Kellwood Reports Second Quarter Results
Conference Call Scheduled at 9:00 a.m. Central on September 2, 2005
ST. LOUIS, Sept. 1 /PRNewswire-FirstCall/ -- Kellwood Company (NYSE:KWD) today reported results for the second quarter and first six month period ended July 30, 2005, according to Robert C. Skinner, Jr., president and chief executive officer.
Sales for the second quarter increased $2 million to $562 million, as compared to $560 million last year. The net loss for the second quarter was $(79.4) million, or $(2.86) per diluted share, as compared to net earnings of $10.2 million, or $0.36 per diluted share last year. Included in the loss for the quarter were impairment, restructuring and related non-recurring charges of $(93.4) million, or $(3.36) per share related to the Company's previously announced strategic initiatives that focus on increasing its penetration of consumer lifestyle brands while reducing exposure to smaller volume brands and certain private label businesses. Partially offsetting this charge was a one- time tax benefit for the repatriation of foreign earnings of $13 million, or $0.47 per diluted share.
For the second quarter, on an ongoing basis, (excluding the impairment, restructuring and related non-recurring charges, repatriation tax benefit and losses from businesses that the Company plans to exit):
-- Net sales totaled $488 million, rising $5 million from $483 million in
the second quarter of fiscal 2004;
-- Net earnings were $5.6 million, or $0.20 per diluted share, compared
to $10.9 million, or $0.39 per diluted share from ongoing operations
last year.
On an ongoing basis, second quarter sales from Kellwood's growing portfolio of better plus price point brands increased by $12 million, or 16% to $89 million and at quarter end represented 18% of total Company sales versus 16% last year. Sales from the Company's popular-to-moderately priced branded and private label business decreased by $7 million, or 2% to $399 million versus $406 million last year.
By segment, on an ongoing basis for the second quarter sales were driven by a 9% increase in men's sportswear sales to $120.9 million and a 10% rise in other soft goods sales to $83.4 million. This was offset by a 4% decline in women's sportswear sales to $284.0 million. Within men's sportswear, sales rose due to solid gains in the Company's Smart Shirts operations. Sales growth in the other soft goods category was due to sales growth in both Gerber Childrenswear and American Recreation Products.
Mr. Skinner stated, "Our second quarter results were in line with our revised expectations. We increased sales and managed our expenses well, however these improvements were tempered by increased promotional activity resulting in reduced gross profit and operating income versus the prior year.
"Importantly, the second quarter marked a critical period for Kellwood," Mr. Skinner, continued. "We set in place a number of strategic initiatives aimed at improving the performance of our portfolio of lifestyle brands while identifying divisions and brands that no longer fit our corporate objectives. While not evident in this quarter's results, we are progressing well toward correcting the fashion and merchandising issues that have affected certain of our brands at retail and are currently experiencing better sell through rates in our Sag Harbor women's sportswear brand. We have received some interest from buyers for the properties we plan to exit and are pursuing each opportunity."
Kellwood ended the quarter with a strong balance sheet with ample liquidity. At July 30, 2005, total inventory was $283 million compared to $347 million at July 31, 2004. Cash and marketable securities increased by $31 million to $293 million from $262 million, at July 31, 2004. The Company's credit agreement was amended to accommodate the impact of the 2005 restructuring plan.
The Company has started the process of repatriating approximately $150 million of foreign earnings in the third and fourth quarters as part of the 2004 American Jobs Creation Act. The $13 million tax benefit relating to this repatriation was recognized in the second quarter.
Sales for the first six months of fiscal 2005 were $1.201 billion, declining 4% from $1.247 billion in the first six months of fiscal 2004. Net loss for the first six months of fiscal 2005 was $(66.9) million, or $(2.41) per diluted share, compared to net earnings of $35.3 million, or $1.26 per diluted share in the first six months of fiscal 2004. Included in the net loss for the first six months of fiscal 2005 were impairment, restructuring and related non-recurring charges of $(93.4) million or $(3.36) per share. Partially offsetting this charge was a one-time tax benefit for the repatriation of foreign earnings of $13 million, or $0.47 per diluted share.
