Warnaco integration weakens PVH earnings
In the first quarter of the 2013-14 fiscal year ended May 5, PVH Corp. recorded a profit before interest and taxes (EBIT) of around $6.785 million, a sharp drop compared to the same period a year earlier during which the company racked up $156 million in earnings. The reason for the steep dip is the major acquisition of Warnaco, a subcontractor for certain lines of PVH’s Calvin Klein brand, which has left its mark on the group’s business. “The decline in earnings was due principally to $235 million of acquisition, integration, restructuring and debt modification and extinguishment charges related to the Warnaco acquisition,” said the group in a press release.
In terms of revenue, the company earned $1.91 billion versus $1.43 billion last year. The group says that $487 million of revenue can be attributed to the newly acquired Warnaco businesses. Tommy Hilfiger activity brought in an increase of $41 million, while the exit from Izod women’s and Timberland led to a loss of $28 million in sales.
Looking at individual brands, Calvin Klein revenues increased to $638 million, $361 million of which is related to the Warnaco acquisition. On a comparable basis, Calvin Klein North America retail sales increased by 4% despite a very cold March and April. The brand suffered a 5% drop in sales in its international segment. The company touted its good results in China and Brazil while Korea experienced a difficult period. In Europe, the Group admitted to a decline of around 5% for the brand and blamed jeans sales, “particularly in Spain and Italy where the European business is primarily concentrated and where the Company is currently restructuring the distribution mix.” Weighed down by its international reorganization, Calvin Klein recorded a loss before interest and tax of $36 million compared to earnings of $58 million in the prior year’s first quarter.
“During the first quarter, we began to make the necessary investments to rebuild Warnaco’s Calvin Klein jeanswear and underwear businesses,” said Emanuel Chirico, CEO of PVH Corp., in a statement. “We are committed to successfully executing on our previously announced initiatives, which include our focus on upgrading the quality and product design of Calvin Klein jeanswear, investing in marketing and merchandising, reducing excess inventory levels, and restructuring the sales distribution mix for these businesses in Europe and North America.”
Stable results for Tommy
At Tommy Hilfiger, all indicators were generally positive. Revenues grew by 5% to $811 million, which the brand mainly owes to a 14% increase in its North America sales, driven by a 5% comparable stores sales increase.
On the earnings side, North America is again the growth motor, thanks to a better gross margin from an increase in its store prices. Tommy Hilfiger posted an EBIT of $118 million, up 15%. In contrast, international business stalled. Sales and earnings remain unchanged despite a 4% increase in comparable store sales in Europe. However, a weak Japanese market partially offset this increase.
Heritage brands post gains
The group’s Heritage Brands business was bolstered by Speedo, Warner's and Olga, brands which belonged to Warnaco. The segment already owned the Izod brand (men’s), Van Heusen and Arrow and has this quarter posted revenues of $491 million compared to $395 million for the same quarter last year. The former Warnaco brands earned $126 million. Revenues from the segment’s veteran brands were down 1% with a 7% decline in comparable store sales. The good results of the Izod brand were not enough to offset the drop. The integration of the new entities is proceeding smoothly for the Heritage brands segment. It posted an EBIT of $39 million compared $18 million a year earlier.
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