Outdoor financials: Kellwood to exit private label business, cuts '05 guidance, plus Timberland, Columbia, Cabela's, Quiksilver/Rossignol, Johnson Outdoors, Rocky, Saucony, Wellman, West Marine, GSI

Kellwood to exit private label business, cuts ’05 guidance
Kellwood (NYSE: KWD), parent of Sierra Designs, Kelty and Wenzel, said it is exiting the private label business to cut costs and focus on its consumer lifestyle brands. Also, it lowered its 2005 earnings guidance for the second quarter and fiscal year to lower operating losses next year.

Kellwood said it will exit its Kellwood Private Label menswear, Intimate Apparel Group and Kellwood New England labels, reducing its operating divisions to 11 from 14. The company expects the restructuring will cost $155 million, or $5.51 per share, and will lower sales by about $335 million. The company expects to book $110 million of the restructuring charge, or $3.91 per share, in the second quarter and the rest in the second half.

“Our decision to exit non-strategic businesses represents an important step in a series of initiatives that we believe will help re-establish Kellwood as a premier marketer of branded apparel and related soft goods,” Kellwood’s President and CEO Robert Skinner Jr. said in a statement. “We expect that these actions will allow us to better focus our resources to further build our existing portfolio of lifestyle brands and effectively pursue additional growth opportunities in the marketplace.”

Looking ahead, Kellwood now expects second-quarter profit of about $600,000, or $0.02 per share, excluding a tax benefit and repatriation of foreign earnings. This compares to previous guidance for higher profit of $10.5 million, or $0.38 per share. Sales are expected to be between $560 million to $570 million.

Kellwood said it plans to repatriate about $150 million in foreign earnings during the second quarter. This will cause a one-time tax benefit of about $13 million, or $0.46 per share, in the period.

If the restructuring were already completed, Kellwood expects second-quarter earnings would have been $5.3 million, or $0.19 per share.

For fiscal 2005, the company projects earnings of $37 million to $38 million, or about $1.35 per share excluding items. If the restructuring plan was already completed, the company projects profit would be $43.5 million, or $1.55 per share. The company had previously forecast much higher earnings of $68.5 million, or $2.38 per share. Full-year sales are projected to come in at about $2.43 billion.

Additionally, Moody’s Investors Service downgraded Kellwood Co.’s ratings to Ba2 from Ba1, revising its outlook from stable to negative. Moody’s said the downgrade reflects the apparel maker’s repeated difficulties in launching new products, ongoing weakness in its key dress business, and the expectation of continued weakness in operating results, indicated by repeated restructuring charges and earnings surprises.

In other company news, Kellwood also announced a stock repurchase program to buy up to 10 percent of the outstanding shares of its common stock through open market or privately negotiated transactions. The board of directors has approved the investment of up to $75 million using its cash balances.

Timberland Q2 earnings come up short
A down second quarter with estimates of a flat third quarter saw Timberland’s (NYSE: TBL) stock tumble $4.58, or 11.5 percent, to close at $35.18 on the New York Stock Exchange. The stock traded as low as $34.31 earlier in the session.

For the second quarter, the company said earnings declined to $6.3 million, or $0.09 a share, from $7.9 million, or $0.11 a share, a year ago. Second-quarter revenue increased 4.4 percent to a record $240.3 million, driven by gains in international markets which offset moderate declines in the United States.

International results (+14.9 percent or +10.8 percent in constant dollars) were driven by strong constant dollar sales gains in Europe and Asia. U.S. revenues declined 2.5 percent, as the company said it anticipated decreases in footwear sales offset double-digit gains in Timberland apparel. Overall revenue growth benefited from favorable foreign exchange rate changes, adding $3.7 million (or 1.6 percent) to its second quarter revenue.

The company also said second-quarter results were supported by global gains in footwear and apparel and accessories. Global footwear revenues expanded 2.4 percent to $177.6 million, driven by growth in outdoor performance, kids’, Timberland PRO series and men’s casual footwear. Global apparel and accessories revenue grew 9.0 percent to $59.6 million, reflecting gains in U.S. and international markets. Women’s causal footwear did well internationally, but was on the decline in the United States.

Revenue growth was balanced by channel. Global wholesale revenue expanded 4.4 percent to $168.8 million. Worldwide consumer direct revenue also expanded 4.4 percent to $71.5 million, supported by a 0.7 percent increase in global retail comparable store sales.

Jeffrey Swartz, Timberland’s president and CEO, said in the company’s earnings conference call that the company is extending its brand growth platforms with two initiatives: the extension of the Timberland Boot Company and Mion, a watersports shoe line venture with Martin Keen.

With the Timberland Boot Company, it is looking to capture the underserved “blenders” customer — a younger, more style-conscious consumer. To address their needs, Timberland is opening two stores in Europe, the first in London this August.

