Fourth Quarter Earnings Exceed Previous Guidance
Restructuring Substantially Completed Below Budget
Reiterates First Quarter and Fiscal 2006 Expectations
ST. LOUIS, March 9 - Kellwood Company (NYSE: KWD) today reported results for the fourth quarter and fiscal year ended January 28, 2006, according to Robert C. Skinner, Jr., chairman, president and chief executive officer.
Fourth Quarter
Net sales for the fourth quarter totaled $473.4 million, as compared to $495.5 million last year. Net earnings for the fourth quarter were $12.5 million, or $0.49 per diluted share, versus $7.1 million, or $0.25 per diluted share, last year. Included in net earnings for the current quarter were the net reversals of previously accrued restructuring and related non-recurring costs of $6.6 million, or $0.26 per share associated with the Company's earlier announced strategic initiatives that focus on increasing its penetration of consumer lifestyle brands while reducing exposure to smaller volume brands and certain private label businesses.
For the fourth quarter, on an ongoing basis (continuing operations excluding the restructuring and related non-recurring charges/credits), net sales were $473.4 as compared to $495.5 million last year. Net earnings were $7.4 million, or $0.29 per diluted share, compared to $3.9 million, or $0.14 per share last year, exceeding previous guidance of $5.9 million, or $0.23 per share.
Mr. Skinner stated, "Our fourth quarter results were ahead of our expectations and demonstrate meaningful progress toward meeting our restructuring, brand refocusing and balance sheet initiatives. During the quarter, we substantially completed our restructuring program. The total cost of the program will be below budget by approximately $70 million before tax, and $45 million after tax. We also continued to execute our turnaround strategies that focus on improving the performance of our lifestyle brands by upgrading our talent base and enhancing our business processes. Additionally, we redeployed infrastructure savings toward more effective marketing efforts to heighten awareness of our brands, reduce time to market, and intensify consumer research to help insure that our product offerings are consistent with the desires of our core consumers."
By segment, on a continuing and ongoing basis for the fourth quarter, sales were down 6 percent in women's sportswear to $277.2 million versus $296.4 million last year, and down 6 percent in men's sportswear sales to $118.4 million versus $125.3 million last year. These decreases were partially offset by a 5 percent increase in other soft goods sales to $77.8 million versus $73.8 million last year.
Fiscal Year 2005
Sales for fiscal 2005 declined 6 percent to $2.062 billion as compared to $2.200 in fiscal 2004. The net loss for the year was $(38.4) million, or $(1.42) per diluted share, compared to net earnings of $66.3 million, or $2.37 per diluted share in fiscal 2004. Included in the net loss for fiscal 2005 were restructuring and impairment charges of $(86.0) million, or $(3.17) per share. Partially offsetting these charges was a one-time tax benefit for the repatriation of foreign earnings of $13.0 million, or $0.48 per share.
For fiscal 2005, on an ongoing basis (continuing operations excluding the impairment, restructuring and related non-recurring charges and the repatriation tax benefit), net sales were $2.065 billion compared to $2.200 billion last year. Net earnings were $45.6 million, or $1.68 per diluted share, as compared to $64.4 million, or $2.30 per diluted share in fiscal 2004.
By segment, on a continuing and ongoing basis for the year sales were down 10 percent in women's sportswear to $1.24 billion versus $1.39 billion last year, and down 1 percent in men's sportswear to $498.1 million versus $505.3 million last year. These decreases were partially offset by a 5 percent increase in other soft goods sales to $319.4 million versus $305.2 million last year.
"Several of our operating divisions performed very well this year, including American Recreation Products, Gerber Childrenswear, Briggs women's sportswear, Smart Shirts, New Campaign small leather goods, and Kellwood Western Region which manages Kellwood's junior sportswear brands, and designs and sources private label women's sportswear," Mr. Skinner continued. "While recognizing that we are in the early stages of our turnaround, we remain confident that as we move through fiscal 2006, our current strategies, under new brand leadership with enhanced business processes will produce improved results for Kellwood in the second half of the year."
