NEW YORK — Tommy Hilfiger Corp., saying its $1.6 billion sale to Apax Partners is set to close in spring over the objection of a major shareholder, reported a 23.3 percent drop in third-quarter profit as U.S. wholesale volume fell because of reduced department store orders.
Chief executive officer David Dyer said during a conference call Thursday that directors of the Hong Kong-based apparel maker “unanimously reaffirmed their determination that the Apax transaction is fair and in the best interest of the company and its shareholders.” His remarks came despite opposition from Sowood Capital, which held almost 5.8 million shares of the company’s 93.9 million shares outstanding as of Dec. 31. Sowood filed an objection to the deal with the Securities and Exchange Commission, stating that it was unhappy with the $16.80 per share purchase price.
Dyer said that no competing bidder had contacted the company or its banker, J.P. Morgan Securities, since the Apax transaction was announced on Dec. 23, and that Tommy Hilfiger “remains on track to close” the transaction this spring.
For the quarter ended Dec. 31, income fell to $15.5 million, or 17 cents a share, from $20.2 million, or 22 cents, in the same year-ago period. The company beat the earnings per share consensus estimate of some Wall Street analysts by 1 cent. Revenue in the quarter dropped 7.9 percent to $396.6 million from $430.7 million.
The company said the results were partly affected by a 36.3 percent drop in U.S. wholesale volume to $107.5 million from $168.8 million from reduced department store orders. Included in the reduction was $13.5 million that represents the volume attributed to the company’s exit from its young men’s jeans wholesale business during fiscal 2005.
Dyer, who is to leave the business after the closing and will be succeeded by Fred Gehring, ceo of Tommy Hilfiger Europe, said during the call that the company saw some improvements in sales at retail regarding its U.S. wholesale business, particularly in its men’s wear business. However, the apparel firm still has work to do in its women’s wear business. The “current negative trends [will] carry forward into the fiscal year 2007,” Dyer said.
International wholesale sales rose 4.1 percent to $80.6 million from $77.4 million. On the retail front, revenue increased 12.4 percent to $185.8 million from $165.3 million, while same-store sales at U.S. stores rose in the low-single-digit percentage range. Licensing revenue gained 8.4 percent to $20.6 million from $19 million.
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For the nine months, income dropped 5.6 percent to $67.7 million, or 73 cents, from $71.7 million, or 78 cents, in the year-ago period. Revenue also declined by 5.8 percent to $1.22 billion from $1.29 billion.
Wall Street consensus estimates have EPS of 96 cents a share in fiscal year 2006, and $1.03 a share in fiscal year 2007.
Dyer also said company namesake Tommy Hilfiger and some members of European management, including Gehring, have “nonexclusive agreements with Apax, which means they would be free to negotiate with competing bidders if one were to emerge.” He added that Hilfiger could vote his 4.3 percent stake in favor of a better offer. But if the firm were to end the Apax acquisition, it would owe the private equity firm a $50 million breakup fee.