KWD Kellwood

Kellwood (NYSE: KWD) Reports Third Quarter Results Regular Quarterly Dividend Declared ST. LOUIS, Dec. 2 /PRNewswire-FirstCall/ -- Kellwood Company reported operating results for the third quarter ended October 30, 2004, according to Hal J. Upbin, chairman and chief executive officer. Sales for the third quarter increased $73 million, or 11 percent to $717 million, versus $644 million last year due to a combination of organic growth of $44 million, and the acquisition of Phat Fashions and Phat Farm which provided $29 million of revenue. Phat Fashions and Phat Farm were acquired on February 3, 2004, and are being reported within the Men's Sportswear segment. The organic growth was primarily driven by the new marketing initiatives put in place during the last nine months of fiscal year 2003 including Calvin Klein(R), IZOD(R), and XOXO(R) women's sportswear, and Liz Claiborne(R) dresses and suits, which collectively provided $45 million of growth in the third quarter. This growth was partially offset by the planned elimination of certain low margin brands and programs, which reduced sales by $18 million. Sales growth of the remaining businesses in the third quarter was $17 million, or 3 percent. The year-to-year organic sales growth for the quarter came from the Women's Sportswear segment, up 4 percent, and the Men's Sportswear segment, up 15 percent, and Other Soft Goods up 3 percent. Net earnings from continuing operations in the third quarter decreased $2.5 million, or 8 percent, to $28.4 million, or $1.01 per diluted share, versus $30.9 million, or $1.13 per share last year. The drop in earnings was due to a 0.8 percentage point decrease in gross profit as a percent of sales due principally to higher seasonal markdowns, increased SG&A spending attendant with the new marketing initiatives and the acquisition of Phat Fashions and Phat Farm, and higher amortization expense. Kellwood ended the quarter with an exceptionally strong balance sheet with ample liquidity to fund acquisitions to enhance its diversification and capability to service the needs of the Company's customers. Inventory and accounts receivable increased in the third quarter due principally to the acquisition of Phat Fashions and Phat Farm. We ended the quarter with 67 days supply of inventory, versus 68 days at the end of the third quarter last year. Sales for the first nine months grew by $138 million, or 8 percent to $1.963 billion, versus $1.825 billion last year. The increase came from organic growth of $83 million, or 5 percent, and $55 from the acquisition of Phat Fashions and Phat Farm made earlier this year. The increase in organic sales for the first three quarters came from a 7 percent increase in Women's Sportswear and a 10 percent increase in Men's Sportswear, partially offset by an 8 percent drop in sales of Other Soft Goods. Net earnings from continuing operations for the first nine months increased $3.8 million, or 6 percent, to $63.6 million, or $2.27 per share on a diluted basis, versus $59.8 million, or $2.22 per share last year. The strong growth in net earnings for the first nine months was driven by a 0.9 percentage point year-to-year improvement in gross profit as a percent of sales partially offset by higher SG&A spending from launching several new brands and the acquisition of Phat Fashions and Phat Farm, along with additional amortization expense. As Kellwood looks forward to the balance of the fiscal year, the Company expects to be on target with its guidance for sales and earnings provided on October 21. Sales in the fourth quarter are expected to increase 13-15 percent and be in the range of $600 million versus $521 million last year. Approximately 60 percent of the $80 million year-to-year increase in sales will come from the new marketing initiatives, and approximately 30 percent of the increase will come from the acquisition of Phat Fashions and Phat Farm with the balance coming from 1.5 to 2.0 percent growth in Kellwood's base business. Net earnings from continuing operations in the fourth quarter are forecasted to increase 7 percent, or $0.9 million, to $13.7 million, or $0.48 per diluted share versus $12.8 million, or $0.46 per share last year. It is significant to note that operating earnings (gross profit less SG&A expense) in the fourth quarter are forecasted to increase $6.5-$7.0 million, or approximately 28 percent versus last year. The strong year-to-year improvement in operating earnings is expected to be driven by the forecasted growth in sales and an anticipated improvement in gross profit as a percent of sales. The forecasted strong year-to-year growth in operating earnings for the fourth quarter will be partially offset by the one-time gain in other income/expense net reported last year, higher net interest expense from the issuance of a $200 million 3.5 percent convertible bond