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Earnings Calls: 
Kenneth Cole Productions Earnings Call, Second Quarter 2008
Author: Maclintosh Kuhlengisa
Last Update: 6:11 PM ET September 05 2008



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The retailer reported a 7% drop in consolidated net revenues to $111.2 million down 6.6% compared to $118.9 million in the year ago quarter driven nearly entirely by softness in the wholesale business. The net loss was $2.1 million or 11 cents a share compared to a net gain of $3.3 million or 16 cents a share in the prior year due to lower revenue. The firm has used $54 million in the share back program.

Investors Question and Answers

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- The firm is now in the process of structuring a five to six store test with footprints in the range of 3,000 to 3,500 square feet versus the average today of close to 5,000.
- These stores will offer a full complement of product with improved assortments and visual presentation and will also have reduced selling and operating costs.
- It is targeting a combination of street and mall stores in a diverse range of geographic locations so that the results of the test will give it confidence to deploy additional capital.
- The licensed businesses have extended the reach of the Kenneth Cole brand on a global basis.

Growth Initiatives:

- The firm recently re-launched the web platform with GFI, one of the best partners in Internet retailing.
It has closed seven stores and downsized one since this time last year and the remaining 43 stores have some good merchandising initiatives to drive volume in the second half including higher levels of density and more seasonless product.
- The firm is also creating window displays that will help drive traffic and has installed traffic counters which went live in July to help improve conversion ratios and ensure labor costs are optimized.

It has rationalized the product mix to focus on proven performing items, it has an increased number of replenishment styles and have made some infusions based on learnings from test and react initiatives.

- It will leverage the top doors with targeted marketing programs, improved signage and in store events.
- It has adjusted its fit to address a wider range of consumers, is reducing the percent of fashion items in favor of basic brand right sportswear products and will have a stronger denim program which based upon early tests should perform well and help results quickly.
- Kenneth has recently completed and is in the process of publishing a book on volunteerism with 86 personal [inaudible] from noted individuals including President Bill Clinton, Robert Redford, Lance Armstrong and Mia Farrow.
- The book features stories on how ordinary people can do extraordinary things to improve society, the environment and individual well being.

Fiscal 2008 Outlook:

- The firm expects revenues to be between $125 million and $130 million.
- Earnings per share are expected to be in the 7 cents to 9 cents range.

Key questions and answers from the second quarter earnings call conducted by Kenneth Cole Productions Inc. (KCP) on August 5, 2008.

Scott Krasik (C.L. King & Associates, Inc.): Can we see meaningful declines in SG&A over the next few years?

Kenneth D. Cole: We are looking at all discretionary spending and we are looking at all expense items as they relate to each channel. In the last 12 months we have reduced corporate headcount, we are taking a careful look at discretionary items such as trade shows and travel.

We are asking all departments to reduce costs where appropriate, we are creating some leverage in the consumer direct channel, we are looking at our largest single expense item which is rent and we are looking to drive down our costs.

Jill Granoff: Rent is a big item for us as well that we are looking at. I think we mentioned earlier that our stores are large and we can drive greater levels of productivity by right sizing our stores.

Another thing we are doing is we are looking to re-deploy and rationalize our resources behind highest level growth opportunities. Our business today is overly complex and we will be looking at opportunities to simplify the business and really focus our resources behind those opportunities that can yield the greatest returns.

Scott Krasik (C.L. King & Associates, Inc.): How are you keeping the share that you are and actually potentially growing the business a little bit?

Kenneth D. Cole: The wholesale business model is a tough one in this marketplace. I am not comfortable attributing our less than stellar results to environmental circumstances but the reality is, and I do believe if we get the product right, we will do well despite environmental circumstances.

That said, it is difficult out there and we are trying to run a winner business, we are trying to respond quicker and more effectively to opportunities as well as liabilities and you’ll see a more productive business entity as we go forward and that’s very much what we’re focused on.

Scott Krasik (C.L. King & Associates, Inc.): Are you maybe keeping some market share in footwear because you have a successful handbag business and you have a successful accessories business through your licensees?

Kenneth D. Cole: The pie has gotten smaller. But I still believe that that said there’s certain cuts to get to the product we need to re-energize and focus on and we missed on the transition from we had these Reaction footwear product in both men’s and women’s that we missed it, we owned it, we transitioned too late and/or too early. It set us back a little back.

Jeff Van Sinderen (B. Riley & Company, Inc.): Is it too early at this point to talk about some of the things you are focusing on for international initiatives?

Kenneth D. Cole: The opportunity is significant, the brand we have come to learn it has awareness and viability in markets we did not believe it did and we are contemplating studying the options and our alternatives and we will be getting back to you.
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