The second initiative — Mion with designer Martin Keen — is a new venture and the first time the company has created a brand independent of the Timberland identity. (See SNEWS® story, July 25, 2005, “Martin Keen launches Mion with Timberland backing — his second footwear launch.”) Swartz said the company is taking its capabilities and someone else’s idea and blending together for a new brand proposition. “Mion is a better proposition than Timberland Mion,” he told analysts during the call. He added that the company would like to explore more ventures like this in the future.
 
For the remainder of the year, Timberland said it continues to target low to mid single-digit revenue growth and is anticipating relatively flat operating profits in its base business. It expects that the third quarter will be the more challenging quarter from a profit perspective, driven by expected pressure on U.S. sales and gross margins that will likely yield an overall decline in Timberland’s third quarter gross margin in the range of 100 basis points.

Columbia’s net income down 41.4 percent
Columbia Sportswear’s (Nasdaq: COLM) net income for the second quarter dropped 41.4 percent to $6.3 million, or $0.16 pershare, as a result of floundering outerwear sales and increased costs. In 2004, the company’s net income was $10.7 million, or $0.26 per share.

Net sales were up 8.8 percent to $186.2 million from $171.1 million last year.

Compared to the second quarter of 2004, other international sales increased 44.7 percent to $40.8 million, U.S. sales increased 4.2 percent to $110.3 million, European sales increased 3.7 percent to $25.4 million, and Canadian sales decreased 22.4 percent to $9.7 million for the second quarter of 2005.

For the second quarter of 2005, sportswear sales increased 13.3 percent to $102.4 million, footwear sales increased 11.7 percent to $34.3 million, accessories sales increased 3.0 percent to $6.8 million, equipment sales increased 3.8 percent to $2.7 million, and outerwear sales decreased 2.0 percent to $40.0 million compared to the second quarter of 2004.

Columbia said based on its outlook, it expects its third quarter to decline 3 percent to 4 percent, and net income to decline 12 percent to 14 percent, compared to last year. For the full year, it continues to maintain previously stated revenue and earnings guidance of net sales growth of approximately 5 percent, and net income decline of 8 percent to 12 percent.

Cabela’s Q2 beats analyst expectations
Cabela’s (NYSE: CAB) second-quarter net income increased to $6.0 million, or $0.09 per diluted share, compared to $2.0 million, or $0.03 per diluted share, a year ago. Analysts had expected a nickel-a-share profit on sales of $317 million. Total revenue increased 23.2 percent to a record $343.9 million compared to $279.1 million in 2004.

“All three of our operating segments achieved double-digit revenue gains, and we experienced increases in both our consolidated gross margin and consolidated operating margin. However, operating margin in our retail segment decreased primarily due to new store pre-opening costs,” said Dennis Highby, Cabela’s president and CEO, in a statement.

During the second quarter, direct revenue increased 10.5 percent to a record $183.2 million. Total retail revenue increased 13.2 percent to $109.2 million and same store sales decreased 6.0 percent, due in part to the strong performance, during the second quarter of fiscal 2004, of the its Hamburg, Pa., retail store. The Hamburg store contributed 2.8 percent to the same store sales decline. Financial services revenue increased 103.0 percent to $30.4 million for the second quarter of fiscal 2005.

Quiksilver appoints Rossignol division head
With its acquisition of Rossignol complete, Quiksilver (NYSE: ZQK) has appointed Jean-Francois Gautier as the unit’s president. Gautier has managed an investment fund for the past five years and was the president of Salomon from 1990 to 1998. Quiksilver said its purchase of Rossignol will add about 2 cents to 3 cents per share to its earnings in its fiscal year, which ends Oct. 31, 2005.

Rossignol owns and operates a diversified portfolio of premier brands including Rossignol, Dynastar, Lange and Look in winter sports, as well as Cleveland Golf. Quiksilver will already be utilizing that expertise in ski technology by launching Roxy skis, boots, bindings and poles for the upcoming season, it said.

Johnson Outdoors shareholders weigh-in at annual meeting
Celebrating its 35th anniversary, Johnson Outdoors (Nasdaq: JOUT) held its 2005 Annual Meeting of Shareholders where approximately 88 percent of the shares entitled to vote were represented at the meeting either in person or by proxy, the company said. Preliminary voting results included:

>> Shareholders elected all six directors named in the proxy, with each director receiving at least 4.6 million, or 79 percent, of the total votes cast. Terry E. London, John M. Fahey, Jr., Helen P. Johnson-Leipold, Thomas F. Pyle, Jr., Gregory E. Lawton, and W. Lee McCollum were all elected to serve for the ensuing year.

>> Shareholders approved company-sponsored proposals to amend the 2000 Long-Term Stock Incentive Plan (at least 13.6 million, or 86 percent, voted in favor); to amend the 1987 Employees’ Stock Purchase Plan (at least 14.3 million, or 90 percent, voted in favor); and to amend the Worldwide Key Executives’ Discretionary Bonus Plan (at least 14 million, or 88 percent, voted in favor).

>> Shareholders defeated the shareholder proposal seeking the consideration of cumulative voting of Class A common stock. At least 14.5 million, or 91 percent, of the votes cast were against this proposal.

