Hal Upbin

Kellwood Co.’s slew of deals helped provide fat bottom-line growth and top-line gains, as it said third-quarter earnings vaulted 43.4 percent.

NEW YORK — Thanksgiving came early for Kellwood Co. this year as one of its cornucopia of deals helped provide fat bottom-line growth and propelled top-line gains.

This story first appeared in the November 26, 2003 issue of WWD. Subscribe Today.

Thanks to its purchase of Briggs and its sixth consecutive quarter of gross margin improvement, the St. Louis-based apparel giant said third-quarter earnings vaulted 43.4 percent to $30.3 million, or $1.11 a diluted share, for the three months ended Nov. 1. That easily beat the Wall Street estimate by 4 cents and shot past last year’s profits of $21.1 million, or 82 cents.

Excluding results from discontinued operations, earnings increased an even more robust 48.7 percent to $30.4 million, or $1.14, from $20.5 million, or 79 cents, a year ago. As reported, Kellwood sold its domestic Auburn Hosiery Mills and European hosiery businesses to Delta Galil Industries in a deal that closed Nov. 13.

Sales for the quarter improved 3.7 percent to $645.8 million from $622.6 million a year ago. However, the February acquisition of Briggs was entirely responsible for the sales increase, said chief financial officer Lee Capps on a conference call with analysts, offsetting declines in organic sales.

By segment, Kellwood’s largest business, women’s sportswear, contributed a 1 percent rise in sales to $397.7 million. Men’s sportswear, the firm’s second-largest division, posted the best gains, growing by more than a quarter, or 27.5 percent, to $143.6 million from $112.7 million last year. Other soft goods, however, saw sales recede 10 percent to $104.4 million from $116 million a year ago. The latter category includes the divested hosiery businesses.

The good, but not great, top-line increase was the only disappointment in the quarter.

“My associates and I have a great deal to be thankful for,” said chief executive officer Hal Upbin on the call. “We had a great quarter, a great nine months and we’re going to have a great year. The only thing I am not thankful for is the top line. But I can assure you that the growth will come.”

Among a number of factors adversely affecting sales, retailers bought lower levels of goods this fall, in part, because last fall was “a disaster,” Upbin said.

“Fall buying has been erratic, as shown by pretty spotty comps,” said adversely affecting sales, retailers bought lower levels of goods this fall, in part, because last fall was “a disaster,” Upbin said.

“Fall buying has been erratic, as shown by pretty spotty comps,” said Upbin of comparable-store sales performance in the stores. “The one thing we can’t do is make the customers come into the stores. We’ve proven that we can grow the company without having to grow the top line, but we surely will.”

In a statement, Upbin added, “The company is somewhat encouraged by the recent signs that indicate a turn for the better in the economy, employment, consumer confidence and activity at retail. However, the pickup in comp-store sales and sell-through rates the company has seen during the early fall retail selling period will have to continue and strengthen through the important holiday selling season before we are convinced that the recent macroeconomic signs of a recovery have translated into a sustainable increase in consumer demand for apparel.”

Investors followed Kellwood’s earnings release by trading down the firm’s share 65 cents, or 1.7 percent, to settle at $38.20 in Tuesday’s New York Stock Exchange session.

Greater efficiency magnified relatively small sales growth into major bottom-line gains. Gross margin as a percentage of sales expanded 80 basis points while selling, general and administrative costs regressed 55 basis points as a percentage of sales. Kellwood said the gross margin improvement was due partially to more competitive sourcing, having less surplus and obsolete inventory to mark down and consolidation of warehousing and distribution operations. SG&A benefitted from savings resulting from consolidation programs in certain company divisions, the firm said.

Looking ahead, Kellwood maintained its full-year earnings guidance of $2.60 to $2.65 a diluted share versus $2.04 a year ago, before special items in both periods.

Kellwood said it is particularly pleased with that bottom-line growth given that the company will spend about $9 million before taxes, or 21 cents a diluted share, on new initiatives this year. As reported, Kellwood has landed new licensing deals for Calvin Klein women’s sportswear from Phillips-Van Heusen, Def Jam University urbanwear from Phat Fashions, licenses for Liz Claiborne dresses and suits, an Izod moderate women’s line from PVH, XOXO junior apparel from Global Brand Holdings and Run Athletics and Dockers’ tops with Levi Strauss & Co. Kellwood said the new lines of business are helping support the firm’s organic sales growth, which is expected to charge ahead 7 to 9 percent in 2004.

Additionally, as reported, sources have indicated that Kellwood is also considering an acquisition of Russell Simmons’ Phat Fashions, which includes the Phat Farm and Baby Phat brands.

Overall, for the first nine months of the year, Kellwood said net income catapulted 72.1 percent to $57.8 million, or $2.14 a diluted share, versus $33.6 million, or $1.37, last year. Excluding the hosiery businesses, earnings from continuing operations jumped 80.5 percent to $59 million, or $2.19, from $32.7 million, or $1.33.

Net sales for the period advanced 11.3 percent to $1.83 billion from $1.65 billion a year ago. By segment, women’s sportswear grew 8.1 percent to $1.11 billion, men’s sportswear rose 25.7 percent to $362.2 million and other soft goods increased 8.8 percent to $365 million.

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