Balance Sheet
Kellwood ended the quarter with considerable liquidity and a strong financial position. At January 28, 2006, cash and cash equivalents increased by $172 million to $433 million. Inventory totaled $206 million, or 50 days supply, a reduction of $64 million from $270 million, or 54 days supply at fiscal year end 2004. Total debt increased $38 million to $508 million versus $470 million last year due to borrowings by our Asian operations.
Stock Repurchase Program
During fiscal 2005, the Company repurchased 2.2 million shares under its stock repurchase program at an average price of $24.99 per share completing approximately 80 percent of the Board approved program. There remains the lessor of $19.5 million, or 565,000 shares, available for repurchase under the original $75 million stock repurchase authorization.
Guidance
For the fiscal 2006 year, the Company continues to expect sales to be in the range of $2.0 billion. This compares to actual sales from ongoing operations of $2.065 billion in fiscal 2005.
On an ongoing basis, net earnings for fiscal 2006 year continue to be estimated to be in the range of $44 million to $45 million, essentially flat with fiscal 2005 net earnings from ongoing operations. Also on an ongoing basis, fiscal 2006 diluted earnings per share continue to be estimated at approximately $1.70 per diluted share, which compares to actual diluted earnings per share from ongoing operations of $1.68 in fiscal 2005. The Company's fiscal 2006 forecast includes $4.3 million before tax, $2.8 million after tax, or $0.11 per diluted share of stock options expense related to the adoption of FAS 123R "Share-Based Payment," a new accounting pronouncement requiring the expensing of stock-based compensation.
For the first quarter of fiscal 2006, the Company continues to estimate net sales of $480 million, as compared to actual sales from ongoing operations of $554 million in the first quarter last year. Net earnings from ongoing operations in the first quarter of fiscal 2006 continue to be estimated at approximately $4.0 million, or $0.15 per diluted share, inclusive of $1.8 million before tax, $1.2 million after tax, or $0.05 per diluted share of stock option expense. This compares to net earnings from ongoing operations of $15.1 million, or $0.54 per share, in the first quarter of fiscal 2005.
Restructuring and other related non-recurring charges are currently projected to be $10.0 million, or $0.38 per diluted share, for the full year 2006 and $5.0 million, or $0.19 per diluted share, for the first quarter.
Use of Non-GAAP Financial Measures
The Company has provided non-GAAP adjusted earnings and earnings per share information for its fourth quarter and full year fiscal 2005 results and its first quarter and full year 2006 guidance in this release, in addition to providing financial results in accordance with GAAP. This non-GAAP financial information is provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted results provide useful information to both management and investors by excluding items that the Company believes are not indicative of the Company's core operating results. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.
The following tables summarize net sales, net earnings and earnings per share from Kellwood's ongoing operations, the non-recurring charges and repatriation tax benefit included in continuing operations. There is no repatriation tax benefit in 2006.