Chairman and CEO Helen Johnson-Leipold said of the company’s future growth opportunities: “The future of our company rests in our ability to continue to cultivate and leverage this unique culture of innovation. This will enable us to expand our markets, expand our great brand equities and expand our technology horizon. Innovation is the key to our future growth.”

Johnson-Leipold’s prepared remarks and presentation slides are available at www.johnsonoutdoors.com in the investor relations section.

Rocky sales shoot up 139 percent
Rocky Shoes & Boots (Nasdaq: RCKY) hit a record, with net sales increasing 139 percent to $65.5 million from $27.4 million in 2004. The company attributed the gain to strong sales, significant gross margin and the addition of EJ Footwear.

Net income rose to a record $2.8 million versus net income of $1.4 million and diluted earnings per share increased to $0.50 versus $0.29 last year. Gross profit increased to $25.7 million, or 39.3 percent of sales, from $7.8 million or 28.3 percent of sales, last year. The 1100 basis point increase was primarily due to sales of EJ Footwear product, which carry a higher gross margin than Rocky products, the company said.

Selling, general and administrative (SG&A) expenses were $19.5 million, or 29.7 percent of sales compared to $5.4 million, or 19.7 percent of sales, a year ago. The increase was also primarily a result of higher SG&A associated with the EJ Footwear business.

Income from operations increased to $6.2 million or 9.5 percent of net sales for the period from $2.4 million or 8.7 percent of net sales in the prior year.

Saucony net sales and income dip in Q2
Saucony (Nasdaq: SCNYA and SCNYB), parent of Hind, said its net sales for the second quarter dropped 8.8 percent to $40.1 million, compared to $44.0 million in 2004.

The company’s gross margin in the second quarter also decreased to 40.4 percent compared to 41.1 percent last year. Selling, general and administrative expenses as a percentage of net sales increased to 33.4 percent in the second quarter of 2005 compared to 2004’s 29.2 percent. In absolute dollars, selling, general and administrative expenses increased 4.5 percent, due primarily to $802,000 in transaction costs related to the evaluation of its strategic alternatives and the sale of the company and $150,000 in costs related to the settlement of a patent infringement lawsuit, offset in part by lower incentive compensation.

Net income decreased 44.4 percent to $1.7 million, compared to $3.0 million in 2004, primarily because of lower revenues and the transaction costs, the company said. Diluted earnings per share decreased to $0.22 per Class A share and $0.24 per Class B share in the second quarter of 2005, compared to diluted earnings per share of $0.41 per Class A share and $0.45 per Class B share for the comparable period in 2004.

Stride Rite is in the process of trying to buy Saucony, pending shareholder approval.

Wellman reports second-quarter results
Wellman (NYSE: WLM) reported a net loss for the quarter ended June 30, 2005, of $26.1 million, or $0.82 per diluted share. This compares to a net loss of $4.5 million, or $0.14 per diluted share, last year. For the first six months of 2005, Wellman reported a net loss of $19.1 million, or $0.60 per diluted share, compared to a net loss attributable to common stockholders of $35.7 million, or $1.13 per diluted share for the same period in 2004.

The second-quarter loss includes a pretax charge of $24.0 million that relates to Wellman’s expected costs to defend or settle all civil claims alleging that Wellman engaged in price fixing for sales of polyester staple fiber. In addition, Wellman recorded a second quarter pretax restructuring charge of $0.6 million relating to our strategic decision to reduce our stated annual polyester staple fiber capacity located at the Johnsonville facility by approximately 80 million pounds and the related workforce reduction. The after-tax affect of both charges is $16.0 million or $ 0.50 per diluted share.

West Marine quarter doesn’t weather spring storms
West Marine’s (Nasdaq: WMAR) net income for the second quarter was down to $22.8 million, or $1.07 per share, compared to last year’s net income of $25.2 million, or $1.17 per share. Net sales for the second quarter were $253.5 million, compared to net sales of $252.6 million a year ago. Comparable store sales for the second quarter of 2005 was down 3.5 percent, versus an increase in comparable store sales of 4.6 percent reported for the same period a year ago. It said the poor weather hurt sales and not achieving a rebound early on could result in a reduction in its earnings forecast for the full year.

GSI Q2 boosted by new partnerships
GSI Commerce (Nasdaq: GSIC) said its second quarter was highlighted by strong operating results, continued new partner momentum and the addition of international capabilities. Net revenues were $91.7 million for the second quarter, a 42 percent increase compared to $64.7 million in the same period in 2004. Net revenues from product sales in the sporting goods category were $41.9 million for the second quarter of fiscal 2005, a 25 percent increase compared to $33.6 million for the same period last year. Merchandise sales were $136.8 million, a 53 percent increase compared to 2004’s $89.6 million. Merchandise sales in the sporting goods category were $51.4 million for the second quarter, a 36 percent increase compared to 2004’s $37.9 million.

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