Industry News

Warnaco Reports Q2 Sales Surge 14%; Swimwear Up 2.4%

Surfersvillage Global Surf News, 10 August, 2010 : - - The Warnaco Group, Inc. reported net revenues for the quarter ended July 3 rose 14% in the quarter to $519.3 million. The company said all three segments (Sportswear Group, Intimate Apparel Group and Swimwear Group) and all key geographies in which its operates 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) 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 65 cents per diluted share in the quarter, compared to $18.6 million, or 40 cents 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 71 cents per diluted share in the quarter compared to 47 cents 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.
 
“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.”

Balance Sheet
 
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.
 
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.

www.warnaco.com

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