Fourth Quarter
Summary of Results for FY2005 Actual
FY2005 Actual
Ongoing Discontinued
Operations Repatriation Restructuring Operations Total
Net Sales $473,440 $- $- $- $473,440
Net Earnings
(Loss) from
Continuing
Operations $7,393 $- $(2,146) $- $5,247
Net Earnings
(Loss) from
Discontinued
Operations - - 8,725 (1,459) 7,266
Net Earnings
(Loss) $7,393 $- $6,579 $(1,459) $12,513
Diluted EPS:
Continuing
Operations $0.29 $- $(0.08) $- $0.20
Discontinued
Operations - - 0.34 (0.06) 0.29
Net Earnings
(Loss) $0.29 $- $0.26 $(0.06) $0.49
Fiscal Year 2005
Summary of Results for FY2005 Actual
FY2005 Actual
Ongoing Discontinued
Operations Repatriation Restructuring Operations Total
Net
Sales $2,064,594 $- $(2,450) $- $2,062,144
Net
Earnings
(Loss) from
Continuing
Operations $45,611 $13,000 $(35,508) $- $23,103
Net Earnings
(Loss) from
Discontinued
Operations - - (50,508) (11,008) (61,516)
Net Earnings
(Loss) $45,611 $13,000 $(86,016) $(11,008) $(38,413)
Diluted EPS:
Continuing
Operations $1.68 $0.48 $(1.31) $- $0.85
Discontinued
Operations - - (1.86) (0.41) (2.27)
Net Earnings
(Loss) $1.68 $0.48 $(3.17) $(0.41) $(1.42)
First Quarter
Current Guidance for FY2006
Current Guidance
Ongoing Continuing
Operations Restructuring Operations
Net Sales $480,000 $- $480,000
Net Earnings $4,000 $(5,000) $(1,000)
Diluted EPS $0.15 $(0.19) $(0.04)
Fiscal Year 2006
Current Guidance for FY2006
Current Guidance
Ongoing Continuing
Operations Restructuring Operations
Net Sales $2,000,000 $- $2,000,000
Net Earnings $44,000 $(10,000) $34,000
Diluted EPS $1.70 $(0.38) $1.32
Conference Call Information
The Company will conduct a conference call, tomorrow, Friday, March 10, 2005 at 9:00 a.m. CT. If you wish to participate you may do so by dialing 800-819-9193. This call will be webcast to the general public and can be accessed via Kellwood's website at http://www.Kellwood.com .
Kellwood (NYSE: KWD) is a marketer of apparel and consumer soft goods with sales in excess of $2 billion. Kellwood specializes in branded as well as private label products, and markets to all channels of distribution with product specific to a particular channel. For more information, visit http://www.Kellwood.com .
Statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the safe harbor provisions of the federal securities laws. Actual results may differ materially due to risks and uncertainties that are described in the Company's Form 10-K and other filings with the SEC.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe", "expect", "will", "estimate", "project", "forecast", "planned", "should", "anticipate" and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's expectations concerning future events, are based on various assumptions and are subject to a number of risks and uncertainties. These risks include, without limitation: changes in the retail environment; an economic downturn in the retail market, including deflationary pressures; economic uncertainty due to the implementation of safeguards (quotas) on Chinese imports; a decline in the demand for the Company's products; the lack of customer acceptance of the Company's new designs and/or product lines; the increasingly competitive and consolidating retail environment; financial or operational difficulties of customers or suppliers; disruptions to transportation systems used by the Company or its suppliers; continued satisfactory relationships with licensees and licensors of trademarks and brands; ability to generate sufficient sales and profitability related to licenses containing minimum royalty payments; the ability to successfully complete the restructuring plan; the economic impact of uncontrollable factors, such as terrorism and war; the effect of economic conditions and trade, legal social and economic risks (such as import, licensing and trade restrictions); stable governments and business conditions in the countries where the Company's products are manufactured; the impact of acquisition activity and the ability to effectively integrate acquired operations; and changes in the Company's strategies and expectations. These risks are more fully described in the Company's periodic filings with the SEC. Actual results could differ materially from those expressed or implied in forward-looking statements. The Company disclaims any obligation to publicly update or revise any of its forward-looking statements.
