Warnaco Meets, Affirms Guidance - Analyst Blog
November 04 2011 - 11:15AM
Zacks
Warnaco Group Inc. (WRC) registered decent
third quarter 2011 adjusted earnings of $1.07 per share, in-line
with the Zacks Consensus Estimate. However, it exceeded the
prior-year earnings $1.04 per share by 2.9%.
The adjusted earnings excludes restructuring expenses, pension
expenses, tax related items and other items. Including these items,
earnings came in at $1.13 per share versus 90 cents in the
prior-year period, which included a tax benefit of approximately
$8.6 million.
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.
Based on the third quarter, Warnaco continues to anticipate its
fiscal 2011 outlook for adjusted earnings per share at $4.00-$4.15.
Including one-time expenses and based on foreign currency exchange
rates, Warnaco expects its reported earnings per share to be in the
range of $4.08-$4.19 for fiscal 2011.
The current Zacks Consensus Estimate is $1.00 per share for the
fourth quarter of 2011. The estimate for full year 2011 is
$4.02.
Consolidated Revenue and Margins
Warnaco’s quarterly net sales climbed 8% to $645.1 million
compared with $596.8 million in the prior-year period, driven by
the company’s investment in the long-term growth strategies, which
contributed 10% to its worldwide Calvin Klein net sales, a 16%
increase in the international net sales and a 31% gain in the
direct to consumer net sales.
However, the increases were more than offset the 3% reduction in
U.S. net sales. Sales were behind the Zacks Consensus Estimate of
$656 million.
Square footage expansion of 35% and a 2% increase in comparable
store sales drove a substantial 31% year-over-year growth in
direct-to-consumer net revenues.
All the company’s segments of Sportswear, Intimate Apparel and
Swimwear reported revenue gains of 6.2%, 11.1% and 7.2%,
respectively.
Warnaco continues to expect its total net sales growth of
10%-12% in fiscal 2011.
Gross profit increased 4% to $279.7 million in the third quarter
of 2011 while gross margin declined 170 basis points to 43% on the
back of increased product costs, increasing level of customer
allowances and weak business environment in select markets,
offsetting strong gross margins in the company’s Asian
business.
Year-over-year, operating income has shrunk 4.6% to $64.8
million while operating margin contracted 100 basis points in the
quarter to 10%. The company faced declines in the U.S., Canada and
Europe. However, the company’s Asia and Latin America businesses
did well in the quarter.
The foreign currency fluctuation led to a $26.3 million increase
in net sales and a $9.9 million increase in gross profits in the
quarter.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of
$179.3 million at October 1, 2011, down from $213.4 million as on
October 2, 2010.
Inventories increased 21% to $392.1 million from $324.4 million,
driven by the company’s expansion of direct-to-consumer business
and rise in product costs.
During the quarter, the company repurchased approximately 2.5
million shares for approximately $123.2 million.
Warnaco designs, sources, markets, licenses, and distributes a
range of intimate apparel, sportswear, and swimwear worldwide. The
company offers its products primarily under the Calvin Klein,
Speedo, Chaps, Warner’s, and Olga brand names.
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 currently holds a Zacks #4 Rank, which translates into a
short-term Sell rating. On a long-term basis, we provide a Neutral
rating to Warnaco.
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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