Kenneth Cole achieves Q3 operating guidance
Kenneth Cole Productions Inc reported financial results for the third quarter ended September 30, 2008. The Company reported third quarter net revenues rose 1.4% to $132.1 million versus the year-ago level. While the Company reported a loss of ($0.09) per share on a GAAP basis due to a non-operating impairment charge, excluding this charge earnings were $0.09 per share, the high end of the Company's prior guidance. The charge of ($3.2) million, or ($0.18) per share, reflected an other than temporary decline in an investment in common stock held by the Company.
Chairman and Chief Creative Officer Kenneth Cole said, "We are pleased that we achieved our targets for sales and operating profitability for the quarter, despite current economic conditions. We will proceed cautiously for the time being, but continue to believe that this is a time of great opportunity for our business."
Jill Granoff, Chief Executive Officer, added, "Our strong brands and balance sheet provide meaningful competitive advantages. We have recently completed our long-term strategic plan to accelerate growth and improve profitability. We are determined to drive tremendous value to consumers, customers, partners, and our shareholders."
The Company has set a goal to double its revenues and profitability and generate at least $1 billion in reported revenues with double digit operating margins. Its long-term strategic plan calls for the implementation of six core initiatives. These are: to energize the brand, create compelling product, accelerate retail growth, revitalize its wholesale business, prepare for global expansion and to build upon its strong corporate culture.
Consumer direct sales for the third quarter increased by 6.9% to $42.6 million from the year-ago quarter. The increase was driven by a comparable store sales gain of 2.1% and by revenues associated with new stores. Wholesale sales during the third quarter were $77.6 million, a 1.6% decrease versus the year-ago level. Licensing revenues were up 2.4% to $11.9 million versus the prior year's level.
The Company's third quarter gross margin was 41.1% versus 44.4% in the prior year's quarter, largely attributable to increased markdowns and lower initial gross margins in the wholesale business. SG&A expenses during the quarter were $51.9 million versus $53.8 million in the year-ago quarter. As a percentage of revenues, SG&A improved to 39.3% from 41.3% in the third quarter of 2007 due primarily to cost control as well as lower levels of non-cash expenses associated with compensation, depreciation and amortization.
Interest income during the quarter was $0.4 million versus $1.5 million in the year-ago quarter, driven by lower interest rates and on lower average cash balances due to share repurchase and the acquisition of Le Tigre.
The Company also booked a non-operating impairment charge of ($3.2) million, or ($0.18) per share, as detailed above. As a result of this charge, the net loss for the quarter under GAAP was ($1.6 million), or ($0.09) per share. Excluding this charge, the Company noted that earnings per share would have been $0.09, consistent with the high end of its prior guidance.