SARA LEE PROFITS OFF IN QUARTER

Byline: Evan Clark

NEW YORK — Difficult comparisons with year-ago results contributed to a 1.6 percent drop in Sara Lee Corp.’s first-quarter profits, but the company’s intimates and underwear group saw operating profits move ahead 18 percent to $202 million.
Intimates and underwear sales crept up 5 percent, just passing the $2 billion mark, but the company noted that, excluding acquisitions, the group’s sales on a unit basis declined 5 percent “due to weak hosiery markets and difficult year-over-year comparisons.” With acquisitions, most notably Courtaulds, unit sales for the group were ahead 3 percent.
The intimates and underwear group accounted for 46 percent of both the company’s sales and operating profits in the quarter.
Matching Wall Street consensus estimates, Sara Lee’s net income from continuing operations for the quarter was $254 million, or 29 cents a diluted share, compared to $258 million, or 28 cents, during last year’s first quarter.
The Chicago-based consumer products giant reported that sales for the period ended Sept. 30 increased 5.1 percent to $4.46 billion against $4.24 billion a year ago. Excluding the effect of currency conversions the company said sales grew 10 percent. Results include profits and sales from PYA/Monarch, the company’s food service distribution business, which it has agreed to sell to Royal Ahold for $1.57 billion during the next quarter.
In disclosing its results, Sara Lee also noted that Georges Rech, the men’s and women’s luxury suit and casualwear resource acquired as part of its Courtaulds purchase, was sold to an unidentified venture capital firm.
C. Steven McMillan, president and chief executive, noted in a statement, “Our ability to integrate acquisitions into our existing businesses led to a quarter with solid sales gains and earnings growth that met our forecasts.”
During the quarter, Sara Lee completed a 19 percent initial public offering of Coach which began trading on the New York Stock Exchange on Oct. 5. The company has received $190 million from the initial launch and plans to divest its remaining 81 percent interest in the accessories company over the next year, assuming favorable market conditions.
Champion remains on the selling block. The company said it is continuing with plans to sell the sportswear firm and hopes to report a deal in the next 12 months.
On a conference call, Janet Bergman, vice president of investor relations and corporate affairs, told analysts that the business was generally hurt by unfavorable currency exchanges and helped by acquisitions, primarily Courtaulds in the U.K.
Sara Lee reported it maintained or increased its leading U.S. market share in several apparel categories:
Hosiery carried 47.6 percent of the market compared to the number two player, No Nonsense, which held 11 percent.
Total sock share widened to 11.7 percent versus Fruit of the Loom’s 9.5 percent.
Women’s and girls’ underwear surpassed men’s and boys’ in U.S. market share, carrying 38.3 percent of the market versus 12.8 percent for Fruit of the Loom.
Men’s and boys’ underwear carried 37.2 percent of the market compared to 32.8 percent for Fruit of the Loom.
Sara Lee’s dollar share of the bra category was 33.7 percent versus VF Corp.’s 11.5 percent.
On a unit basis exclusive of acquisitions, international volume growth was down 3 percent for intimate apparel, down 5 percent for knit products and down 7 percent in legwear. Including acquisitions, results ahead 12 percent, flat and down 3 percent, respectively.
The company’s printables business was up 7 percent for the quarter on a volume basis.
A major factor in these and all of the company’s comparisons for the quarter was strong year-ago results stemming from the positive economic environment and weakness in Fruit of the Loom’s business.
During the year-ago second quarter, Sara Lee’s global Intimate Apparel business grew 12 percent while its knits business was up 14 percent.

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