Warnaco Group Inc’s. (WRC) fourth-quarter 2010 earnings soared to 74 cents per share from 64 cents in the year-ago period, surpassing the Zacks Consensus Estimate by 3 cents per share.
For the fiscal year 2010, earnings increased 27% to $3.57 per share from $2.82 in the prior-year quarter. It outpaced the Zacks Consensus Estimate by 2 cents.
Quarter in Detail
Net revenues increased 17% year over year to $591.5 million and was well above the Zacks Consensus Estimate of $581 million. The increase was primarily attributable to the execution of key strategies. Revenues at the International business of Warnaco went up by 22%, fuelled by continued expansion of Calvin Klein business, whose worldwide revenues grew 18% from the year-ago period. The non-Calvin Klein business recorded net revenue growth of 14% in the quarter.
For fiscal year 2010, net revenues increased 14% from the prior-year quarter. The increase in net revenues was helped by 14% year-over-year increase in its Calvin Klein business and 17% increase in International revenues. A record growth of 25% in direct- to-consumer revenues also fuelled the increase in the topline.
Warnaco added 200,000 square feet of new retail space in the quarter, which was 31% higher than the prior year.
Increased dilution, higher sales to the off-price channel and increased transportation expense caused gross margin to fall by 80 basis points from the year-ago period. Selling General and Administrative expenses as a percent of net revenues increased 80 basis points to 34%, fuelled by the growth of the company’s direct-to- consumer business and an incremental $7.5 million of marketing investment compared with the prior-year quarter.
For fiscal year 2010, gross margin increased 160 basis points to 44% of net revenues, and SG&A went up by 140 basis points to 33% of net revenues compared with the prior-year period.
Operating income surged to $45.1 million from $28.0 million a year ago. The increase was due to lower pension and restructuring expense in the quarter. Operating income for fiscal year 2010 went up to $247.8 million compared with $193.5 million in 2009.
Cash and cash equivalents was $191.2 million and decreased $129.6 million year over year. Warnaco spent $160.0 million to redeem its outstanding Senior Notes and $116.4 million to purchase 2.4 million shares of its common stock, under its share repurchase programs. The company also invested approximately $35.0 million to acquire franchise and distributor businesses and pay acquisition and other related costs.
Guidance and Estimates
Management expects a solid start with a strong revenue growth in its retail business in the coming year. As per management, the launch of CK One across the Calvin Klein portfolio will boost the global expansion further in future. Management anticipates net revenue to grow by 7% to 9% and adjusted earnings to be in the range of $3.85 to $4.05 for fiscal 2011.
The Zacks Consensus Estimate for fiscal 2011 is $4.10, up from $4.07 , 30 days ago, after 1 analyst made positive revision. The Zacks Consensus Estimate for the quarter had been trending up in the run up to the earnings release, with 1 analyst raising its estimate in the last 7 days.
Our Take
Warnaco, which competes with Limited Brands Inc (LTD) and Maidenform Brands Inc. (MFB), has strong international presence and expanding direct-to-consumer business, which is encouraging and should drive growth. However, the highly competitive apparel industry concerns us.
We currently have a Zacks #3 Rank on Warnaco shares, which translates into a short-term Hold rating.
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