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Warnaco Sportswear net revenues flat on constant currency basis

12 Aug '09
6 min read

Gross margin decreased 320 basis points to 41% of net revenues. Gross margin was adversely affected by currency exchange rates, a more promotional environment as well as a shift in revenue mix favoring lower-margin businesses.

Operating income was $40.7 million, or 9% of net revenues, down 17%, compared to $48.9 million, or 10% of net revenues, in the prior year quarter. Operating income for the second quarter of fiscal 2009 and 2008 was adversely affected by $2.1 million and $5.7 million, respectively, of restructuring charges and pension expense.

The Company recorded income from continuing operations of $18.4 million, or $0.40 per diluted share, compared to $26.5 million, or $0.56 per diluted share, in the prior year period. Income from continuing operations for the second quarter of fiscal 2009 included a tax charge of $2.5 million, or $0.05 per diluted share, primarily related to the correction of prior period tax provisions, resulting in an effective tax rate of 41% in the quarter.

Segment Results

Sportswear - Sportswear Group net revenues fell 10% to $223.5 million and were flat on a constant currency basis. Operating income decreased to $13.6 million, or 6% of Sportswear Group net revenues. Sportswear results, in the quarter, were adversely affected by currency exchange rates, the timing shift in membership club sales as well as a more promotional environment, partially offset by reductions in SG&A related to the Company's cost cutting initiatives. Outside the United States, the Company continued to grow its Calvin Klein Jeans business, through new geographies and an expanded retail effort.

Intimate Apparel - Intimate Apparel Group net revenues fell 8% to $158.1 million and were up 1% on a constant currency basis. Operating income decreased to $27.0 million, or 17% of Intimate Apparel Group net revenues. Currency exchange rates, timing shifts of certain sales and the challenging economic environment adversely affected net revenues of the Calvin Klein Underwear wholesale business, but were partially offset by the continued global expansion of Calvin Klein Underwear's retail initiative. The Intimate Apparel Group's core brands, Warner's® and Olga®, recorded a 400 basis point improvement in operating margin, despite a 2% decline in net revenues, as a result of disciplined execution and expense control.

Swimwear - Swimwear Group net revenues fell 9% to $74.2 million and were down 6% on a constant currency basis. Timing shifts of certain sales and a challenging economic environment were the primary factors affecting Swimwear Group net revenues. Operating income increased to $8.2 million, compared to $7.7 million in the prior year quarter, and operating margin gained 160 basis points to 11% of Swimwear Group net revenues. Continued focus on inventory management and reductions in SG&A expense drove the improved operating margins.

Balance Sheet - Cash and cash equivalents at July 4, 2009 rose to $177.6 million compared to $154.5 million at July 5, 2008. At quarter-end, borrowings under the Company's domestic revolver had been repaid and net debt was $44.3 million compared to $146.3 million in the prior year quarter.

“We were pleased with our second quarter results given considerable headwinds driven by unfavorable currency, weak economies around the world and the timing shift of certain sales into our first quarter,” commented Larry Rutkowski, Warnaco's Executive Vice President and Chief Financial Officer. “Our cash generation and strong balance sheet permit us to continue to invest in our growth as we seek to gain market share and better position ourselves for the remainder of this year and beyond.”

Warnaco Group Inc

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