NEW YORK — Tommy Hilfiger chief executive David Dyer outlined a future of more selective distribution as the firm blew past its earnings estimates for the second quarter on Wednesday.

This story first appeared in the November 6, 2003 issue of WWD. Subscribe Today.

With the help of an upswing in its European business, profits for the three months rose 6.1 percent to $64.7 million, or 71 cents a share, for the firm, speeding past its own estimates of 55 to 59 cents a share.

Accordingly, investors traded up its shares $1.24, or 8.6 percent, to $15.62 on the New York Stock Exchange Wednesday. The stock traded as high as $16.60 in intraday trading and volume was more than five times its daily average.

While Dyer, having just taken the helm as president and chief executive in August after serving in the same capacity at Lands’ End, cannot lay much claim to the upside surprise, he is quickly putting his stamp on the firm’s direction. Under his command, tighter distribution and more fashion content will be the order of the day for Hilfiger.

The stronger bottom line, which compared with year-ago earnings of $61 million, or 67 cents a share, was a product of not only better-than-anticipated growth at Tommy Hilfiger Europe, but also favorable currency exchange rates and reduced expenses due to cost control efforts and lower interest payments after the retirement of debt.

Revenues for the quarter ended Sept. 30 inched up 0.3 percent to $547.9 million from $546.5 million a year ago.

The shining star of the quarter was by far the European division, which saw a 58.2 percent rise in revenues to $152.5 million from $96.4 million. About $19.2 million of that increase came from the translation of a stronger euro versus a year ago. On the other hand, U.S. revenues slid 13.5 percent to $365.2 million.

Wholesale revenues advanced 0.3 percent to $417.1 million in the quarter. Within this segment, men’s sales were up 5.6 percent to $183.8 million, due entirely to growth in Europe. Women’s wear dipped 1 percent to $160 million, while children’s wear was off 8.4 percent to $73.3 million. The firm’s retail sales during the quarter stood unchanged at $115.1 million, with international expansion offsetting U.S. store closures.

On a morning conference call discussing the results, Dyer began to frame his plans for the company.

“The brand is powerful and offers potential for further growth,” he noted. “This isn’t to say that there aren’t challenges and many strategic decisions ahead.”

Since joining Hilfiger, the ceo said he has spent most of his time poring over the U.S. wholesale business. “I concur with the company’s previous decision to reduce distribution in order to bring supply and demand into balance,” he noted, adding Hilfiger is over-distributed in all of its product categories and that the proliferation is particularly acute in men’s and children’s.

The firm’s A and B doors, which carry broader assortments — including some of the more fashion-forward elements of the Hilfiger line, such as stripes in men’s — have seen what Dyer described as “tremendous sell-throughs.”

“As we look toward our spring orders, where we really have reinvigorated, certainly, our men’s and our women’s lines, we feel very encouraged that these goods are going to perform very, very well at retail,” he said.

Smaller doors, though, appear to have some merchandising choices ahead of them.

“What we need to do is bring the supply and demand — market by market, door by door — back into a realistic level where we all can make money, at least those that choose to carry our brand in the broad-based way that it needs to be carried,” said Dyer.

“The smaller the store, the more basic the assortment becomes, the less fashionable,” he added. “When you get into a fashion brand, it’s all about having the right fashion items. So if you get everything down to the lowest common denominator…it really does [not do] the brand nor the customer any good.”

Misses’ sportswear, he said, is the biggest and most successful part of the U.S. wholesale business and provides the greatest opportunity for long-term growth. The women’s apparel business, in general, is much larger than the men’s and is less developed at Hilfiger, said Dyer.

The firm is increasing its profile in women’s with dressier offerings in department stores from its revamped H Hilfiger better line, which is also in men’s.

Meanwhile, Dyer sees “opportunity” for the firm at national chains, such as Sears, Roebuck and Kohl’s, but not with the flagship brand.

At the top of the new ceo’s short-term to-do list is to recapture U.S. market share, continue growth in Europe and refine the firm’s strategic framework for diversifying beyond the namesake brand. He noted that a “multi-tier, multi-channel acquisition strategy is certainly appropriate for us.”

“I’m a big believer of making decisions in the context of a strategic plan and we intend to make a presentation of our plan to the board in early spring,” said Dyer.

For the first half, income totaled $81.6 million, or 90 cents a diluted share. This compared with year-ago losses of $377.8 million, or $4.16, driven primarily by a change in accounting principle, which pulled results down by $430 million, or $4.74 a share. Without the accounting switch, profits shot up 56.3 percent.

Sales for the six months increased 0.3 percent to $915.2 million from $912.8 million.

Hilfiger anticipates earnings of 10 to 14 cents a share in the third quarter, on a roughly 15 percent drop in revenues. Earnings for the fourth quarter are slated for 35 to 39 cents a share.

Overall, U.S. wholesale volume is expected to drop by about 20 percent in the second half.

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