Warnaco Q1 Net Flies; Stock Follows

NEW YORK – The Warnaco Group’s first-quarter results far surpassed analysts’ expectations and its stock followed suit Tuesday, hitting a new 52-week high in midday trading.

The New York-based diversified apparel marketer also raised its guidance for the current year.

Warnaco shares ended Tuesday’s Nasdaq trading session at $31.79, up $3.80 or 13.6%, but hit a new 52-week high of $32.81 earlier in the day.

In the three months ended March 31, net income nearly tripled, hitting $38 million, or $0.82 a diluted share, versus $13.9 million, or $0.30, a year ago. EPS in last year’s quarter included a loss of $0.09 a share from discontinued operations.

Net revenues were up 20.7% to $547.2 million from $453.2 million in the 2006 period. Gross margin rose 303 basis points to 41.1% of sales from 38% in last year’s quarter.

On average, analysts had expected Warnaco to weigh in with EPS of $0.54 and sales of $494.83 million, but Warnaco, aided by the acquisition of the Calvin Klein international jeans business last year and the strength of Calvin Klein in all markets, left those estimates in the dust, registering sales increases in all three of its groups and operating income increases in both sportswear and intimate apparel. Even the troubled swimwear group nearly matched its year-ago level in operating profit.

“Total net revenues rose over 20% and on a comparable basis, excluding the January 2007 results of the international Calvin Klein business, which was acquired on Jan. 31, 2006, were up 13%, driven by gains in all three segments with notable strength from our worldwide Calvin Klein businesses,” said Joe Gromek, president and chief executive officer of the firm. “Our international revenues grew to over 48% of our total business and our direct-to-consumer revenues climbed four percentage points to 14%.”

Gross margins benefited not only from sourcing and supply chain improvements, but also from a shift towards higher margin businesses.

“We are strategically directing our resources to support the growth of our businesses with the greatest long-term potential and have initiatives in place to address our underperforming businesses,” he noted.

The weakest performer remained Warnaco’s swimwear group, where sales were up 1.8% to $136.8 million but operating income dropped 1.1% to $19 million. In an effort to turn it around, the company said it would close a goggle manufacturing facility in Canada and undertake a “rationalization in workforce to better align staffing with current business needs.” Accordingly, the company expects to incur $2.2 million to $2.9 million in restructuring charges during the current second quarter.

Commenting on the swimwear unit, the company commented, “While certain of the designer brands reported international growth, domestically the designer business remains challenged and the company continues to evaluate various initiatives to improve the productivity and profitability of the business.”

In sportswear, revenues were up 40.2% to $235.4 million while operating income more than tripled, to $27.6 million from $7.9 million.

Intimate apparel sales rose 15.9% to $175 million and operating income skyrocketed 79.3% to $29.5 milion. Strong performance in the Calvin Klein underwear business helped the company overcome tough sales comparisons resulting from the year-ago launch of the Olga brand at Sears.

The company raised its EPS guidance for the year to between $1.75 and $1.85 and said it now expects revenue growth of 6% to 8%.

In addition to Calvin Klein and Olga, Warnaco’s owned and licensed brands include Speedo, Cole, Catalina, Chaps and Nautica.