Kenneth Cole Q2 revenues decline due to retailer destocking

07 Aug '09

3 min read

Kenneth Cole Productions Inc reported results for the quarter ended June 30, 2009. The Company reported a net loss of $(0.18) per share compared to its guidance for a second quarter loss of $(0.25) to $(0.30) per share and the year-ago second quarter loss of $(0.11) per share. The better than expected results in the quarter were driven by improved gross margins and inventory management as well as effective cost controls.

As anticipated, net revenues in the second quarter declined 15.5% to $93.9 million versus $111.2 million in the year-ago quarter. The Company noted that the consolidated decline was caused by a number of factors, including retailer destocking, the planned exit of the Company's Tribeca and Bongo wholesale businesses, and a comparable store sales decline of 14.7%.

Kenneth Cole, Chairman and Chief Creative Officer, commented, "While our results are still not at acceptable levels, we are making progress. We have exciting new product for Fall, including the relaunch of Kenneth Cole Ladies Footwear with our new, patented 9-2-5 comfort technology. Our increased focus on product innovation and a strong price-value relationship should drive sales growth and improve margins."

Consolidated gross margin increased 100 basis points to 42.4% in the quarter compared to 41.4% in the year-ago period. Promotional activity moderated over the course of the quarter in both the wholesale and consumer direct channels as inventories came in line. While the Company anticipates top-line pressure in the back half of the year, gross margin as a percentage of sales is expected to show continued improvement.

Selling, general and administrative expenses declined $4.1 million in the second quarter to $45.0 million versus the year-ago level of $49.1 million. This reduction was achieved despite the additional expenses associated with operating 10 net new stores versus the prior year.

Jill Granoff, Chief Executive Officer of Kenneth Cole Productions, Inc., commented, "We are committed to returning our business to acceptable levels of profitability. We continue to streamline our overhead and reduce expenses while building our capabilities. We remain focused on cash management evident in our improved liquidity. While the environment remains challenging, our gross margin is improving and we will work to keep our inventories balanced and increase productivity."

Inventory at the close of the quarter was down 28.2% to $35.1 million from $48.8 at the end of the second quarter last year. The Company now believes the mix and level of inventory are better aligned with sales demand going forward.

Cash at the end of the second quarter increased by $11.6 million to $57.9 million from $46.3 million at the end of the first quarter and $72.9 million at the close of the second quarter last year. The year-over-year reduction of $15 million reflects the use of approximately $24 million of cash over the past year for the repurchase of stock, the Le Tigre acquisition, dividends and capital expenditures, offset by working capital gains.

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