Kenneth Cole Productions, Inc. (KCP)
Q1 2010 Earnings Call Transcript
May 5, 2010 8:30 a.m. ET
James Palczynski - IR, Integrated Corporate Relations, Inc.
Jill Granoff - CEO
David Edelman - CFO and Treasurer
Jeff Van Sinderen - B. Riley
Scott Krasik - BBT Capital Market
Ken Stumphauzer - Sterne Agee
Janet Kloppenburg - JJK Research
Previous Statements by KCP
» Kenneth Cole Productions, Inc. Q3 2009 Earnings Call Transcript
» Kenneth Cole Productions, Inc. Transcript
» Kenneth Cole Productions Inc. Q1 2009 Earnings Call Transcript
Good day, ladies and gentlemen, and welcome to the first quarter 2010 Kenneth Cole earnings conference call. My name is [Katie] and I will be your coordinator for today. At this time, all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator Instructions) I would like to now hand the call over to your host for today, Mr. James Palczynski. Please proceed.
Good morning, everyone. Before we get started, I’d just like to remind you of the company’s forward-looking statement disclosure. Statements made in today’s conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual future results might differ materially from those projected in such statements, due to a number of risks and uncertainties, including but not limited to, demand and competition for the company’s products; the ability to enter into new product license agreements or to renew or replace existing product license agreements; changes in consumer preferences or fashion trends; delays in anticipated store openings; and changes in the company’s relationship with retailers, licensees, vendors and other resources.
The forward-looking statements contained in today’s call are also subject to other risks and uncertainties that are described in the company’s reports and registration statements as filed with the Securities and Exchange Commission.
With that out of the way, I'd like to turn the call over to Jill Granoff, Chief Executive Officer.
Good morning and thank you for joining us to review our first quarter fiscal 2010 results. With me today is David Edelman, our Chief Financial Officer. I'm pleased to report another strong quarter of operating improvements.
EPS was up compared to first quarter 2009 and first quarter 2008. Our gross margin increased sharply from last year and we realized significant expense leverage from our streamlining initiatives. We further reduced inventory and expenses in the quarter resulting in increased cash.
Perhaps most important, we have returned to growing our topline sales with increased in retail, wholesale and licensing. In fact, this is the first time in nearly five years that we have experienced growth in each of our business segments simultaneously.
This solid performance across the board enabled us to exceed our original expectations. Here are a few highlights from the quarter.
Net revenues in the first quarter grew 6% to $110 million. Excluding businesses exited in 2009, our revenues were up over 9%. Gross profit margin increased nearly 800 basis points to 41.6% of revenue with gross margin dollars up over $10 million versus last year.
SG&A expenses improved more than 500 basis points to 40.7% of revenue with expenses down roughly $3 million versus last year. Earnings per share were $0.10 during the first quarter compared to a loss of $0.46 in the prior year's period.
Our balance sheet also remains strong. Inventory was $35 million, down 20% versus the prior year's level. Our continued focus on inventory management was one of the key drivers of our outstanding margin performance.
Cash at the end of the quarter was $66 million, up $20 million versus last year and we continue to operate with no long-term debt.
Our financial performance reflects the improvements we have made to merchandise assortments, the enhanced price value of our products, ongoing inventory and expense management and an improving retail climate. We are beginning to unlock our brand potential and feel increasingly confident about our near-term opportunity to improve both our wholesale and consumer direct businesses.
In our wholesale business we're seeing an upward trend in our footwear lines with better [inaudible] retail resulting in better margins. Wholesale growth was approximately 7% in the first quarter, excluding the businesses we exited over the course of the past year. We expect continued improvements in our wholesale business based on double-digit increases in EDI deliveries and backlog.
While we have some easy comparisons against last year because of retailer destocking at that time, these are still very good trends.
We continue to move forward con some key wholesale initiatives. During the quarter we launched our 925 women's footwear line with unique patented comfort technology into key doors at Nordstrom. Initial sell through results are strong.
Additional doors will be added at Nordstrom this fall and we also expect to add a few top quality accounts. Kenneth continues to lead and drive this important initiative to recapture our footwear leadership.
Our reaction footwear business for men and women also saw healthy growth during the quarter. Turning to men's sportswear, remember, this is both a wholesale business and an important piece of our consumer direct assortment and men's sportswear continues to gain tractions.
Our initiative to create an exclusive reaction men's sportswear collection for Macy's is proceeding very well. This will be incremental business for us and we are excited to see the launch plan expanded to 200 doors from the original plan of 150 doors.
The sample product looks spectacular. It has broad commercial appeal. It is brand right and it will deliver great price value to consumers at attractive margins. We are now in the process of developing our marketing programs and in-store visual presentations.