Warnaco Beats by a Penny, Sales Lag - Analyst Blog
06 Novembre 2012 - 10:40AM
Zacks
The Warnaco Group Inc. (WRC) reported third
quarter 2012 adjusted earnings of $1.15 per share, which beat the
Zacks Consensus Estimate by a penny. Cost control, coupled with
strong business by brands like Calvin Klein and Speedo led to the
earnings beat. Earnings also grew 7.5% year over year from $1.07
per share.
Consolidated Revenue and Margins
Warnaco’s quarterly net sales slipped 5% from the prior-year
quarter to $611.5 million. Net revenue, on a neutral currency
basis, was flat year over year. The sales decline was a result of
poor business in Sportswear and Intimate Apparel coupled with
macroeconomic headwinds in the U.S. and Europe and unfavorable
foreign currency translation. Sales missed the Zacks Consensus
Estimate of $640.0 million.
Gross profit decreased 5% from the prior-year quarter to $267.0
million in the third quarter, while gross margin grew 30 basis
points to 44% in the quarter owing to optimization of product
costs, positive product mix and increase in efficiency. Operating
income grew 4.7% year over year to $75.4 million. Adjusted
effective tax rate increased 170 basis points from the prior-year
quarter to 32.7% in the reported quarter.
Segment Details
Net sales in the Sportswear Group went down 5.7%
year over year to $337.4 million in the third quarter. Net sales
grew 0.2% on a constant currency basis. The segment reported a 9.5%
year-over-year rise in operating income to $29.5 million,
representing 8.8% of net revenue.
Intimate Apparel Group net sales declined 6.3%
from the prior-year quarter to $232.2 million. Net sales declined
2.9% on a constant currency basis. Operating income of the Intimate
Apparel Group segment grew 6.7% year over year to $41.2 million in
the third quarter, representing 17.7% of net revenue.
Swimwear Group net sales went up 6.7% from the
prior-year quarter to $42.0 million. Net sales climbed 9.2% on a
constant currency basis. The segment’s operating loss widened by
8.5% to $429 million in the third quarter.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of
$311.0 million as of September 29, 2012 compared with $295.3
million as of June 30, 2012.
Inventories declined 1% from the prior-year quarter to $388.8
million in the third quarter of 2012.
Merger with PVH Corp.
On October 31, 2012, The Warnaco Group announced a merger agreement
with PVH Corp. (PVH). According to the agreement,
PVH will acquire Warnaco for $2.9 billion and will gain the rights
of Warnaco’s most popular brand, Calvin Klein. PVH Corp will
benefit from the acquisition over the long term as its product
portfolio will comprise some of the leading apparel brands. Over
three years, PVH expects annual run rate synergies of $100 million
from the acquisition. The merger is expected to close in early
2013.
Guidance
Based on third quarter 2012 results, Warnaco maintained its full
year 2012 adjusted EPS outlook in the range of $4.00 – $4.15.
Warnaco expects its reported earnings per share to be in the range
of $2.97–$3.00 compared with its previous guidance of $2.94–$3.00
per diluted share. The Zacks Consensus Estimates for the fourth
quarter and full year 2012 are pegged at $1.24 and $4.05 per share,
respectively.
For 2012, Warnaco anticipates total revenue to be flat to down 2%
year over year.
Warnaco is poised to benefit from the fact that its peer
HanesBrands (HBI) is focusing on premium brands
and increasing prices in these categories while consumers prefer to
opt for more competitively priced brands. This provides the company
an edge over its peers. In addition, the new organizational
structure of Warnaco is geared to increase productivity, which will
position the company better in the international market. However,
the high cost of cotton has been crippling the performance of the
company for consecutive quarters. Moreover, the company’s high
dependence on international sales makes it vulnerable to the
macroeconomic and currency headwinds in the global economy.
We currently have Neutral recommendation on Warnaco. The stock
carries a Zacks #3 Rank (short-term ‘Hold’ rating).
HANESBRANDS INC (HBI): Free Stock Analysis Report
PVH CORP (PVH): Free Stock Analysis Report
WARNACO GRP INC (WRC): Free Stock Analysis Report
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