NEW YORK — The Warnaco Group Wednesday turned in lower third-quarter losses in a report complicated by special charges, disposals and the firm’s emergence from bankruptcy nine months ago.
For the three months ended Oct. 4, the loss was $6.7 million, or 15 cents a diluted share, compared with a loss of $15.6 million, or 30 cents, in the same period last year, when the predecessor company was still in bankruptcy. The period’s results included a $5.2 million restructuring charge reflecting continued consolidation of manufacturing and distribution operations. The firm said excluding special items, the loss from continuing operations was 1 cent a share.
Sales in the quarter were down 8.6 percent to $303.1 million from $331.5 million. About $9.8 million of the $28.4 million decline in revenue was because of the closure of outlet stores.
Operating income declined at all three divisions, falling 8.4 percent at Intimate Apparel, to $17 million, and 10.4 percent at Sportswear, to $10.4 million. Losses more than doubled at the Swimwear Group, to $8.6 million.
However, revenues were up at Swimwear, rising 5.5 percent to $38.6 million, but down at Intimate Apparel, off 2.7 percent to $152.5 million, and Sportswear, off 19 percent to $112 million.
Inventory at the end of the quarter declined by $82.6 million, or 22.1 percent, to $290.6 million versus $373.2 million last year. The decrease reflects both improved inventory management and the closing of the company’s remaining retail outlets in the fourth quarter of last year.
Joe Gromek, president and chief executive officer, said in a statement that the company continued its “renewed emphasis on design innovation in our intimate apparel businesses, which we believe will address the softness in that business unit. Additionally, we are encouraged by the response to our new CK Jeanswear offerings, and we believe that our design team will have a positive impact on this business going forward.”
During the quarter, as reported, Warnaco extended its Chaps men’s sportswear license with Polo Ralph Lauren Corp. for an additional 10 years through 2018, introduced Nautica and Speedo “Beach Life” fashion swimwear and relaunched Speedo Lifeguard swimwear.
Larry Rutkowski, senior vice president and chief financial officer, said in a statement, “Our disciplined balance sheet and expense management strategies served us well during the year-to-date period. In a challenging retail environment, on a pro forma basis, for the nine months we achieved a 33 basis point increase in our profit margin from continuing operations and a 7.7 percent rise in income per share from continuing operations.”
He noted Warnaco doesn’t have any outstanding balances on its revolving credit facility and has maintained a conservative debt-to-capitalization ratio of 29 percent.
Investors were less enthusiastic about the numbers, sending shares of Warnaco rapidly downward $1.68, or 9.9 percent, to $15.23 in Nasdaq trading Wednesday.
On Wednesday, the company confirmed the sale of its noncore asset, A.B.S. by Allen Schwartz, to Allen Schwartz and Armand Marciano for $15 million in cash and $2 million in the assumption of liabilities. As reported, the company was granted a worldwide licensing agreement for JLo by Jennifer Lopez intimate apparel, beginning with the fall 2004 season.
The company adjusted fiscal 2003 earnings guidance to reflect the discontinued A.B.S. unit. Pro forma earnings before interest, taxes, depreciation and amortization are expected in the range of between $126 million to $136 million, with pro forma income at between $44 million and $50 million. Making similar adjustments for the discontinued operation, fiscal 2002 pro forma EBITDA was $113.1 million and pro forma income was $28.2 million.
For the eight months since Warnaco exited bankruptcy on Feb. 4, income was $7.5 million, or 17 cents, against a loss of $905.4 million, or $17.10, last year. Year-ago results were for the nine months. Sales fell by 14 percent to $949.8 million from $1.1 billion.
At the end of the quarter, the company entered into a 10-year variable interest rate swap agreement that converted the interest rate on $50 million aggregate principal amount of its fixed 8 7/8 percent senior notes due 2013 to a floating interest rate. The swap reduces current interests costs while retaining $160 million aggregate principal amount of its senior notes at a fixed rate.