NEW YORK — Despite being in the midst of a restructuring, sportswear manufacturer Kellwood Co. reported third-quarter earnings that exceeded the company’s expectation, thanks to share repurchases and lower non-operating expenses. But the company said it will report a fourth-quarter net loss.
On an ongoing basis, which the company said excludes restructuring charges, a repatriation tax benefit, impairment and losses from businesses it plans to exit, net earnings in the third quarter ended Oct. 29 were $17.1 million, or 64 cents a share. The company’s guidance had been for a profit of $15 million to $16 million, or 53 cents to 57 cents.
On that same basis, net sales fell 11 percent to $549.4 million, from $619 million a year ago. By division, sales on an ongoing basis in women’s sportswear fell 11 percent to $346.6 million and dropped 19 percent in men’s sportswear to $131.6 million. Soft goods sales, however, rose 6 percent to $71.2 million, the company said.
As reported on its statement of earnings, Kellwood’s net earnings in the third quarter totaled $16.2 million, or 60 cents. Last year, the company reported net profits of $28.4 million, or $1.01 a share, according to a Dec. 2, 2004, earnings-related press release. The company said it will release restated, comparable prior-year third-quarter earnings results on or about Dec. 13 after it adjusts the results for an accounting error, discussed below.
Third-quarter total sales from continuing operations were $587.5 million, down $84 million from last year’s $671 million.
In late July, Kellwood announced a major restructuring effort that included plans to exit its private label men’s wear business and its intimate apparel group, among other restructuring. The company said its third-quarter restructuring charges were $20 million below a prior forecast, and that it still expects total restructuring charges to be around $225 million.
As part of the restructuring, Kellwood announced the sales of its David Brooks and Dotti brands during the third quarter, and said, “The remaining work on our other businesses targeted for sale or closure are going smoothly.” David Brooks was sold to apparel manufacturer Hampshire Group Ltd. and Dotti was sold to swimwear firm A.H. Schrieber Co., both for undisclosed sums.
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The company added on a Friday conference call that efforts to improve performance of its Calvin Klein women’s better sportswear, O Oscar and Sag Harbor brands “continue to proceed well, and we believe we are on track to realize the initial progress from our actions in the second half of 2006.”
Regarding Calvin Klein, the company said it “will make it easier for our customers to shop and buy the line as we define the collection as a lifestyle. We will also expand our range of price points to broaden our consumer base.”
And Kellwood still plans to relaunch its O Oscar line for fall 2006 with a new management team.
In the nine months, Kellwood said sales from continuing operations were $1.71 billion, down 7 percent from $1.83 billion last year. On an ongoing basis, sales totaled $1.59 billion, a decrease of 6 percent from $1.7 billion a year ago. The company did not provide nine-month earnings figures.
Kellwood plans to restate its financials for the first two quarters of fiscal 2005 and for fiscal years 2002 through 2004 after finding an accounting error related to the costs of goods imported through a regional accounting center, which was recently centralized into the company’s financial services operations in St. Louis, where the company is headquartered.
The errors caused an overstatement of net income totaling $5 million as of July 30. However, combined with a new $2.5 million aftertax liability for a death benefit program previously deemed immaterial as of Jan. 31, 2004, the negative impact to net income for the first two quarters of this year will be less than a penny a share. Kellwood said it has since enhanced its procedures for recording freight, duty and agents’ commissions.
The company plans to file its quarterly report Form 10-Q by the extended filing date of Dec. 13.
Looking to the fourth quarter, Kellwood expects to report a net loss of $38 million, or $1.47 a share. Earnings on an ongoing basis, which exclude restructuring and nonrecurring charges, are seen at $5.9 million, or 23 cents.
Net sales in the quarter are expected at $525 million, including $50 million from discontinued or exited businesses, which would compare with sales of $592 million last year.
In fiscal 2005, the company forecast sales at $2.35 billion, including discontinued/exited businesses, which would compare with sales of $2.56 billion a year ago.