For the first six months of fiscal 2005, on an ongoing basis, (excluding the impairment, restructuring and related non-recurring charges, repatriation tax benefit and losses from businesses that the Company plans to exit):
-- Net sales totaled $1.042 billion, declining 4% from $1.085 billion in
the first six months of fiscal 2004;
-- Net earnings were $21.3 million, or $0.76 per diluted share, compared
to $36.4 million, or $1.30 per diluted share from ongoing operations
last year.
The Board of Directors declared a regular quarterly dividend of $0.16 per common share, payable September 23, 2005 to shareholders of record September 12, 2005.
Under Kellwood's share buyback program, the company repurchased 504,800 shares through September 1, 2005 at an average price of $24.61 per share completing approximately 18% of the Board approved program.
Guidance
For the third quarter, the Company estimates sales of $630-640 million, as compared to actual sales of $717 million in the third quarter last year. Net earnings in the third quarter of fiscal 2005 are currently expected to approximate $16.0 million, or $0.55-$0.58 per diluted share, which is prior to impairment, restructuring and related non-recurring charges. This compares to actual third quarter fiscal 2004 net earnings of $28.4 million, or $1.01 per diluted share. On an ongoing basis, the Company expects third quarter sales of approximately $555 million, versus $619 million last year and net earnings to be in the range of $15.0-$16.0 million, or $0.53-$0.57 per diluted share versus $27.2 million or $0.97 per share last year. (see non-GAAP reconciliation).
For the fiscal 2005 year, the Company expects sales in the range of $2.4 billion. This compares to actual fiscal 2004 sales of $2.56 billion. The Company's current sales guidance for the year includes sales from divisions and brands that will be exited or restructured. Sales for Kellwood's ongoing operations are forecasted to be approximately $2.1 billion versus $2.2 billion last year.
Net earnings for the fiscal 2005 year continue to be estimated in the range of $37 million to $38 million, or approximately $1.35 per diluted share, which is before recognition of the tax benefit from the repatriation of foreign earnings and prior to the impairment, restructuring and related non- recurring charges. On an ongoing basis, the Company continues to expect net earnings of approximately $43.5 million, or approximately $1.55 per diluted share (see non-GAAP reconciliation). This compares to actual fiscal 2004 net earnings of $70.1 million, or $2.50 per diluted share and earnings from ongoing operations of $67.7 million or $2.42 per diluted share.
Impairment, restructuring and related non-recurring charges for fiscal 2005 are estimated to be $155 million after tax, or approximately $5.65 per diluted share. The increase from $132 million and $4.70 per diluted share guidance previously given is that the Company now anticipates incurring substantially all such charges by year end. The total amount of such charges did not change.
Conference Call Information
The Company will conduct a conference call, tomorrow, Friday, September 2, 2005 at 9:00 a.m. CT. If you wish to participate, you may do so by dialing 866-700-6293 and enter participant code 51120783. This call will be webcast to the general public and can be accessed via Kellwood's website at http://www.kellwood.com/ .
Kellwood (NYSE:KWD) is a marketer of apparel and consumer soft goods with sales in excess of $2 billion. Kellwood specializes in branded as well as private label products, and markets to all channels of distribution with product specific to a particular channel. For more information, visit http://www.kellwood.com/ .
Statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the safe harbor provisions of the federal securities laws. Actual results may differ materially due to risks and uncertainties that are described in the Company's Form 10-K and other filings with the SEC.
