company plans to open specialty stores in Atlanta and Miami by the holidays.
Horowitz also pointed out that the company was “encouraged” by early signs of strong sell-throughs of its fall merchandise, which reflect the company’s new merchandising direction: a return to classics with a twist. He added that retailers were “enthusiastic” over Hilfiger’s holiday line, which booked on plan, and that the company has received “favorable reviews” on spring 2001 preview items.
“I was pleased with the way the [fall and holiday] lines looked,” said Morgan Stanley Dean Witter’s Esquivel, noting that the previous lines had lacked focus. “The lines had been all over the place.”
Kathy Bufano, executive vice president of merchandising at Macy’s East, said she was also encouraged by the company’s return to more classic-looking merchandise. Other market observers noted that the women’s line needs more work, while the men’s line appears “passable.”
Robert S. Drbul, apparel analyst at Lehman Brothers, said, “There are definite signs that the recovery is progressing. The results were in line with expectations, but the bigger question longer term for Hilfiger is whether the product changes are going to take hold. The early signs we see are that some of the new product is selling through on plan. The second quarter should see continued progress, with the holiday season the company’s biggest test.”
Most analysts expect the turnaround to take at least four quarters in order to get the company back on track.
Emanuel Weintraub, a retail consultant, observed, “In general the designer markets have to reenergize themselves. This is not a Hilfiger malaise. Many consumers have taken a ho-hum attitude toward designer names. They’re putting their money in other places such as travel and the Web.”

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