Kenneth Cole Q2 Profit Slows, Expects Better Q3

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New York—Kenneth Cole Productions reported today that while its second quarter profit faltered as sales slipped, the company expects a much improved earnings by the end of its third quarter.

For the quarter ended June 30, Kenneth Cole reported a profit of 3 cents a share, compared with 5 cents a share a year ago.

Forecasts 15% Sales Increase for Q3

Revenue dropped 5.3% to $102.2 million. Although the earnings were actually 2 cents a share higher than analysts’ average estimate for 3 cents a share, sales figures missed analysts’ average estimate for $109.7 million.

The company reported operating income of $1.1 million, flat versus the year-ago quarter. Gross margin declined 310 basis points to 40.6% versus the second quarter last year, a result of higher sourcing costs, increased promotion to clear inventory, and a shift in mix as wholesale became a larger percentage of total sales.

“Although second quarter results were consistent with our short-term expectations, we are by no means satisfied and are dedicated to improving every aspect of our business,” said Paul Blum, Kenneth Cole’s recently appointed ceo. “We are focused on creating great product, more effective marketing and improving the performance of our operating segments across the board.”

By division, the company’s wholesale revenues were flat at $52 million versus the year-ago period.  Its consumer direct revenues declined by 11.5% to $39.6 million versus the year-ago period, due to the closing of unproductive full-priced stores and a comparable store sales decline of 1.7%.  Licensing revenues in the second quarter declined to $10.6 million versus $11.1 million in the year-ago quarter.  Excluding royalties from a now terminated Le Tigre license, licensing revenues were up 4.5%.

Looking ahead, the company expects growth in the third quarter. Earnings estimates forecast a profit of 29 to 31 cents a share on an estimated 15% sales growth.  Analysts’ average estimate expects a profit of 21 cents a share.

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