Outdoor financials: Kellwood net earnings drop 50 percent, plus Deckers, Saucony, Quiksilver, Eddie Bauer

Kellwood net earnings drop 50 percent
Kellwood Company (NYSE: KWD), parent of Kelty and Sierra Designs, saw its net earnings for the first quarter of 2005 drop 50 percent to $12.5 million, or $0.45 per diluted share versus $25 million, or $0.90 per diluted share last year. Kellwood said the drastic drop was the result of lower sales, a 1.5 percentage point reduction in gross profit as a percent of sales, and higher net interest expense.

Sales were also down to $639 million compared to $686 million in 2004. Kellwood said all of the year-to-year decrease in sales occurred in its portfolio of popular-to-moderately priced brands, labels and private label programs which reported a $58 million, or 10 percent drop in sales for the first quarter. Approximately one half or $26 million of this decrease was in the dress category, which was planned due to continued softness in the dress market.

Analysts said they were expecting first-quarter earnings of 44 cents a share on revenue of $644 million.

Although Kellwood said it ended the quarter with a strong balance sheet, its total debt was $470 million versus $290 million last year. The increase was due to the issuance of a $200 million 3.5 percent convertible debenture in June 2004, it said.

For the second quarter it expects sales to be in the range of $570 million versus $560 million last year. Net earnings are expected to be in the range of $10.5 million, or $0.38 per diluted share versus $10.2 million, or $0.36 per diluted share last year.

Shares of Kellwood fell $1.19, or 4.5 percent, to $25.26 on the New York Stock Exchange, approaching its year-low of $24.40. The stock is down about 26 percent so far this year. Morgan Keegan & Co. lowered its recommendation on Kellwood to “underperform” from “market perform,” and UBS downgraded to from “buy” to “neutral.”

The board of directors declared a regular quarterly dividend of $0.16 per common share, payable June 24, 2005, to shareholders of record June 13, 2005.

In other news, Chairman Hal Upbin is relinquishing his CEO title and Robert Skinner will take it on in addition to his current position of president. Upbin will remain as chairman through Jan. 31, 2006. Following his retirement, Upbin has agreed to a three-year consulting agreement to advise Kellwood in specific areas including mergers and acquisitions, strategic planning and operational projects. Skinner was elected to the Kellwood board of directors in June 2004, and president and COO in December 2003.

W. Lee Capps adds the post of chief operating officer to his current role of chief financial officer. Capps formerly had held the post of EVP finance and CFO since December 2003. Also, Thomas Pollihan was named executive vice president in addition to his current position of secretary and general counsel, and Gregory Kleffner has been appointed a corporate officer and vice president finance in addition to his current role of controller.

Deckers revises Q2 and FY 2005 due to sales dip blamed on weather
Unseasonably cold weather affecting its Teva business is causing Deckers Outdoor Corp. (Nasdaq: DECK) to revise sales and earnings guidance for the second quarter and FY 2005.

Deckers now expects to report net sales in the range of $38 million to $39 million and diluted earnings per share between $0.15 and $0.18, compared to its previous guidance of net sales between $40 million and $41 million and earnings per diluted share between $0.28 and $0.30. For FY 2005, the company said it now expects to report net sales of $248 million to $258 million and earnings per diluted share between $2.32 to $2.43, compared to its previous guidance of net sales between $250 million and $260 million and earnings per diluted share between $2.45 and $2.55.

Analysts had expected 29 cents per share for the second quarter on revenue of $40.49 million, and $2.47 per share for the year on revenue of $256.29 million. After the announcement, its shares dropped $1.54 — about 6.6 percent — to $21.90 during morning trading on the Nasdaq. The stock has been trading in a 52-week range of $20 to $49.

Deckers also said as the selling season for sandals comes to an end, it is discounting selected Teva styles, which will also adversely affect its projected gross margin.

Despite the setbacks, Deckers Chairman Doug Otto said, “We remain very comfortable with our outlook for the second half of the year as demand for Ugg continues to be strong, orders are booked and the response to our new fall UGG product line has been very positive across the board.”

Monarch Research downgraded Deckers from buy to hold after the news.

Stride Rite to purchase Saucony
Hind’s parent Saucony (NasdaqNM: SCNYA and SCNYB) has been picked up by Stride Rite Corp. for $170 million — about $23 a share.

