Kenneth Cole Q3 Profit Doubles on Improved Sales

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New York–Kenneth Cole Productions Inc. reported today that its third quarter profit more than doubled from last year on higher sales and lower expense costs.

The company also raised its fourth quarter earnings forecast ahead of analysts’ expectations.

For the quarter ended Sept. 30, Kenneth Cole posted net income of $5.8 million, or 31 cents a share, up from $2 million, or 11 cents a share in the same period a year ago. Operating income increased 157% to $5.9 million vs. $2.3 million a year ago.

Net revenues increased 7.5% to $128 million from $119 million last year. Wholesale revenues were up 27.5% to $79.7 million, driven by the launch of Kenneth Cole New York women’s sportswear and increased doors in Reaction men’s sportswear, the company said.

While the company beat analysts’ average estimate earnings of 22 cents a share, it missed analysts’ projection for $137 million in sales.

Expansion into India

In its Consumer Direct division, revenues decreased 18.8% to $36.5 million versus the year-ago period due to the closing of unproductive full-priced stores and a comparable store sales decline of 10.1%.

Licensing increased 2% to $11.8 million versus $11.5 million in the year-ago period. Excluding the transition of Kenneth Cole New York women’s sportswear to a wholesale business, licensing revenues would have increased 6.6%, the company reported.

Selling, general and administrative expenses dropped to $42.3 million from $48.3 million. Gross margin declined 480 basis points to 37.7% versus the third quarter last year which the company expected due to higher sourcing costs and a “substantial mix shift in revenues.” Wholesale, which operates at a lower gross margin rate than retail, grew to 62.3% of total revenues versus 52.5% a year-ago.

“We are now implementing specific strategic initiatives to improve our product and the effectiveness of our marketing,” said Paul Blum, ceo. “We are pleased to have generated both sales growth and an increase in profitability during the quarter. We are energized by this traction and expect ongoing gradual progress.”

Looking ahead, the company now expects fourth quarter earnings of 37 cents to 39 cents a share on a mid-single digital percentage sales increase. Analysts’ average estimate forecast earnings of 26 cents per share.

In other news today, Kenneth Cole Productions reported it signed an exclusive license with Reliance Brands Ltd. to open some of its Kenneth Cole New York stores inIndiaand distribute its products to certain department stores there. Terms were not disclosed.

The agreement includes opening five stores in India over the next three years, with plans for 20 more in the following five years.

“Indiapromises substantial growth potential for our brand, the country’s economy is growing quickly and development is strong,” Blum said.

The launch will initially include the opening of dual gender retail stores in major cities acrossIndia. Categories will include men’s and women’s footwear, apparel and accessories under the Kenneth Cole New York and the Kenneth Cole Reaction labels.

Reliance Brands Ltd., which started in 2007, has Joint Ventures with Ermengildo Zegna, Diesel, Paul & Shark, along with long term Distribution and Licensing agreements with Timberland, Quiksilver, Roxy and Steve Madden for the Indian market.


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