Warnaco Beats, Guides Higher - Analyst Blog
August 02 2011 - 11:54AM
Zacks
Warnaco Group Inc. (WRC) registered decent
second quarter 2011 earnings of 82 cents per share that shot up by
15.49% from 71 cents posted in the year-ago period. Earnings also
exceeded the Zacks Consensus Estimate of 74 cents by 10.81%.
The upswing came on the back of success in Calvin Klein
business, and expansion into emerging markets globally coupled with
enhanced direct-to-consumer business. However, the top-line results
were partially offset by unfavorable results in U.S. and European
businesses.
Based on the results posted in the second quarter 2011, Warnaco
raised its fiscal 2011 outlook to $4.00-$4.15 per share from its
previously announced estimate of $3.95-$4.15.
The current Zacks Consensus Estimate is $1.24 cents for the
third quarter of 2011. The estimate for the full year 2011 is
$4.02.
Consolidated Revenue and Margins
Warnaco’s quarterly net sales climbed 14% to $591.4 million
compared with $519.3 million in the prior-year period, driven by
strong 19% year-over-year growth in Calvin Klein business, but
partially offset by average performance of U.S. and European
business. However, the sales were behind the Zacks Consensus
Estimate of $672 million.
For the second quarter 2011, the Sportswear segment reported
maximum growth in net sales, followed by Intimates. International
net revenues contributed more than 32% to the company’s net revenue
growth powered by strong Calvin Klein business.
Square footage expansion and a 7% increase in comparable store
sales drove a substantial 38% year-over-year growth in
direct-to-consumer net revenues.
Warnaco forecasts total net sales growth of 10%–12% in the
fiscal 2011, up from the previously announced target of 9%-11%.
Year-over-year, operating income has shrunk 4.9% to $52.6
million while operating margin contracted 200 basis points in the
quarter, primarily due to the decline in top line in U.S. and
Europe. Increased promotional environment and higher customer
allowances adversely affected gross margin.
Selling, General and Administrative expenses went up by 18%
compared to the corresponding quarter in the prior year, primarily
due to incremental selling and distribution costs ($25 million)
mainly associated with the expansion of the company’s
direct-to-consumer business.
Other Financial Updates
The company exited the year with cash and cash equivalents of
$294.8 million at July 2, 2011, up from $172.9 million as on July
3, 2010.
Inventories increased to $355.4 million from $277.6 million,
driven by the company’s expansion of direct-to-consumer business
and growth in the company’s wholesale business.
At quarter-end, the company had approximately 2.4 million shares
remaining under its 2010 share repurchase program.
In June, 2011 the company announced the completion of a senior
secured term-loan offering of $200 million. The debt is scheduled
to mature in 2018. Warnaco will pay interest at a floating
rate of 1% bearing a fixed margin of 2.75%. The company plans to
use the term loan proceeds for general corporate purposes, which
include funding internal growth and acquisitions, repaying
revolving credit borrowings and repurchasing common stock.
Our Take
The company operates in a highly competitive apparel industry
with tough competitors like Limited Brands, Inc.
(LTD) and Maidenform Brands, Inc. (MFB). Moreover,
Warnaco depends on license agreements with third parties for
generating a significant portion of its revenues, which have
inherent risks.
Warnaco holds a Zacks #4 Rank, which translates into a
short-term Sell rating.
LIMITED BRANDS (LTD): Free Stock Analysis Report
MAIDENFORM BRND (MFB): Free Stock Analysis Report
WARNACO GRP INC (WRC): Free Stock Analysis Report
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