chairwoman and chief executive, is letting very little come between her and her Calvins.
In its most recent fiscal year ended Jan. 2, Warnaco sold some $900 million of
sportswear, undergarments and accessories, which accounted for 47% of Warnaco's $1.95 billion in total sales. That makes Warnaco one of the only ways for fashion-minded investors to get a piece of the closely held Calvin name.
The buck doesn't stop with Calvin. Warnaco also sells sportswear under the
Chaps by Ralph Lauren
name, and it has a lucrative intimate apparel business under the
Fruit of the Loom
names. Warnaco claims one in every three women wear its bras and one in every four wear its panties -- not bad for items that most women purchase in multiple quantities.
With the stock trading at closeout prices by almost any measure, some investors say Warnaco is a better bargain than
One Day Sale.
"It's absolutely a value play," says Tom Gruber, an analyst with
T. Rowe Price
, which owned 3.9 million shares of Warnaco as of Sept. 30, the most recent information available from data tracker
New York-based Warnaco has taken its share of lumps in recent quarters. The collapse of Asia and Russia crimped fourth-quarter sales, which declined by 2.2% to $548 million. And Warnaco has a penchant for taking restructuring charges, which makes it more difficult for investors to get a good handle on a company's true earnings. Investors are leery of restructuring charges because they create the possibility for management to artificially boost earnings by classifying ongoing expenses as one-time events.
But unlike companies that simply restructure existing businesses, most of Warnaco's charges have resulted from acquisitions that required streamlining. Warnaco also has taken charges to close facilities as it moves the bulk of its factories offshore -- a strategy considered necessary by most U.S. manufacturers that want to remain competitive.
"Nobody likes to see a lot of restructuring charges at a company, and they did impact the multiple of the stock," Huber concedes. But he adds: "The valuation is attractive by almost any measure. What you're paying takes into account any concerns."
Warnaco is trading at just 8.7 times the
consensus estimate of $2.63 for its current fiscal year, a 16% increase over the prior year. The average
Standard & Poor's 500
stock, by comparison, is trading at 25 times 1999 earnings, which analysts expect to grow about 17%, according to First Call. Price-to-sales, another value measure when less than 1, is 0.70.
Most recently, one of the largest concerns has been Asia. Since fears surfaced last summer that the region's problems would hurt the company's sales, Warnaco's stock has slid 46%. It closed up 1/8 at 23 7/8 Friday -- not far above its 52-week-low of 18 1/2.
Not one for passing up opportunities, Wachner is experimenting with a way to cull profits from the Asia's depressed economy. Realizing that department stores in Japan, Korea and Hong Kong would likely see stagnant demand for some time, Wachner decided to skirt the typical distribution. Warnaco opened a free-standing Calvin Klein underwear store in Hong Kong, and so far the results have been impressive. Wachner says the store is on pace to gross more than $1,000 in sales per square foot. That's double what
, one of the most productive retailers, generates on average.
"I didn't expect sales" to be that strong, Wachner says. "Even in the middle of a recession, it gives us a good feeling that going forward we should be able to develop 20 of our own free-standing stores in the region."
Back in the U.S., Warnaco continues to expand its hold on intimate apparel. Last year it owned 37.5% of the $39 billion department and specialty-store bra business, up from 34% the year earlier, according to market researcher
But Todd Slater, an analyst at
, says the real growth should come from discount stores, which accounted for just 2% of Warnaco's sales last year. "Warnaco's intimate apparel has an as of yet untapped opportunity in discount chains," he says. He rates the stock a buy and his firm hasn't performed recent underwriting for Warnaco.
To that end, Warnaco will begin selling girdles under the
during July. Wachner expects the brand to grow to $75 million in annual sales in three years.
Although Wachner has a habit of making aggressive promises about Warnaco's potential growth, she often exceeds her goals. Take the Calvin Klein jeans business. When she bought the brand in 1997, its distribution was a mess. The high-end label was selling in discount stores, which tarnished its appeal. After scaling back distribution to upscale department and specialty stores, Wachner said she'd grow the label from $400 million in 1997 to more than $500 million by 2000. She now expects to exceed that target by $100 million this year.
"A surprise of a few pennies in the next few quarters should ignite the stock," says Michael Gardner, a portfolio manager with
Wedge Capital Management
, which has been adding to its position since December and now owns 700,000 Warnaco shares.
Indeed, Wall Street gave the stock a boost for merely meeting its fourth-quarter estimates. Warnaco shares gained 8.4% earlier this week after the company reported that it earned $47.3 million, or 78 cents a share, for the period, excluding one-time charges. That compares with $36.7 million in net income, or 61 cents a share, a year earlier.
Wachner says she is comfortable with analysts' estimates for the current year, which exclude the possibility of future acquisitions. Warnaco recently bought a 70% interest in
, a U.K.-based retailer of scented products that Wachner plans to turn into an upscale version of
chain by adding her company's lingerie. She also said she's looking to make an acquisition in Latin America, given that region's depressed valuations.
"Management has repeatedly shown that it'll do whatever it takes to keep this company on the right track," says Gardner at Wedge Capital. Case in point: The company recently announced a 10 million share buyback, which accounts for 16.6% of the company's 60 million shares outstanding.
Given that Wachner is the largest shareholder, investors are encouraged to have such a determined ally on their side.