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Amounts in thousands, except per share data)
Three Months Ended Twelve Months Ended
1/28/2006 1/29/2005 1/28/2006 1/29/2005
Net sales by segment:
Women's Sportswear $277,237 $296,373 $1,244,712 $1,389,464
Men's Sportswear 118,432 125,304 498,061 505,318
Other Soft Goods 77,771 73,834 319,371 305,194
Total net sales 473,440 495,511 2,062,144 2,199,976
Costs and expenses:
Cost of products
sold 380,993 393,735 1,637,433 1,720,810
Selling, general and
administrative
expenses 74,927 86,804 333,082 346,410
Amortization of
intangible assets 2,543 2,961 10,685 11,804
Impairment,
restructuring and
related non-recurring
charges 2,373 - 42,341 -
Interest expense, net 4,864 6,388 23,240 25,860
Other (income) and
expense, net (429) (255) (1,346) (2,126)
Earnings before income
taxes 8,169 5,878 16,709 97,218
Income taxes 2,922 1,985 (6,394) 32,831
Net earnings from
continuing operations 5,247 3,893 23,103 64,387
Net earnings (loss) from
discontinued
operations 7,266 3,167 (61,516) 1,949
Net earnings (loss) $12,513 $7,060 $(38,413) $66,336
Weighted average
shares outstanding:
Basic 25,648 27,679 26,986 27,504
Diluted 25,702 28,045 27,094 28,039
Earnings (loss) per
share:
Basic:
Continuing
operations $0.20 $0.14 $0.86 $2.34
Discontinued
operations 0.29 0.11 (2.28) 0.07
Net earnings
(loss) $0.49 $0.26 $(1.42) $2.41
Diluted:
Continuing
operations $0.20 $0.14 $0.85 $2.30
Discontinued
operations 0.29 0.11 (2.27) 0.07
Net earnings
(loss) $0.49 $0.25 $(1.42) $2.37
KELLWOOD COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
As of
1/28/2006 1/29/2005
ASSETS
Current assets:
Cash and cash equivalents $432,825 $261,009
Receivables, net 294,044 310,661
Inventories 206,403 269,858
Current deferred taxes and prepaid expenses 46,357 49,383
Current assets of discontinued operations 62,675 139,003
Total current assets 1,042,304 1,029,914
Property, plant and equipment, net 79,737 89,600
Intangible assets, net 160,027 181,597
Goodwill 203,831 214,747
Other assets 26,858 36,351
Long-term assets of discontinued operations 889 27,683
Total assets $1,513,646 $1,579,892
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current portion of long-term debt $13,571 $149
Accounts payable 170,914 158,941
Accrued salaries and employee benefits 40,554 41,175
Other accrued expenses 97,139 77,038
Current liabilities of discontinued operations 30,888 31,702
Total current liabilities 353,066 309,005
Long-term debt 494,806 469,657
Deferred income taxes and other 56,407 87,706
Shareowners' equity 609,367 713,524
Total liabilities & shareowners' equity $1,513,646 $1,579,892
Kellwood Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
Twelve Months Ended
1/28/2006 1/29/2005
OPERATING ACTIVITIES
Net (loss) earnings $(38,413) $66,336
Add/(deduct) items not affecting operating
cash flows:
Depreciation and amortization 39,869 41,841
Deferred income taxes and other (25,727) 4,564
Inventory/accounts receivable valuation
adjustments and impairment, restructuring
and related non-recurring charges
- Pre-tax amount 122,314 -
- Tax effect (36,297) -
Changes in working capital components:
Receivables, net 55,905 (57,621)
Inventories 100,647 (15,244)
Current deferred taxes and prepaid expenses (2,987) 11,371
Accounts payable and accrued expenses 14,817 9,937
Net cash provided by operating activities 230,128 61,184
INVESTING ACTIVITIES
Additions to property, plant and equipment (19,582) (27,436)
Acquisitions, net of cash acquired (12,178) (144,722)
Receipts for subordinated note receivable 2,750 2,063
Dispositions of fixed assets 782 436
Net cash (used in) investing activities (28,228) (169,659)
FINANCING ACTIVITIES
Borrowings of long-term debt, net of financing
costs 38,565 195,343
Repayments of long-term debt - (4,448)
Dividends paid (17,361) (17,584)
Stock purchases under Stock Repurchase
Program (55,430) -
Stock transactions under incentive plans 4,142 17,495
Net cash (used in) provided by financing
activities (30,084) 190,806
Net change in cash and cash equivalents 171,816 82,331
Cash and cash equivalents, beginning of year 261,009 178,678
Cash and cash equivalents, end of year $432,825 $261,009
Supplemental cash flow Information:
Interest paid $30,957 $27,659
Income taxes (refunded) paid, net $(16,399) $(628)
