The Warnaco Group, Inc. Earnings: Margins Shrink

The Warnaco Group, Inc. (NASDAQ:WRC) reported its results for the first quarter. Warnaco Group, Inc. designs, sources, markets, licenses and distributes a line of intimate apparel, sportswear and swimwear worldwide.

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The Warnaco Group Earnings Cheat Sheet for the First Quarter

Results: Net income for The Warnaco Group, Inc. fell to $44 million (98 cents/share) vs. $48 million ($1.02/share) a year earlier. A decline of 8.2% from the year earlier quarter.

Revenue: Rose 12.6% to $662.2 million YoY.

Actual vs. Wall St. Expectations: WRC reported adjusted net income of of $1.10/share. By that measure, the company beat the mean estimate of 86 cents/share. Estimates ranged from 71 cents per share to 93 cents per share.

Quoting Management: “I am pleased with our first quarter results, where we experienced powerful revenue growth, while we continued to invest in the future of our business,” commented Joe Gromek, Warnaco’s President and Chief Executive Officer. “SG&A increased 20% compared to the prior year quarter, as we expanded our Calvin Klein business, grew our owned retail (operating an additional 240,000 square feet of retail space compared to the prior year quarter, including approximately 50,000 square feet of new retail opened or acquired this quarter) and successfully implemented our largest product launch ever, ck one. These investments are expected to drive net revenue growth and translate into strong operating results over the course of the year.”

Key Stats:

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the fourth quarter of the last fiscal year, net income rose 74.1% from the year earlier while the figure increased 39.9% in third quarter of the last fiscal year, 68.5% four quarters ago and 27.7% five quarters earlier.

Gross margin shrunk 0.8 percentage point to 44.6%. The contraction appeared to be driven by rising costs as the figure rose 14.3% from the year earlier quarter while revenue rose 12.6%.

Over the last five quarters, revenue has increased 13.5% on average year over year. The biggest increase came in the fourth quarter of the last fiscal year, when revenue rose 17% from the year earlier quarter.

Competitors to Watch: Tefron Ltd. (TFRFF), Polo Ralph Lauren Corp. (NYSE:RL), Delta Galil Industries (DELTY), Hanesbrands Inc. (NYSE:HBI), Phillips-Van Heusen Corp. (NYSE:PVH), Wacoal Hldgs. Corp. (NASDAQ:WACLY), Thai Wacoal Public Co. Ltd. (WACOAL), CALIDA Holding AG (CALN), and Caely Holdings Berhad (CAELY)

Stock Performance: Shares of WRC are unchanged from the previous close.

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