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", "planned", "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, but are not limited to: changes in the retail environment; an economic downturn in the retail market, including deflationary pressures; economic effects of safeguards put in place on Chinese imports into the U.S.; 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 ability to successfully complete the restructuring plan; 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 Six Months Ended
7/30/2005 7/31/2004 7/30/2005 7/31/2004
Net sales by segment:
Women's Sportswear $297,169 $319,555 $657,216 $757,531
Men's Sportswear 154,251 139,613 318,767 267,770
Other Soft Goods 110,417 101,299 225,232 221,269
Total net sales 561,837 560,467 1,201,215 1,246,570
Costs and expenses:
Cost of products
sold 518,311 436,074 1,023,567 967,612
Selling, general and
administrative
expenses 94,857 99,326 200,985 206,234
Amortization of
intangible assets 3,206 3,465 6,407 6,931
Impairment,
restructuring and
related non-recurring
charges 71,862 - 71,862 -
Interest expense, net 5,911 6,752 12,545 13,039
Other (income) and
expense, net (334) (694) (513) (873)
(Loss) earnings before
income taxes (131,976) 15,544 (133,638) 53,627
Income tax (benefit)
provision (52,565) 5,324 (46,697) 18,367
Net (loss) earnings $(79,411) $10,220 $(66,941) $35,260
Weighted average
shares outstanding:
-Basic 27,812 27,585 27,785 27,336
-Diluted 27,812 28,150 27,785 27,990
Basic (Loss) Earnings
per Share: $(2.86) $0.37 $(2.41) $1.29
Diluted (Loss) Earnings
per Share: $(2.86) $0.36 $(2.41) $1.26
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Amounts in thousands)
As of
7/30/2005 7/31/2004
ASSETS
Current assets:
Cash and cash equivalents $293,170 $262,508
Receivables, net 375,365 341,820
Inventories 282,516 346,761
Current deferred taxes and prepaid expenses 73,475 69,772
Total current assets 1,024,526 1,020,861
Property, plant and equipment, net 81,833 95,745
Intangible assets, net 165,264 223,833
Goodwill 195,341 185,508
Other assets 28,583 37,057
Total assets $1,495,547 $1,563,004
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current portion of long-term debt $33 $252
Accounts payable 187,359 207,334
Accrued expenses 120,540 114,677
Total current liabilities 307,932 322,263
Long-term debt 469,729 469,653
Deferred income taxes and other 68,415 77,315
Shareowners' equity 649,471 693,773
Total liabilities & shareowners' equity $1,495,547 $1,563,004
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Six Months Ended
7/30/2005 7/31/2004
OPERATING ACTIVITIES
Net (loss) earnings $(66,941) $35,260
Add/(deduct) items not affecting operating
cash flows:
Depreciation and amortization 21,301 20,970
Deferred income taxes and other (7,165) 4,882
Non-cash portion of impairment, restructuring
and related non-recurring charges, net of
tax of $40,007 93,350 -
Changes in working capital components:
Receivables, net 1,172 (18,439)
Inventories 17,696 (30,104)
Current deferred taxes and prepaid expenses (20,901) (3,389)
Accounts payable and accrued expenses 18,179 29,797
Net cash provided by operating activities 56,691 38,977
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (12,178) (143,337)
Additions to property, plant and equipment (10,762) (12,952)
Subordinated note receivable 2,063 1,375
Dispositions of fixed assets 1,325 202
Net cash used in investing activities (19,552) (154,712)
FINANCING ACTIVITIES
Borrowings of long-term debt, net of
financing costs - 195,390
Repayments of long-term debt - (4,448)
Dividends paid (8,895) (8,758)
Stock transactions under incentive plans 3,531 16,904
Net cash (used in) provided by
financing activities (5,364) 199,088
Net change in cash and cash equivalents 31,775 83,353
Cash and cash equivalents, beginning of period 261,395 179,155
Cash and cash equivalents, end of period $293,170 $262,508
Supplemental cash flow Information:
Interest paid $15,361 $12,403
Income taxes paid (refunded), net $(522) $7,927
Use of Non-GAAP Financial Measures
The Company has provided non-GAAP adjusted earnings per share information for its fiscal 2004, second quarter 2005, first half 2005, third quarter 2005 and full year fiscal 2005 guidance in this release, in addition to providing financial results and guidance in accordance with GAAP. This non-GAAP financial information is provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted results provide useful information to both management and investors by excluding expenses that the Company believes are not indicative of the Company's core operating results. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of this non-GAAP information to the Company's actual and expected results for its fiscal 2004, second quarter 2005, first half 2005, third quarter 2005 and full year fiscal 2005 results are as follows:
NON-GAAP FINANCIAL MEASURES INFORMATION
Second Quarter
Summary of Results for FY2005, July 27 Guidance, and FY2004 Actual
The following table summarizes net sales, operating earnings (1), net earnings and diluted earnings per share from Kellwood's ongoing business units and business units to be exited, the tax benefit from the repatriation of offshore earnings, the restructuring and related charges and amortization of intangibles for the second quarter ($ in thousands). See footnotes (1), (2) and (3) to the table.
