Warnaco Suffers a Dismal 1Q - Analyst Blog
04 May 2012 - 7:15PM
Zacks
Warnaco Group Inc.
(WRC) registered first quarter
2012 adjusted earnings of 90 cents per share, which missed the
Zacks Consensus Estimate by two cents. It also missed the
prior-year earnings of $1.10 per share.
The adjusted earnings excludes
restructuring expenses, pension expenses, tax related items and
other items. On a GAAP basis, the company reported earnings per
diluted share from continuing operations of 78 cents compared with
98 cents in the prior-year quarter.
Consolidated Revenue and
Margins
Warnaco’s quarterly net sales
slipped 7% to $615.5 million compared with $662.2 million in the
prior-year period, driven by macro-economic headwinds in Europe,
higher markdowns in U.S. Sportswear and lower-than-expected
comparable store sales in owned retail stores, particularly in
Korea.
Direct-to-consumer net revenue
increased 7% year on year in the first quarter, in spite of a 2%
decrease in comparable-store sales.
Gross profit decreased 9.0% to
$267.5 million in the first quarter from $295.2 in the prior-year
quarter, while gross margin declined 110 basis points to 43% on the
back of increased product costs, increasing level of customer
allowances and weak business environment in select markets.
Year-over-year, operating income declined 25.0% to a negative $52.2
million.
Segment by
Details
Net sales in the Sportswear Group
went down 10.0% year over year (on a constant currency basis) to
$300.8 million during the first quarter. Net sales at Swimwear
Group also declined 9% year over year to $91.9 million. However,
Intimate Apparel Group edged up 1.9% year over year to $222.9
million.
Operating income of the Sportswear
Group segment came down to $13.6 million in the first quarter,
representing 4.5% of net revenue compared with $38.6 million or
11.4% of net revenue in the prior-year quarter.
Operating income of the Intimate
Apparel Group segment came down to $30.0 million in the first
quarter, representing 13.4% of net revenue compared with $30.5
million or 13.8% of net revenue in the prior-year
quarter.
Swimwear Group operating income was
at $14.8 million in the first quarter, representing 16.2% of net
revenue compared with $14.1 million or 13.8% of net revenue in the
prior-year quarter.
Other Financial
Updates
The company exited the quarter with
cash and cash equivalents of $224.2 million as on March 31, 2012,
which was higher than $174.1 million as on April 2, 2011.
Inventories increased to $380.1
million in the first quarter from $364.3 million the previous year
driven by the company’s expansion of direct-to-consumer business
and rise in product costs coupled with lower revenues during the
quarter.
Guidance
Based on the first quarter 2012
results, Warnaco continues to anticipate its fiscal 2012 adjusted
earnings per share to be $4.00-$4.25. Including one-time expenses
and based on foreign currency exchange rates, Warnaco expects its
reported earnings per share to be in the range of $3.32-$3.40 for
fiscal 2012.
The current Zacks Consensus
Estimate is pegged at 81 cents per share for the second quarter of
2012. The estimate for full year 2012 is $4.37.
Warnaco anticipates total revenue
growth to be flat to up 2% year over year in 2012.
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 #3
Rank, which translates into a short-term Hold rating. On a
long-term basis, we have a Neutral rating for 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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