RUSSELL PLANS $25M CHARGE
Byline: Evan Clark
NEW YORK — Matching Wall Street’s third-quarter earning’s estimates of 78 cents a share, Russell Corp. revealed plans to take an additional $25 million in restructuring charges for its European operations, where its Russell Athletic brand has been faltering.
In Europe, the company plans to use the Jerzees brand to the exclusion of the Russell name in the future.
Commenting on the addition to the company’s all-but-completed $125 million multiyear strategic plan implemented in 1998, Jack Ward, chairman, president and chief executive, told analysts on a conference call, “We feel that we’ve proven we can reduce costs with our offshore assembly, with our continuing to streamline distribution, our continuing to make significant changes to reduce costs in all areas, particularly textiles, as we reconfigure to take advantage of our scale.”
Including nonrecurring charges associated with the company’s strategic plan, net income for the quarter was $526,000, or 2 cents a share, against $19.9 million, or 60 cents, a year ago.
Excluding the charges, net income for the period ended Oct. 1 rose 7.8 percent to $25.8 million, of 78 cents a share, against $23.9 million, or 72 cents, a year ago. After taxes, the charges amounted to $25.3 million and $4 million in the fiscal 2001 and 2000 third quarters respectively.
Overall sales, driven by a 8 percent jump in activewear and 20 percent jump in Jerzees, picked up 3.5 percent to reach $359.9 million in the quarter compared to $344.9 million a year ago.
Ward said in a statement that the European restructuring plan, expected to be substantially completed in the next six months with charges recorded for the next three quarters, “will not affect our Jerzees operation as we continue to build upon our base of business in Europe.” The brand represents almost 80 percent of the company’s business there and has a strong presence in the screenprint market.
Russell Athletic will ship its current product line for the spring 2001 season, but expects to distribute products to Europe from its U.S. and other operations in fall 2001. Ward said on Thursday’s call, “In short, we’ll stop the bleeding of Russell Athletic Europe by phasing out operations in the current format.”
While Russell Athletics Europe operation is not a huge part of the company’s overall business, accounting for about $20 million in annual sales, an analyst noted that its narrow margins have caused it to have a significant impact on earnings.
The company estimated that about half of its shortfall in European operations was caused by unfavorable currency exchanges while much of the balance came from problems with a new Russell Athletic’s shipping system that caused delays, cancelations, higher return rates and increased costs.
The Atlanta-based athleticwear marketer posted net income, including charges, of $3.5 million, or 11 cents a share, for the first nine months compared to $7 million, or 21 cents, in the year-ago period. Sales rose 6.3 percent to $891.4 million for the period against $838.5 million a year ago.