Taking into account cash reserves at Saucony, Stride Rite said the deal would cost it about $140 million. Stride Rite is funding the acquisition entirely in cash, although the company will incur some long-term debt, it reported. Stride Rite also said it expects the transaction to add to earnings and cash flow in 2006, excluding one-time costs.

The two companies have little overlap has Saucony targets serious runners and also includes Spot-bilt workplace shoes and Hind athletic apparel, while Stride Rite sells shoes under the Keds, Sperry Top-Sider, Tommy Hilfiger and Grasshoppers names.

“This transaction combines two leading footwear companies with strong balance sheets and cash flows, similar corporate cultures, and shared roots in the greater Boston area dating back to the early 1900s,” said David M. Chamberlain, Stride Rite’s chairman and CEO, in a statement. Stride Rite’s Lexington headquarters is just 21 miles from Saucony’s offices in Peabody.

After news of the acquisition, Saucony’s shares rose $3.30, or 17 percent, to close at $22.65 on the Nasdaq, where the stock has traded in a 52-week range of $18.53 to $29. Shares of Stride Rite rose $1.46, or 12 percent, to close at $13.50 on the New York Stock Exchange, where the stock has ranged from $9.60 to $13.98 the past year.

The cash deal comes 10 months after Saucony hired an investment bank to help it consider strategic options including a possible sale. Its sales rose 22 percent last year to $166 million, compared with $558 million for Stride Rite. Saucony’s net income rose 23 percent last year to $10.4 million.

The companies expect the transaction to close in the summer, subject to shareholder and regulatory approval.

Quiksilver exceeds expectations in Q2 for 14th consecutive quarter
Quiksilver (NYSE: ZQK) — the proposed future home of the Rossignol Group — beat analyst earnings expectations by a penny a share in the second quarter.

Consolidated net income for the second quarter increased 25 percent to $34.7 million as compared to $27.8 million the year before. Second quarter fully diluted earnings per share was $0.28 versus $0.24 in 2004, both amounts as adjusted for the two-for-one stock split that took effect in May 2005. Consolidated net revenues increased 32 percent to $426.9 million as compared to $322.6 million in 2004.

Quiksilver said profit was up lifted by stronger sales both domestically and in Europe. Net revenues in the Americas increased 34 percent during the second quarter to $199.2 million versus $148.5 million last year. European net revenues increased 26 percent to $176.3 million from 2004’s $140.3 million. Asia/Pacific net revenues increased 52 percent to $50.3 million compared to $33.2 million in 2004.

Also, consolidated inventories rose 40 percent to $177.8 million at the end of April, with inventory levels up 36 percent on a constant-dollar basis, the company said.

Bernard Mariette, president of Quiksilver, said in a statement, “Today in France, we have launched our tender offer to acquire the publicly traded shares of the Rossignol Group. The plans we are developing for the integration of our two groups are very exciting. I can’t speak now about them in detail, but there are many things to share once the transaction closes, which we expect at the end of July. Both the Quiksilver and Rossignol teams are strongly embracing our vision to become the number one company in the global outdoor market.”

Spiegel bankruptcy odyssey approaches end
The court system has given Spiegel Inc. the green light to exit bankruptcy and transfer ownership of the company to Commerzbank AG and other unsecured creditors.

Spiegel’s creditors overwhelmingly voted in favor of the plan, which allows the company to exit bankruptcy and begin paying creditors by June 17. Spiegel, which owns the Eddie Bauer clothing chain, will emerge from bankruptcy renamed Eddie Bauer Holdings Inc. and will continue to sell clothing.

Its plan is to close 34 furniture stores and eliminate about 700 jobs, or 8 percent of its workforce, according to court papers. Spiegel has said it will try to place up to half of those employees in other positions.

The unsecured creditors are owed more than $1.3 billion, and will receive all of the equity in the reorganized company, recovering roughly 91 cents on the dollar. When the company emerges from bankruptcy, Hamburg-based Otto GmbH, a former owner of Spiegel, will no longer own an interest in the company. Spiegel shareholders, who occupy a lower priority level than creditors under bankruptcy law, will not be compensated.

Spiegel projects 2005 revenue of $1.1 billion, a 5.5 percent decrease from 2004. The company predicts revenue will increase to almost $1.2 billion in 2006, according to court papers. It filed for bankruptcy in March 2003 after declining sales and credit card defaults left it with $1.7 billion in debt.

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