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Details on Industry Insight.
NEW YORK--(BUSINESS WIRE)--The Warnaco Group, Inc. (NYSE: WRC - News) today reported results for the second quarter ended July 3, 2010.
Highlights for the quarter:
• Net revenues were up 14% from the prior year quarter
• Gross margin increased 270 basis points, to 44%, compared to the prior year quarter
• Income per diluted share from continuing operations increased 63% to $0.65 compared to $0.40 in the prior year quarter which includes the benefit of approximately $0.07 from the effect of fluctuations in foreign currency exchange rates
• Income per diluted share from continuing operations on an adjusted, non-GAAP basis was $0.71 compared to $0.47 in the prior year quarter (both of which exclude restructuring expenses, pension expense, costs related to repurchase of debt, certain tax related items and other items)
• The Company redeemed the remaining $110.9 million of its 8-7/8% Senior Notes on June 15, 2010
• The Company’s Board of Directors approved a new five million share stock repurchase plan
The accompanying tables provide a reconciliation of actual results to the adjusted, non-GAAP, results.
The Company believes it is valuable for users of the Company’s financial statements to be made aware of the adjusted financial information, as such measures are used by management to evaluate the operating performance of the Company’s continuing businesses on a comparable basis and to make operating and strategic decisions. In addition, the Company uses performance targets based, in part, on non-GAAP operating income and diluted earnings per share from continuing operations as a component of the measurement of employee incentive compensation.
“We are very pleased with our second quarter results, which reflect the ongoing success of our global growth strategies,” commented Joe Gromek, Warnaco’s President and Chief Executive Officer. “Broad based increases in our global Calvin Klein businesses, bolstered by the ongoing success of the Calvin Klein X Underwear campaign, complemented by gains in our heritage businesses drove double digit increases in net revenues, substantial improvements in gross margin and a significant increase in earnings per share. Key to our success has been the ongoing focus on innovative product and marketing that speak to the needs of our customers around the globe.”
“We believe that great product, combined with our disciplined execution across all facets of our business, from design to supply chain to sales and marketing, leave us well positioned to continue the favorable momentum in our business. With strong wholesale bookings and continued positive results from our direct-to-consumer expansion, we look forward to a powerful second half.”
“As we look further ahead, we believe our powerful brands, strong balance sheet and diversified global operations provide us with a unique platform from which to sustain long-term revenue and profit growth for the benefit of all Warnaco stakeholders,” concluded Mr. Gromek.”
Fiscal 2010 Outlook
Based on its positive first half results and outlook for the balance of the year, the Company is again raising its 2010 earnings outlook. For fiscal 2010, on an adjusted non-GAAP basis (excluding restructuring expense, pension expense, cost related to repurchase of debt and certain tax related items):
• The Company currently anticipates net revenues will increase 9% - 11% compared to fiscal 2009
• The Company now expects diluted earnings per share from continuing operations in the range of $3.40 - $3.50
• The Company’s prior guidance was for net revenue growth in the range of 8% - 10% compared to fiscal 2009 and diluted earnings per share from continuing operations in the range of $3.30 - $3.40
Schedule 7 of the accompanying tables provide a reconciliation of expected diluted earnings per share from continuing operations, on a GAAP basis of $3.28 - $3.36 (assuming minimal pension expense), to the adjusted fiscal 2010 outlook above.
Second Quarter 2010 Highlights
Net revenues rose 14% in the quarter to $519.3 million. All three segments (Sportswear Group, Intimate Apparel Group and Swimwear Group) and all key geographies in which we operate contributed to the growth. New product launches and ongoing global expansion drove mid-teens revenue growth in the Company’s Calvin Klein businesses, and was complemented by mid-teens revenue growth in Chaps, primarily reflecting its expanded distribution.
Gross margin increased 270 basis points, to 44% of net revenues, compared to the prior year quarter, driven by strong sell through and higher margin associated with expansion in our direct to consumer and international operations. Selling, general and administrative expense (SG&A), as expected, increased compared to the prior year quarter. The increase of $26.6 million to $171.9 million, primarily reflects planned investments in direct-to-consumer operations, marketing, infrastructure and costs associated with performance-based employee compensation. SG&A as a percent of net revenues increased 120 basis points to 33% compared to the prior year quarter.
Operating income increased 35% to $55.3 million compared to $41.0 million in the prior year quarter.
The Company recorded income from continuing operations of $30.0 million, or $0.65 per diluted share in the quarter, compared to $18.6 million, or $0.40 per diluted share, in the prior year quarter.
Income from continuing operations, on an adjusted non-GAAP basis (excluding costs related to restructuring expenses, pension expense, costs related to repurchase of debt, certain tax related items and other items), as detailed in the accompanying schedules, was $0.71 per diluted share in the quarter compared to $0.47 per diluted share in the prior year quarter.
The effect of fluctuations in foreign currency exchange rates increased fiscal 2010 second quarter net revenues, gross profit, and operating profit by approximately $5 million, $8 million, and $9 million, respectively, and increased income from continuing operations by approximately $0.07 per diluted share.
At July 3, 2010 the Company had a net cash (cash and cash equivalents net of total debt) position of $107.7 million, compared to a net debt position of $44.3 million at July 4, 2009.
During the quarter, the Company redeemed the remaining $110.9 million of its 8-7/8% Senior Notes due 2013.
Cash and cash equivalents at July 3, 2010 were $172.9 million, a decrease of $4.7 million, compared to $177.6 million at July 4, 2009.
Inventories at July 3, 2010 were $277.6 million, a decrease of $14.0 million, or 5%, compared to $291.6 million at July 4, 2009. Disciplined planning and inventory management contributed to the year over year decline and resulted in an enhanced quality of inventory at July 3, 2010.
Conference Call Information
Stockholders and other persons are invited to listen to the second quarter 2010 earnings conference call scheduled for today, Thursday, August 5, 2010, at 4:30 p.m. EDT. To participate in Warnaco’s conference call, dial (877) 692-2592 approximately five minutes prior to the 4:30 p.m. start time. The call will also be broadcast live over the Internet at www.warnaco.com. An online archive will be available following the call.
This press release was furnished to the SEC (www.sec.gov) and may also be accessed through the Company’s internet website: www.warnaco.com.
The Warnaco Group, Inc., headquartered in New York, is a leading global apparel company engaged in the business of designing, sourcing, marketing and selling men’s, women’s and children’s sportswear and accessories, swimwear and intimate apparel under such owned and licensed brands as Calvin Klein®, Speedo®, Chaps®, and Warner's® and Olga®.