Kellwood Slips To Loss In Q3 On Charges; Reaff

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Friday morning, apparel and consumer soft goods marketer Kellwood Co. (KWD) said slipped to a loss in its third quarter hit by huge restructuring and other non-recurring charges, accompanied by worst performance from women's sportswear business. Additionally, the company updated its financial outlook for fiscal 2007 and fiscal 2008.

Third Quarter Results

The St. Louis, Missouri-based company posted a third quarter net loss of $1.1 million or $0.04 per share, compared to a profit of $8.1 million or $0.31 per share in the similar quarter of last year.

Included in the latest quarter results were net earnings from discontinued operations of $4.9 million, or $0.19 per share. Total net earnings for the last year third quarter included earnings from discontinued operations of $9.6 million or $0.37 per share.

Net loss from continuing operations for the quarter amounted to $5.9 million or $0.23 per share, compared to a loss of $1.5 million or $0.06 per share in the prior year quarter.

Current quarter's loss from continuing operations comprised restructuring and other non-recurring charges of $9.9 million or $0.38 per share. Net earnings from continuing operations for the last year quarter included restructuring and other non-recurring charges of $12.1 million or $0.47 per share related to its completed 2005 strategic restructuring initiatives.

On an ongoing basis, net income for the most-recent quarter totaled $4.0 million or $0.15 per share, compared to $10.6 million or $0.41 per share in the equivalent quarter of the previous year.

On average, 5 analysts polled by First Call/Thomson Financial expected the company to earn $0.18 per share for the quarter.

Third quarter operating earnings were $17.4 million, down from $22.4 million reported in the same quarter of prior year.

Quarterly net sales from continuing operations were $404.1 million, up from previous year's sales of $397.0 million, and missed Wall Street analysts consensus revenue estimate of $410.65 million.

Kellwood added that the organic sales growth was mainly realized from Gerber Childrenswear, XOXO, My Michelle and Candies juniors and girls businesses, as well as increased licensing revenues from Baby Phat.

The company's chairman, president and chief executive officer Robert Skinner, commented, Our third quarter results were on target with our expectations, driven by the positive performance of our key initiatives. During the quarter, we managed our business well, leading to continued growth in many of our brands and businesses, such as Vince, Baby Phat, XOXO, My Michelle and Gerber Childrenswear We are transforming Kellwood into a brand focused marketing enterprise, which is expected to lead to sustained growth in sales at increased rates of profitability.

Further, Skinner stated that they have added and promoted Hope Brick as chief merchandising officer of the Lifestyle Alliance, Steve Powers as chief customer officer of the Lifestyle Alliance, Sandra Campos as president of O Oscar, an Oscar de la Renta Company, and Wendy Chivian as president of Calvin Klein women's sportswear.

Net interest expense totaled $7.0 million for the three months ended November 3, 2007, up from $2.90 million incurred last year, reflecting lower interest income on cash balances having utilized $311.9 million for the Hanna Andersson, Royal Robbins, Vince and HOLLYWOULD acquisitions.

Gross profit as a percent of net sales rose by about 340 basis points to 27.4%, from last year, primarily driven by the acquisitions of Vince, Hanna Andersson and Royal Robbins, as well as improved performance of the XOXO juniors' brand.

Segmental Results

The company's Women's Sportswear witnessed a 12% decline in its third quarter net sales, which totaled $276.2 million, compared to $315.0 million a year earlier. Operating earnings dropped to $11.6 million from $24.9 million in the same quarter of last year. Operating earnings as a percent of net sales declined to 4.2% from 7.9% last year.

Other Soft Goods generated net sales of $127.8 million, up from $81.9 million recognized in the comparable quarter of the previous year. Segment operating earnings advanced to $16.6 million from $9.37 million in the year-ago quarter. Operating earnings as a percent of net sales increased to 13.0% from 11.4% prior year.

Nine Months Results

For the nine-month period, the company reported a net loss of $59.5 million or $2.30 per share, compared to a profit of $24.4 million or $0.95 per share in the year-ago period.

Net income from ongoing operations was $12.8 million or $0.50 per share, compared to $14.9 million or $0.58 per share in the nine months ended October 28, 2006.

Year-to-dates net sales advanced to $1.143 billion from $1.139 billion recorded in the corresponding period of the previous year.

Quarterly dividend

The apparel maker also announced that its board of directors declared a regular quarterly dividend of $0.16 per common share, payable December 28, 2007 to shareholders of record December 17, 2007.

FY07 & FY08 Forecast

Looking ahead, the company now projects fiscal 2007 net income from ongoing operations to be in the range of $17.0 million - $20.0 million, and earnings per share in range of about $0.66 - $0.76 per share. Kellwood continues to expect net sales from ongoing operations to range from $1.500 billion - $1.550 billion.

The company expects to incur about $28 million - $31 million in restructuring costs during the 2007 fiscal year in conjunction with the reorganization of women's sportswear, transformation of the Phat Farm men's business to solely a licensing model and streamlining of corporate functions.

For fiscal 2008, the company continues to expect ongoing net income to be at $32.0 million, and earnings per share are estimated to be about $1.50, on sales of about $1.55 billion.

Analysts expect the company to report earnings of $0.73 per share on sales of $1.71 billion for fiscal 2007 and $1.52 per share on sales of $1.66 billion for fiscal 2008.

Long-Term Financial Plans

For the next five years, fiscal 2008 through fiscal 2012, Kellwood continues to expect to achieve earnings per share growth of at least 25% after significant 2008 increase, excluding potential future acquisitions. Annual organic sales is estimated to grow by 4% - 5%, and operating margins of 4.6%, increasing to 9% in 20012 for existing businesses.

Stock Quotes

Kellwood closed Thursday's trading at $15.99. For the past 52-weeks, the stock has been trading between $14.21 and $34.24.ms FY07, FY08 view - Update

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