Warnaco Group Inc. (WRC) registered second-quarter 2010 earnings of 71 cents a share, exceeding the Zacks Consensus Estimate of 69 cents by 2.9% and the year-ago earnings of 47 cents by 51.1%.
On a reported basis, including one-time items, earnings for the quarter jumped 62.5% to 65 cents per share compared with 40 cents in the year-ago quarter.
Revenue and Margins
Net sales recorded a growth of 14% to $519.3 million from $455.4 million in the year-ago quarter, and surpassed the Zacks Consensus Estimate of $503 million. The double-digit growth reflects geographic expansion and a successful campaign of Calvin Klein businesses, as well as innovative product and marketing strategies.
The quarterly gross margin progressed 270 basis points to 44% compared to prior-year period on the back of better-than-expected gross margin at the direct-to-consumer and international operations.
Warnaco’s operating income rose 31.9% to $56.5 million in the quarter compared with $42.8 million in the prior-year quarter.
Segment Details
In terms of category, Sportswear Group grew 15.1%, while Intimate Apparel Group and Swimwear Group rose 17.9% and 2.4%, respectively.
In terms of geographic divisions, United States revenues advanced 12.8% to $262 million. Revenues spiked 18.9% to $83.5 million in Asia, whereas revenues from the Europe and Canada grew 1.6% and 2.2% to $99.8 million and $29.9 million, respectively, in the quarter. Revenues at Mexico, Central and South America shot up 74% to $44.2 million.
Other Financial Updates
Warnaco exited the quarter with cash, and cash equivalents of $172.9 million. The company did not have any long-term debt at the end of the quarter. The company redeemed the remaining $110.9 million of its 8.875% senior notes in the quarter.
In the quarter, inventories declined 5% year over year to $277.6 million, powered by efficient inventory management.
During the quarter, the company’s board of directors authorized a 5 million share repurchase program.
Guidance
The company remains optimistic about its sales growth for the rest of 2010, lifting its annual net revenue growth target to 9%–11% from the prior target of 8%–10%.
Warnaco advanced its fiscal 2010 earnings range to $3.40–$3.50 per share from $3.30–$3.40 as previously anticipated. The current Zacks Consensus Estimate of $3.39 per share for fiscal 2010 lies a penny below the low-end of the company’s guidance range.
On a reported basis, the company anticipates earnings in the range of $3.28–$3.36 for fiscal 2010.
Warnaco Group shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation. Our long-term recommendation for the stock remains Neutral.
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