Swank Inc. managed a more than sevenfold increase in third-quarter profits despite a slight decline in sales.
For the three months ended Sept. 30, the New York-based accessories supplier generated net income of $390,000, or 7 cents a diluted share, versus profits of $53,000, or 1 cent, in the prior-year period.
Sales slipped 0.2 percent to $28.6 million from $28.7 million in the 2008 quarter. Gross margin receded to 30.4 percent of sales from 31.2 percent last year because of an increase in customer returns, sales of out-of-line inventory and an increase in royalty expense.
The company said the positive effect of in-store markdowns and allowances and better jewelry and personal leather goods sales was “largely offset” by lower belt sales.
John Tulin, chairman and chief executive officer, told WWD the upside potential of belts was limited by Swank’s high market share, but that “several key customers have taken a position in jewelry. In this kind of environment, it’s something they’re getting behind, and every time LeBron James or Justin Timberlake shows up wearing a tie clip, the business pops a bit. Like our customers, we’re trying to maximize sales on minimum inventory.”
He added, “While the very difficult retail environment continues to put pressure on margins, we have paid particular attention to cost control and asset management in order to maintain our solid balance sheet. As a result, our financial condition remains strong as we enter the important holiday selling season.”
The company carries no long-term debt and, at $21.7 million at the end of the quarter, its inventory is 17.5 percent below Dec. 31 levels.
Tulin said the strategic alliance formed with Style 365 LLC, a women’s belt supplier, got off to a “slower, later start than expected. It wasn’t a lot of revenue for 2009, but it’s shaping up well for 2010.”
For the nine months, net income tallied $512,000, or 9 cents a diluted share, versus a loss of $486,000, or 8 cents, in the year-ago quarter. Sales slipped 0.1 percent to $79.1 million from $79.2 million.
Although Swank doesn’t provide guidance for upcoming quarters, Tulin said he expects holiday to be at least marginally better than last year, with better traffic in the stores and more purchasing in the accessories categories critical to Swank.
“People have become used to living on the edge,” he said.