Wholesale Gains Push Kenneth Cole into Q4 Profit

In What's New, Industry News by Accessories Staff

New York—Thanks to a 47% jump in its wholesale revenue, Kenneth Cole Productions Inc. swung to a fourth-quarter profit today.

For the quarter ended Dec. 31, the company reported net income of $7.95 million, or 43 cents per share, versus a net loss of $2.7 million, or 15 cents per share, a year ago.

Total revenue rose 8.3% to $131.2 million from $121 million a year ago. Its wholesale revenue increased 47% to $62.3. Direct to consumers sales fell 16.6% to $54.7 million after the company closed several stores earlier in the year.

The company said that more than 75% of the sales increase was driven by Kenneth Cole New York women’s sportswear wholesale, increased doors in Reaction men’s sportswear and a one-time special holiday handbag program.

Licensing were up 10% to $14.2 million versus $12.9 million in the year-ago period, driven primarily by higher than anticipated inventory purchases by one international licensee.

But the company’s gross margin declined to 41.2% from 43.5% a year ago due to higher sourcing costs and the large wholesale revenues which are at a lower profit margin than its retail business.

On Cole’s Bid to Go Private: ‘Sweeten the Deal’

Kenneth Cole made a bid last week to take his namesake company private

What effect this quarters earnings will have on the company’s stock price will be closely watched over the next few days. Especially following last week’s news that Kenneth Cole, chairman and chief creative officer, put in a bid to buy the company’s outstanding shares for $15 a share to take the company he founded private.

Cole, who owns 47% of the outstanding shares and controls 89%, made a bid that would value the company at about $280 million. Since then analysts and even company shareholders have grumbled that Cole’s bid is too low.

For example, Bloomberg compiled data that “after the company lost almost half its market value in the past five years, the proposal valued Kenneth Cole at 3.7 times its estimated earnings before interest, taxes, depreciation and amortization.”

If Cole’s current bid is accepted, it would be the “cheapest takeover” in the fashion industry at a time when analysts project a rebound in profitability from an all-time low. And WallachBeth Capital LLC said Cole will probably have to raise his bid to win enough votes.

“Kenneth Cole is worth almost 20% more using historical premiums, a price that still lets Cole take the retailer private at a discount to the median Ebitda multiple,” Bloomberg reported.

“The market is saying, ‘Kenneth, you have to sweeten this deal in order for us to go along,’” Steven Marotta, an analyst at CL King & Associates, told Bloomberg News. “Based on what their projections are for the back half of this year, is it possible they are getting a crazy, unbelievable valuation for the company at $15? Yes.”

Cole has declined comments on his bid.

For its full fiscal year, Kenneth Cole Productions reported a net loss of $2.9 million, or 16 cents per share, versus net income of $2.1 million, or 11 cents per share, in 2010. Revenue rose 4.8% to $479 million from $457 million.

 

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