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Innovo Warns on Fourth Quarter

The jeans company sees a denim glut.
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posted a solid third quarter but slashed fourth-quarter guidance, citing an inventory buildup in the denim industry.

The Los Angeles-based jeans company earned $1.5 million, or 4 cents a share, in its third quarter on a continuing operations basis. That's down from the year-ago $2.3 million, or 8 cents a share. Sales rose 1% from a year ago to $36 million.

But the company said fourth-quarter numbers would disappoint. Innovo had previously forecast a nickel-a-share profit for the year on sales of $115 million, but it said late Tuesday it would break even for 2005 on sales of $108 million. That means the company expects to lose money on sales of around $19 million for the fourth quarter. Analysts surveyed by Thomson First Call were expecting a 2-cent-a-share profit on sales of $28 million.

"As we move into the fourth quarter, we are seeing certain segments of the denim marketplace or specific retailers within certain segments that have what we believe are short-term inventory buildups that may result in the current selection of denim products exceeding the current consumer demand for those specific styles or fashion trends," said CEO Jay Furrow. "Because we believe that the overall demand is still strong, we expect that retailers will work through their inventories over the fourth quarter. However, we are anticipating that this buildup in the marketplace will have a negative impact on the company's private label division and will limit the revenue growth of the company's indie branded division during the fourth quarter."

On Tuesday, Innovo rose 7 cents to $1.89.