NEW YORK — The transformation of Tommy Hilfiger Corp. into a dual-gender designer house can be declared complete.

The metamorphosis might not have occurred in the way the firm had foreseen, however, as women’s wear, on the rise, met men’s wear, once its sole classification, on the way down. The company disclosed in its annual report Tuesday that women’s wear, with $564.7 million in revenues, was the largest segment of its wholesale business in the fiscal year ended March 31.

This story first appeared in the June 25, 2003 issue of WWD. Subscribe Today.

The Form 10-K filed with the Securities and Exchange Commission shows women’s wear, with a 4.9 percent growth spurt, leapfrogging over men’s wear, which saw revenues decline 10.8 percent to $555.1 million last year. Children’s wear, the smallest of the three wholesale divisions, enjoyed a 7.1 percent revenue increase to $300.4 million.

Overall, wholesale revenues decreased 1.4 percent, ending the year at $1.42 billion versus the $1.44 billion performance in fiscal 2002. Segment profits, which exclude various financial items and certain expenses assigned to corporate overhead, declined 15.6 percent to $117.8 million.

As reported, Tommy Hilfiger Corp., hit with a $430 million accounting change and a number of other one-time items, sustained a $513.6 million loss in fiscal 2003 as revenues crept up 0.6 percent to $1.89 billion from $1.88 billion.

Hilfiger has been the center of intense industry speculation over the last few months, first as a potential takeover target and now as a result of its claims that it is looking for an acquisition — with everything from Sweetface to Nautica mentioned as possibilities. The report alludes to the firm’s interest in pursuing acquisitions but admits this quest “may be constrained by Mr. Hilfiger’s employment agreement,” which provides that the firm and its subsidiaries “cannot enter into any line of business” that the designer believes would be detrimental to the company’s trademarks.

The 10-K shed additional light on information previously discussed by Joel Horowitz, chief executive of Hilfiger, and others in recent months. A common thread running throughout the annual report was both the contribution made by TH Europe, the former licensee acquired by the firm in March 2002, and the costs associated with its acquisition and development. The company bought TH Europe for $200 million, plus acquisition-related costs of $6.8 million and $42.6 million in assumed debt.

Horowitz had previously disclosed that Europe contributed a total of $275.8 million to 2003 revenues, above expectations and 44.2 percent above the prior year excluding currency fluctuation. The annual report notes that, overall, European revenues spiked 76.2 percent as last year’s euro-dollar exchange ran an average of 15 percent above the prior year’s.

Both wholesale and retail results benefited from Europe’s contribution, the report said, although licensing revenues were necessarily lost due to its incorporation as part of the company. Despite that, licensing revenues, which include the firm’s Far East buying office, advanced 11.7 percent last year, to $122.7 million from $109.9 million in fiscal 2002. Segment profits rose 24 percent to $80.1 million.

With its higher margins, Europe also helped elevate corporate gross margin to 43.9 percent of sales last year from 42.8 percent in 2002 and 40.7 percent in 2001. The firm also credited improved margins in domestic wholesale and retail operations with the improvement.

Operating expenses leapt to 45.4 percent of sales from 32.9 percent of sales, and the firm cited investments and costs associated with its European expedition as among the causes of the increase. Various special charges, including those for impairment and specialty store closures, as well as the cost of opening 21 new stores last year, lifted expenses as well. Total operating expenses came to $858.9 million versus $617.9 million in 2002.

The breakdown of wholesale revenues by segment showed that, over the last two years, women’s wear has grown and men’s wear contracted at nearly identical rates — a 16.4 percent growth in the case of women’s and a 16.7 percent decline in men’s wear.

The annual report blames the decline in wholesale revenues to “an overall volume reduction in the United States. Within the men’s wear component in the U.S., a reduced level of consumer spending, together with the loss of some market share to a variety of new competitors and the promotional environment of retailers contributed to the decrease in net revenue.”

Women’s wear, meanwhile, “continued to benefit from the expansion of the company’s women’s casual division, mainly due to the growth of the company’s plus-size line. Partially offsetting this increase was a decrease in net revenue of the junior jeans division.”

Women’s wear’s succession to the top spot in the Hilfiger mix fulfills, in an unexpected way, a prediction made by Tommy Hilfiger himself more than seven years ago. Commenting on early women’s wear efforts, Hilfiger said of the category, “Eventually we think it will probably be larger than our men’s business, which does between $400 million and $500 million.”

Hilfiger’s men’s wear sales reached $666.7 million in fiscal 2001 but have surrendered more than $110 million in volume since then as the line has seen its once multifaceted appeal with a broad range of men narrow, and the department stores which make up a major portion of its volume have struggled to generate traffic and maintain same-store sales.

Retail revenues last year rose 6.7 percent to $405.1 million while segment profits dwindled 42 percent to $29.3 million.

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