Kenneth Cole Tweaks Paul Davril, Haggar Licenses

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NEW YORK – Kenneth Cole Productions Inc. is terminating its license with Paul Davril Inc. (PDI) for Kenneth Cole New York men’s and women’s sportswear, prolonging its PDI license for Kenneth Cole Reaction and adding its Unlisted label to its men’s pants licenses with Haggar Clothing Co.

The news came late Thursday as the New York-based footwear and apparel firm announced lower earnings on higher revenues for the third quarter ended Sept. 30.

The PDI licenses were scheduled to expire at the end of 2007. While PDI will relinquish its rights to KCNY sportswear, its license for KC Reaction men’s sportswear has been extended a year, through 2008.

Speaking of the PDI license, without mention of the licensee’s name, Kenneth Cole, chairman and chief executive of the firm that bears his name, said, “While we are pleased with the success of the elevation of our brands at wholesale and the growth we’ve seen in Reaction men’s sportswear specifically, we believe the potential size of the Reaction men’s sportswear business as well as the Kenneth Cole New York men’s and women’s sportswear businesses are significantly higher than present levels.”

Bernard Chaus Inc. holds the license for Kenneth Cole Reaction women’s sportswear.

The company said that the transition in sportswear licenses would reduce “base-line” licensing royalties next year between $5 million and $6 million. Additionally, it said it would seek “strategic alternatives” for the men’s Reaction sportswear line.

Haggar, licensee for both New York and Reaction men’s pants since 2003, has added rights to the KCP’s Unlisted label for men’s pants through 2010 with a renewal term of three years. In a statement, Cole characterized the performance of men’s classification pant business under Haggar as “excellent.”

The licensing changes come as KCP continues to reposition New York and Reaction, its two principal brands. New York, once responsible for 60% of company revenues, is being moved upward into the “affordable luxury” tier while Reaction is targeted as a better department store brand.

In earnings news, net income for the third quarter declined 15% to $9.2 million, or 45 cents a diluted share, from $10.9 million, of 53 cents, a year ago. Earnings per share beat the analyst estimate of 42 cents, but shares of the firm’s shares fell 4% in after-hours trading to $23.60.

Quarterly sales rose 6.5% to $132.8 million from $124.7 million but, with a 1.9% reduction in licensing income, total revenues were up a more modest 5.8% to $143.7 million. Gross margin declined to 43.4% of sales from last year’s 44.6% as retail markdowns offset increases in wholesale gross margin.

For the nine months, revenues advanced 4.3% to $401.5 million while net income declined 27.9% to $18.8 million, or 92 cents a diluted share.

KCP expects fourth-quarter EPS of between 36 and 41 cents, including adjustments for stock of about 3 cents a share.

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