FY2005 Actuals
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $488,245 $78,751 $- $(5,160) $- $561,836
Operating
Earnings (1) 16,644 (6,480) - (133,357) (3,206) (126,399)
Net Earnings $5,620 $(4,681) $13,000 $(93,350) $- $(79,411)
Diluted EPS (2) $0.20 $(0.17) $0.47 $(3.36) $- $(2.86)
July 27, 2005 Guidance
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $485,000 $80,000 $- $- $- $565,000
Operating
Earnings (1) 16,600 (6,900) - (157,700) (3,200) (151,200)
Net Earnings $5,300 $(4,700) $13,000 $(110,000) $- $(96,400)
Diluted EPS (2) $0.19 $(0.17) $0.46 $(3.91) $- $(3.43)
FY2004 Actuals
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $482,517 $77,950 $- $- $- $560,467
Operating
Earnings (1) 25,660 (593) - - (3,465) 21,602
Net Earnings $10,875 $(655) $- $- $- $10,220
Diluted EPS (2) $0.39 $(0.02) $- $- $- $0.36
NON-GAAP FINANCIAL MEASURES INFORMATION
First Half
Summary of Results for FY2005 and FY2004 Actual
The following table summarizes net sales, operating earnings (1), net earnings and diluted earnings per share from Kellwood's ongoing business units and business units to be exited, the tax benefit from the repatriation of offshore earnings, the restructuring and related charges and amortization of intangibles for the second quarter ($ in thousands). See footnotes (1),(2) and (3) to the table.
FY2005 Actuals
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $1,041,792 $164,583 $- $(5,160) $- $1,201,215
Operating
Earnings (1) 48,915 (10,757) - (133,357) (6,407) (101,606)
Net Earnings $21,273 $(7,864) $13,000 $(93,350) $- $(66,941)
Diluted EPS (2) $0.76 $(0.28) $0.47 $(3.36) $- $(2.41)
FY2004 Actuals
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $1,085,249 $161,321 $- $- $- $1,246,570
Operating
Earnings (1) 73,685 (961) - - (6,931) 65,793
Net Earnings $36,402 $(1,143) $- $- $- $35,259
Diluted EPS (2) $1.30 $(0.04) $- $- $- $1.26
NON-GAAP FINANCIAL MEASURES INFORMATION
Third Quarter
Summary of Current Guidance and FY2004 Actual
The following table summarizes net sales, operating earnings (1), net earnings and diluted earnings per share from Kellwood's ongoing business units and business units to be exited, the tax benefit from the repatriation of offshore earnings, the restructuring and related charges and amortization of intangibles for the second quarter ($ in thousands). See footnotes (1), (2) and (3) to the table.
