Updated from 11:06 a.m. EDT

Some favorable retail trends and a suprisingly profitable first quarter put a charge in

Tommy Hilfiger's

(TOM)

stock Tuesday, but it wasn't enough for the clothes seller to turn positive about the rest of its fiscal year.

The company reported a profit of $17 million, or 19 cents a share, in the first quarter ended June 30, compared with a loss of $438.8 million, or $4.88 a share, last year. The latest period included a pretax gain of 8 cents a share related to a settled lawsuit. Last year's big loss was the result of an accounting charge.

Before the gain, Tommy earned $9.8 million, or 11 cents a share, compared with $2.6 million, or 3 cents a share, last year. Analysts were expecting a profit of 4 cents a share. Revenue was $367.2 million, up from $366.3 million last year.

Shares rose about 9%, or 95 cents, to $11.20 in early afternoon trading Tuesday.

"We are pleased with our results for the quarter and encouraged by continued improvements in retail selling in men's sportswear and jeans and missy sportswear, which we have been experiencing since mid-April," said Joel Horowitz, outgoing chief executive and current chairman, in a written statement. The company

named a Lands' End executive as its CEO on Monday, replacing Horowitz.

Looking ahead, however, the company doesn't expect the improved retail trends "to result in increased retailer orders until significant signs of improved consumer apparel spending are evident." But the company still said it is focused on growth, which could be aided by its thriving European segment.

Tommy said European demand is strong and that it will enhance its presence there via new licensing arrangements and new stores. In the quarter, Tommy Europe had revenue of $36.8 million, up from $19.6 million last year. The company attributed about $7 million to the translation of the stronger euro.

The company had a strong quarter in Europe, even if the currency benefits are taken out, J.P. Morgan analyst Noelle Grainger said in a Tuesday research note. (Since May 8, J.P. Morgan has been a financial adviser to Tommy on possible brand acquisition.)

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"Our current retail performance with our customers and in stores

in Europe continues to meet and exceed plan, and our future bookings going into the fall holiday season and beginning of spring are very encouraging," Horowitz said in a conference call. "Europe continues to meet expectations for us, which is high-double-digit growth." The company said it sees at least 20% growth in European revenue for the current year.

Still, the company's European business is only about 20% of its overall business, and ultimately the company must focus on the U.S., said analyst Lee Backus of Buckingham Research Group, who holds no shares of the company. "Their main focus is right-sizing their business, but we don't know what that right size is yet."

The bottom line is that the company needs to be smaller, Backus said, and Tommy's first step should be to decrease promotional activity.

The company currently sees total earnings of $1.07 a share for the last three quarters. The breakdown, however, differs from analysts' current estimates, mostly because the third quarter's results are seen being affected by U.S. order reductions, Tommy said.

Specifically, the company expects second-quarter earnings per share of 55 cents to 59 cents, third quarter EPS of 10 cents to 14 cents, and fourth-quarter EPS of 35 cents to 39 cents. Analysts are calling for EPS of 50 cents, 32 cents and 25 cents, in the second, third and fourth quarters, respectively.

"The quarterly guidance is quite different than expected with the second quarter and the fourth quarter (Europe's strongest) better than expected and the third quarter (Europe's weakest) far below expectations -- highlighting to us the continued weakness in the U.S. business and how important Europe is to the outlook," wrote J.P. Morgan's Grainger, who has an underweight rating on the company.

"Actions we are taking to better balance supply and demand and reduce price adjustments are resulting in lower volume in the second half of the year," Horowitz said on the call.

Revenue for 2004 is expected to be below 2003's $1.88 billion, the company said. Analysts are expecting 2004 sales of $1.74 billion and second-quarter, third-quarter and fourth-quarter sales of $520.58 million, $432.98 million and $433.92 million, respectively. Sales were $546.5 million in the second quarter last year, $477.3 million in the third quarter and $498 million in the fourth.

Additionally, the company said in a press release it plans to bring the "H" Tommy Hilfiger label, a dressy line, to

Federated Department Stores

in spring 2004. "Our entrance into the dressier side will help department stores differentiate themselves from each other," said Horowitz.