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Another solid quarter - Warnaco's President, CEO
03 Aug '11
5 min read
Gross profit increased 12% to $258.3 million compared to the prior year quarter and gross margin decreased 50 basis points to 44% of net revenues. Gross margins were adversely affected by a higher level of customer allowances, an unfavorable sales mix and increased product costs, primarily in the United States and certain European markets.
SG&A expense increased 18%, compared to the prior year quarter, to $202.9 million, or 34% of net revenues. The increase primarily relates to incremental selling and distribution costs ($25 million) mainly associated with the expansion of the Company's direct to consumer business, incremental marketing costs ($4 million) primarily related to the global launch of ck one and incremental restructuring costs ($3 million), partially offset by a $3 million reduction in performance-based compensation expense and a $2 million benefit related to the sale of the Company's Nancy Ganz(R) trademarks in Australia and New Zealand. The effects of fluctuations on foreign currencies resulted in a $13 million increase in SG&A expense.
Operating income was $52.6 million, or 9% of net revenues, compared to $55.3 million, or 11% of net revenues, in the prior year quarter. Declines in the U.S. and Europe were partially offset by the continued strength in the Company's Asian and Latin American businesses. Income from continuing operations was $45.6 million, or $1.01 per diluted share, compared to $30.0 million, or $0.65 per diluted share, in the prior year quarter.
Income from continuing operations for the second quarter of fiscal 2011 includes a tax benefit of approximately $11.0 million associated with the recognition of pre-2004 net operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from that country's taxing authority in the quarter.
The effective tax rate in the quarter was 9% and reflects the $11.0 million tax benefit described above. The Company's adjusted non-GAAP effective tax rate in the quarter was approximately 32.5%.
The effect of fluctuations in foreign currency exchange rates for the quarter increased net revenues by $29.2 million compared to the prior year quarter and decreased income per diluted share from continuing operations by approximately $0.03 per diluted share. An additional discussion regarding the effects of fluctuations in foreign currency exchange rates on operating results can be found in the Company's Form 10-Q, for the quarter ended July 2, 2011, which is being filed with the Securities and Exchange Commission.
Inventories at July 2, 2011 were $355.4 million up $77.8 million (or 28%) compared to $277.6 million at July 3, 2010 and down $8.9 million compared to the quarter ended April 2, 2011. The Company's significant expansion in its direct to consumer business accounted for $37.0 million of the increase while $33.0 million related to the growth in Company's wholesale businesses. The total increase in inventory includes approximately $15 million due to higher product costs, and $29 million due to fluctuations in foreign currency exchange rates. The Company remains comfortable with the quality of its inventory and expects the trend to improve in future quarters.
SG&A expense increased 18%, compared to the prior year quarter, to $202.9 million, or 34% of net revenues. The increase primarily relates to incremental selling and distribution costs ($25 million) mainly associated with the expansion of the Company's direct to consumer business, incremental marketing costs ($4 million) primarily related to the global launch of ck one and incremental restructuring costs ($3 million), partially offset by a $3 million reduction in performance-based compensation expense and a $2 million benefit related to the sale of the Company's Nancy Ganz(R) trademarks in Australia and New Zealand. The effects of fluctuations on foreign currencies resulted in a $13 million increase in SG&A expense.
Operating income was $52.6 million, or 9% of net revenues, compared to $55.3 million, or 11% of net revenues, in the prior year quarter. Declines in the U.S. and Europe were partially offset by the continued strength in the Company's Asian and Latin American businesses. Income from continuing operations was $45.6 million, or $1.01 per diluted share, compared to $30.0 million, or $0.65 per diluted share, in the prior year quarter.
Income from continuing operations for the second quarter of fiscal 2011 includes a tax benefit of approximately $11.0 million associated with the recognition of pre-2004 net operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from that country's taxing authority in the quarter.
The effective tax rate in the quarter was 9% and reflects the $11.0 million tax benefit described above. The Company's adjusted non-GAAP effective tax rate in the quarter was approximately 32.5%.
The effect of fluctuations in foreign currency exchange rates for the quarter increased net revenues by $29.2 million compared to the prior year quarter and decreased income per diluted share from continuing operations by approximately $0.03 per diluted share. An additional discussion regarding the effects of fluctuations in foreign currency exchange rates on operating results can be found in the Company's Form 10-Q, for the quarter ended July 2, 2011, which is being filed with the Securities and Exchange Commission.
Inventories at July 2, 2011 were $355.4 million up $77.8 million (or 28%) compared to $277.6 million at July 3, 2010 and down $8.9 million compared to the quarter ended April 2, 2011. The Company's significant expansion in its direct to consumer business accounted for $37.0 million of the increase while $33.0 million related to the growth in Company's wholesale businesses. The total increase in inventory includes approximately $15 million due to higher product costs, and $29 million due to fluctuations in foreign currency exchange rates. The Company remains comfortable with the quality of its inventory and expects the trend to improve in future quarters.
The Warnaco Group Inc
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