earlier in the year, and higher amortization of intangibles. For the fiscal year, which ends January 31, 2005, sales are expected to increase by 9.5 percent to approximately $2.57 billion versus $2.35 billion last year. Net earnings from continuing operations for the year are forecasted to be in the range of $77.5 million, or $2.75 per diluted share, versus $72.6 million, or $2.68 per share reported last year from continuing operations. The Board of Directors declared a regular quarterly dividend of $0.16 per common share, payable December 24, 2004 to shareholders of record December 13, 2004. The Company will conduct a conference call on December 3 at 10:00 a.m. EST. Interested parties who wish to participate, may do so by dialing 617- 614-3528 and entering participant code 66261254. The call will also be broadcast live over the Internet at http://www.kellwood.com/ . Please go to the website at least fifteen minutes prior to the call to register, download and install any necessary audio software. An updated version of Kellwood's analyst presentation is available at http://www.kellwood.com/ . Kellwood (NYSE:KWD), a $2.5 billion marketer of apparel and consumer soft goods. Kellwood specializes in branded as well as private label products, and markets to all channels of distribution with product specific to a particular channel. Kellwood brands include Phat Farm(R), Baby Phat(R), Sag Harbor(R), Koret(R), Jax(R), David Dart(R), Democracy(R), Dorby(TM), My Michelle(R), Briggs New York(R), Northern Isles(R), David Brooks(R), Kelty(R), and Sierra Designs(R). Calvin Klein(R), XOXO(R), Liz Claiborne(R) Dresses and Suits, IZOD(R), Dockers(R), David Meister(TM), Gerber(R), Slates(R) and Bill Burns(R). are produced under licensing agreements. For more information, visit http://www.kellwood.com/ . SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe", "expect", "will", "estimate", "project", "forecast", "should", "anticipate" and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's expectations concerning future events, are based on various assumptions and are subject to a number of risks and uncertainties. These risks include, without limitation: changes in the retail environment; an economic downturn in the retail market, including deflationary pressures; economic uncertainty due to the elimination of quotas on Chinese imports; a decline in the demand for the Company's products; the lack of customer acceptance of the Company's new designs and/or product lines; the increasingly competitive and consolidating retail environment; financial or operational difficulties of customers or suppliers; disruptions to transportation systems used by the Company or its suppliers; continued satisfactory relationships with licensees and licensors of trademarks and brands; ability to generate sufficient sales and profitability related to licenses containing minimum royalty payments; the economic impact of uncontrollable factors, such as terrorism and war; the effect of economic conditions and trade, legal social and economic risks (such as import, licensing and trade restrictions); stable governments and business conditions in the countries where the Company's products are manufactured; the impact of acquisition activity and the ability to effectively integrate acquired operations; and changes in the Company's strategies and expectations. These risks are more fully described in the Company's periodic filings with the SEC. Actual results could differ materially from those expressed or implied in forward-looking statements. The Company disclaims any obligation to publicly update or revise any of its forward-looking statements. KELLWOOD COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (Amounts in thousands, except per share data) Three Months Ended Nine Months Ended 10/30/2004 11/1/2003 10/30/2004 11/1/2003 Net sales by segment: Women's Sportswear $413,522 $396,118 $1,171,054 $1,098,104 Men's Sportswear 205,978 153,884 473,748 379,302 Other Soft Goods 97,294 94,129 318,563 347,931 Total net sales 716,794 644,131 1,963,365 1,825,337 Costs and expenses: Cost of products sold 567,362 504,752 1,534,974 1,444,288 Selling, general and administrative expenses 97,785 84,477 304,019 263,176 Amortization of intangible assets 3,134 2,433 10,065 7,310 Interest expense, net 6,429 6,451 19,469 18,805 Other (income) and expense, net (1,039) (88) (1,912) 744 Earnings before income taxes 43,123 46,106 96,750 91,014 Income taxes 14,770 15,237 33,137 31,172 Net earnings from continuing operations 28,353 30,869 63,613 59,842 Net loss from discontinued operations, net of tax - (619) - (2,078) Net earnings $28,353 $30,250 $63,613 $57,764 Weighted average shares outstanding: Basic 27,669 26,632 27,446 26,412 Diluted 28,134 27,321 28,038 26,947 Earnings (loss) per share: Basic: Continuing operations $1.02 $1.16 $2.32 $2.27 Discontinued operations - (.02) - (.08) Net earnings $1.02 $1.14 $2.32 $2.19 Diluted: Continuing operations $1.01 $1.13 $2.27 $2.22 Discontinued operations - (.02) - (.08) Net earnings $1.01 $1.11 $2.27 $2.14 KELLWOOD COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (Amounts in thousands) As of 10/30/2004 11/1/2003 ASSETS Current assets: Cash and cash equivalents $208,913 $124,187 Receivables, net 443,790 381,682 Inventories 302,012 266,791 Prepaid taxes and expenses 66,806 63,758 Current assets of discontinued operations - 22,472 Total current assets 1,021,521 858,890 Property, plant and equipment, net 97,548 94,445 Intangible assets, net 195,376 112,379 Goodwill 212,412 163,037 Other assets 34,897 32,197 Long-term assets of discontinued operations - 3,572 Total assets $1,561,754 $1,264,520 LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $169 $26,565 Accounts payable 185,368 146,463 Accrued expenses 110,331 103,302 Current liabilities of discontinued operations 1,457 9,096 Total current liabilities 297,325 285,426 Long-term debt 469,658 273,709 Deferred income taxes and other 76,458 69,412 Long-term liabilities of discontinued operations - 2,432 Shareowners' equity 718,313 633,541 Total liabilities & shareowners' equity $1,561,754 $1,264,520 Kellwood Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Nine Months Ended 10/30/2004 11/1/2003 OPERATING ACTIVITIES Net earnings $63,613 $57,764 Add/(deduct) items not affecting operating cash flows: Depreciation and amortization 30,751 27,186 Deferred income taxes and other 4,407 23,986 Changes in working capital components: Receivables, net (119,715) (37,285) Inventories 14,346 96,681 Prepaid taxes and expenses (215) (24,715) Accounts payable and accrued expenses 4,832 (80,005) Net cash from operating activities (1,981) 63,612 INVESTING ACTIVITIES Additions to property, plant and equipment (19,903) (15,048) Acquisitions, net of cash acquired (144,722) (134,527) Subordinated note receivable 1,375 1,374 Dispositions of fixed assets 226 2,418 Net cash from investing activities (163,024) (145,783) FINANCING ACTIVITIES Borrowings of long-term debt, net of financing costs 195,131 - Repayments of long-term debt (4,448) (5,272) Dividends paid (13,185) (12,692) Stock transactions under incentive plans 17,265 13,999 Net cash from financing activities 194,763 (3,965) Net change in cash and cash equivalents 29,758 (86,136) Cash and cash equivalents, beginning of period 179,155 210,323 Cash and cash equivalents, end of period $208,913 $124,187 Supplemental cash flow Information: Interest paid $18,285 $20,871 Income taxes paid (refunded), net $9,018 $40,746 Significant non-cash investing and financing activities: Issuance of stock for acquisitions $- $11,891 Note Regarding Discontinued Operations (Amounts in thousands, except per share data) On October 30, 2003, the Company finalized an agreement to sell their domestic and European hosiery (Hosiery) operations for $7,500 plus reimbursement of $2,800 for costs incurred by the Company in connection with the closure of certain facilities. In addition, during the fourth quarter of 2003, the Company decided to discontinue their True Beauty by Emme(R) (True Beauty) operations. This included the termination of the related license agreement before its expiration. The operations of True Beauty ceased in the fourth quarter of 2003. Accordingly, both the Hosiery and True Beauty businesses have been accounted for as discontinued operations. As such, their operating results and assets and liabilities are segregated in the accompanying condensed consolidated statement of earnings and condensed consolidated balance sheet. Prior to being classified as discontinued, the Hosiery operations were included in the Men's Sportswear segment, and True Beauty was included in the Women's Sportswear segment. For the three and nine months ended October 30, 2004, there was no operating activity for the discontinued operations. For the three and nine months ended November 1, 2003, the operating results for the discontinued Hosiery and True Beauty businesses are as follows: Three months ended Nine months ended November 1, 2003 November 1, 2003 True True Hosiery Beauty Total Hosiery Beauty Total Net sales $13,558 $1,627 $15,185 $42,760 $7,229 $49,989 Earnings (loss) before income taxes (244) (665) (909) (1,916) (1,248) (3,164) Income taxes (78) (212) (290) (671) (415) (1,086) Net earnings (loss) $(166) $(453) $(619) $(1,245) $(833) $(2,078) DATASOURCE: Kellwood Company CONTACT: Financial Contacts, Roger D. Joseph, VP Treasurer & IR, +1-314-576-3437, Fax +1-314-576-3325, or , or W. Lee Capps III, Executive VP Finance & CFO, , +1-314-576-3486, Fax +1-314-576-3439, or ; or Media Contact, Donna Weaver, VP Corp. Comm., +1-212-329-8072, Fax 212.329.8073, or ., all of Kellwood Co. Web site: http://www.kellwood.com/

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