Kenneth Cole's Men's Reaction sportswear business up
Kenneth Cole Productions Inc reported financial results for the first quarter ended March 31, 2011. As anticipated, the Company incurred certain one-time charges associated with the acceleration of store closings. As a result, the Company reported a net loss per fully-diluted share of ($0.94) in the first quarter versus net income of $0.10 in the year-ago period. The year-over-year decline in earnings was due to those store closing costs, severance and a reduction in gross margin associated with markdowns and liquidation required to manage inventories.
Net revenues in the first quarter grew 7.3% to $117.5 million versus $109.5 million in the first quarter last year. The increase was driven by stronger Wholesale sales offset partially by a decline in Consumer Direct sales due to the closing of net 11 stores year-over-year and a 2.7% comparable stores sales decline.
Wholesale revenues increased by 19.3% to $74.5 million from $62.4 million in the year ago period, primarily driven by an increase in men's footwear and Reaction men's sportswear. Consumer Direct revenues declined by 10.2% to $33.2 million versus the year-ago level of $37.0 million. Licensing revenues in the first quarter declined to $9.8 million versus $10.1 million in the year-ago quarter. This decline was primarily attributable to the discontinuation of licensing royalties for Le Tigre. Otherwise licensing revenues were up 6.5%.
Gross margin declined 610 basis points to 35.5% versus 41.6% in the first quarter last year. This anticipated decline was driven by increased promotional and clearance activity associated primarily with the accelerated store closings, rising costs and a shift in mix toward Wholesale sales.
SG&A, as a percentage of net revenues, excluding one-time charges in the first quarter, improved 130 basis points to 39.4% from 40.7% in the year ago period. The improvement was the result of an ongoing focus on cost efficiencies, leverage in Wholesale, and a shift in sales mix towards Wholesale revenues during the quarter.
The Company reported a net loss of $17.2 million for the quarter. The Company noted that included in its results were $16.0 million in one-time charges, related primarily to lease termination payments and severance. Total one-time charges were partially offset by $3.5 million of deferred rent income associated with the store closings, resulting in net charges of $12.5 million.
The Company's balance sheet remained strong at March 31, 2011 with $54 million in cash and no long-term debt. The reduction in cash versus the prior year level of $66 million was primarily a result of the lease termination payments in the amount of $14.7 million and an increase in working capital requirements to run the men's Reactionsportswear business.
Total inventory was $42.4 million versus the prior year's level of $35.2 million. This increase reflects the additional inventory required to support the new Men's Reaction sportswear business. In addition, despite progress in clearing units, total inventory at the close of the first quarter remained elevated due to excess inventory in retail. Notwithstanding the year-over-year increase, inventory was current.