This summary is based on the third quarter fiscal 2008 earnings call conducted by Kenneth Cole Production Inc. (KCP) on November 4, 2008.
Management:
Chairman and Chief Creative Officer: Kenneth D. Cole
CEO: Jill Granoff
CFO: David P. Edelman
Principal of Integrated Corporate Relations: James R. Palczynski
Key Investor Issues:
- Quarter-over-quarter gross profit decreased from $57.9 million to $54.4 million.
- Third quarter dividend of 9 cents per share.
- Net revenues for the nine months were $365.8 million versus $378.6 million in the year ago period.
Third Quarter Financial Highlights:
Consolidated net revenues for the third quarter were $132.1 million, up 1.4% compared with $130.3 million in the year ago quarter.
- Wholesale sales for the quarter were $77.6 million, a slight decline versus $78.8 million in the year ago period.
- The growth in some areas of wholesale including sportswear was more than offset by declines in the wholesale footwear business.
- Both the Kenneth Cole and Reaction brands showed the effects of the tough environments primarily in the department store business.
Consumer direct sales rose 6.9% to $42.6 million versus $39.9 million in the year ago quarter.
- Comparable stores sales for the quarter firmed 2.1% and this is the third consecutive quarter of positive same stores sales.
- However, the trends in the comp store sales were under pressure in mid September as a result of a decline in the overall environment.
- In October comps trended down in the low double digits driven almost entirely by declines in traffic.
Licensing revenue grew 2.4% to $11.9 million versus $11.7 million last year.
- Despite the stability in much of the business, the management anticipates that the environment will also affect licensee sales rate this holiday.
- The management reported good performance from outwear, women’s sportswear and watches and continued to make gains at JC Penny with La’Tigra.
Gross profit margin in the third quarter was 41.1% versus 44.4% in the year ago quarter.
- The management expressed satisfaction with expense management in the quarter.
- Total expenses were $51.9 million versus $53.8 million last year.
- SG&A as a percentage of revenues declined to 39.3% versus 41.3% last year.
- This improvement came despite an increase in marketing spend versus the prior year quarter.
- The company reduced the total year headcount, discretionary spending and non-cash compensation costs.
Interest income during the quarter was $400,000 versus the year ago level of $1.5 million.
- This was driven by lower interest rates on lower average cash balances due primarily to the stock buyback program.
- The company incurred an impairment charge of $3.2 million to reflect the other than temporary decline in investment in Chous stocks.
- The management holds no plans of selling this position in the near term and Chous is performing especially well among the licenses.
The net loss for the quarter under GAAP was $1.6 million or 9 cents per share.
-Excluding the $3.2 million non-operating impairment charge, the company achieved its operating plan at the high end of our guidance.
The cash and cash equivalents at the end of the quarter totaled $51 million versus $88 million at the end of the same quarter last year.
- This reflects the utilization of the balance sheet to drive value in to the business.
- The management used approximately $38 million to buy back approximately 2.3 million shares of common stock since the year ago quarter.
- An additional $15 million was applied towards the purchase of the La’Trigra business.
- The management also used $8.8 million to flow dividend payments to the shareholders.
- During the quarter, the company repurchased 337,000 shares for $4.4 million.
