Warnaco Misses, Up by a Penny - Analyst Blog
07 May 2011 - 3:27AM
Zacks
Warnaco Group Inc.’s (WRC) first-quarter 2011
earnings inched up by a penny from the year-ago period to $1.10 per
share. It missed the Zacks Consensus Estimate of $1.27 per share by
13.4%.
Quarter in Detail
Net revenues increased 13% year over year to $662.2 million and
was well above the Zacks Consensus Estimate of $658 million. The
increase was primarily attributable to the execution of key
strategies.
Revenues at the International business of Warnaco went up by
19%, fuelled by continued expansion into Asia, and Latin America,
each reporting net revenue increase of more than 30% compared
to the previous year.
Warnaco’s business posted highest growth in South America where
it climbed up by 37.8% to $51.72 million from the year ago quarter.
The segment Swimwear Group posted a year-over-year growth of 15.7%
to $101.7 million.
The Company’s Heritage (non-Calvin Klein) businesses achieved
11% net revenue growth compared to the previous year, fuelled by
double digit growth at both Chaps and Speedo, partially offset by a
slight drop in Core Intimates.
Warnaco is reported to have been operating an additional 240,000
square feet of retail space compared to the prior year quarter,
including approximately 50,000 square feet of new retail space
opened or acquired this quarter.
Gross margin fell by 80 basis points from the year-ago period to
45% of net revenues. Higher gross margins in Asia and Latin
America, was more than offset by a decline in European gross
margins. Domestically, increased customer allowances, effects of
higher product costs to an extent, particularly in the Sportswear
segment, pulled down gross margins.
Selling General and Administrative expenses as a percent of net
revenues increased 300 basis points to 34%, fuelled by the growth
of the company’s direct-to-consumer business, which contributed
about $24 million and an incremental $2 million as marketing
investment compared with the prior-year quarter.
Operating income plummeted to $69.7 million from $79.5 million a
year ago. Operating margin fell by 300 basis points to 10.5% of net
revenues compared to the year ago quarter.
Warnaco exited the quarter with cash and cash equivalents of
$174.1 million compared to $157.5 million a year ago. The
Company spent $29.1 million to purchase 561,000 shares of its
common stock under a share repurchase program
Guidance and Estimates
Management expects to benefit from appropriate price increases
and realize positive operating leverage from the investments made
in 2010 along with first quarter of 2011, positioning fiscal 2011
for another successful year for Warnaco and its stakeholders.
The company anticipates net revenues to grow 9% - 11% compared
to fiscal 2010. Hence, it raised its guidance for adjusted diluted
earnings per share from continuing operations to the range of $3.95
- $4.15 from the previous guidance of $3.85 - $4.05 for full year
2011.
The Zacks Consensus Estimate for fiscal 2011 is $4.10, up from
$4.09 reported 7 days ago, after 1 analyst made positive revision.
The Zacks Consensus Estimate for the quarter had been trending up
in the run up to the earnings release, with 1 analyst raising its
estimate in the last 7 days.
Our Take
Warnaco, which competes with Limited Brands
Inc. (LTD) and Maidenform Brands Inc.
(MFB), has strong international presence and ever expanding
direct-to-consumer business, which is encouraging and should drive
growth.
We currently have a Zacks #2 Rank on Warnaco shares, which
translates into a short-term Buy rating.
LIMITED INC (LTD): Free Stock Analysis Report
MAIDENFORM BRND (MFB): Free Stock Analysis Report
WARNACO GRP INC (WRC): Free Stock Analysis Report
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