Current Guidance
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $555,000 $80,000 $- $(250) $- $634,750
Operating
Earnings (1) 33,000 600 - (19,900) (3,900) 9,800
Net Earnings $15,600 $400 $- $(14,000) $- $2,000
Diluted EPS (2) $0.57 $0.01 $- $(0.51) $- $0.07
FY2004 Actuals
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $619,216 $97,578 $- $- $- $716,794
Operating
Earnings (1) 49,531 2,116 - - (3,134) 48,513
Net Earnings $27,226 $1,127 $- $- $- $28,353
Diluted EPS (2) $0.97 $0.04 $- $- $- $1.01
NON-GAAP FINANCIAL MEASURES INFORMATION
Fiscal Year
Summary of Current Guidance, July 27 Guidance, and FY2004 Actual
The following table summarizes net sales, operating earnings (1), net earnings and diluted earnings per share from Kellwood's ongoing business units and business units to be exited, the tax benefit from the repatriation of offshore earnings, the restructuring and related charges and amortization of intangibles for the second quarter ($ in thousands). See footnotes (1), (2) and (3) to the table.
Current Guidance
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $2,090,000 $305,000 $- $(5,000) $- $2,390,000
Operating
Earnings (1) 101,000 (8,500) - (220,000) (14,000) (141,500)
Net Earnings $43,500 $(5,600) $13,000 $(155,000) $- $(104,100)
Diluted EPS (2) $1.55 $(0.20) $0.47 $(5.65) $- $(3.79)
July 27, 2005 Guidance
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $2,090,000 $335,000 $- $- $- $2,425,000
Operating
Earnings (1) 100,900 (8,300) - (189,200) (12,700) (109,300)
Net Earnings $43,500 $(5,600) $13,000 $(132,000) $- $(81,100)
Diluted EPS (2) $1.55 $(0.20) $0.46 $(4.70) $- $(2.89)
FY2004 Actuals
Operations
Amort-
ization
Business of
Units Repatr- Restruc- Intang- Total
Ongoing Exited iation turing ibles(3) Kellwood
Net Sales $2,199,976 $355,728 $- $- $- $2,555,704
Operating
Earnings (1) 138,566 5,211 - - (13,434) 130,343
Net Earnings $67,743 $2,351 $- $- $- $70,094
Diluted EPS (2) $2.42 $0.08 $- $- $- $2.50
(1) Operating earnings for the operations of ongoing and exited business
units is a non-GAAP measure that differs from GAAP operating earnings in
that it excludes restructuring and related charges and amortization of
intangibles. Operating earnings for the operations of ongoing and exited
business units should not be considered as an alternative to GAAP
operating earnings. Operating earnings before amortization and
restructuring and related charges is the primary measure used by
management to evaluate the Company's performance, as well as the
performance of the Company's business units and segments. Management
believes the comparison of operating earnings before amortization and
restructuring and related charges between periods is useful in showing the
interaction of changes in sales, gross profit and general and
administrative expenses. Operating earnings before amortization and
restructuring and related charges may not be comparable to any similarly
titled measure used by another company.
(2) The shares used in the earnings per share calculations for ongoing
operations include the dilutive impact of stock options. Total Kellwood
earnings per share does not include the impact of stock options, as
required under GAAP. Presenting ongoing operations EPS in this manner
results in an amount that will be more comparable to what has been
reported in prior years and what will be reported in future years.
(3)Intangibles amortization is not included in operating earnings for the
operations of ongoing and exited business units. It is included in net
earnings for these business units. See footnote (1) for further
discussions of the presentation of operating earnings for the operations
of ongoing and exited business units.
Source: Kellwood Company
CONTACT: Media, Donna Weaver, VP Corp. Comm., +1-212-329-8072, or
donna.weaver@kellwood.com , or Financial, Roger D. Joseph, VP Treasurer & IR,
+1-314-576-3437, or roger_joseph@kellwood.com , or W. Lee Capps III, Chief
Operating Officer & CFO, +1-314-576-3486, or wlc@kellwood.com , all of
Kellwood Company
Web site: http://www.kellwood.com/
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