Calvin Klein apparel may not be quite the rage it once was, but it hasn't fallen off the fashion map entirely. That kind of staying power is somewhat rare in the clothing business, and you can bet that the folks at Warnaco (NASDAQ:WRNC), the brand's licensee, are happy about it.
Sales for the first quarter were up about 12%, including the benefit of foreign exchange. Although swimwear sales were pretty much flat, intimate apparel saw revenue growth in the high single digits, and the company's sportswear business was especially strong, clocking in at nearly 35% as the company saw good strength in its Chaps and Calvin Klein jeans brands.
Margins were pretty good for the quarter, too. Gross margins were basically flat, and better-controlled selling, general and administrative expenses increased the company's operating margin by 1% for the quarter. With this improved performance, Warnaco saw 22% growth in operating income and 45% growth in net income.
Since it pulled itself out of bankruptcy in 2003, Warnaco has done reasonably well, and the stock has more than doubled. The company still has a fair chunk of debt on the balance sheet, but the interest is well-covered now, and liquidity does not appear to be a major problem.
A further look at the balance sheet shows that accounts receivables seem to be in good shape -- the growth here was only about one third the rate of revenue growth. Inventory is a somewhat different story, though. It was down slightly on a sequential basis but up nearly 35% year-over-year. Though some of this inventory build is due to slower sales of swimwear, management reports that some of the buildup is also a conscious decision to improve service levels and properly handle distribution. Either way, sharp investors should keep an eye on this metric.
Valuation won't put these shares on the discount rack any time soon. At a trailing P/E of about 19, the stock is probably fairly discounting likely growth over the next few years. What's more, additional metrics like book value, sales multiple, and cash flow all suggest that Warnaco is trading about in line with its peer group.
Even though you wouldn't necessarily think so, Warnaco had a pretty decent business going in the years before its bankruptcy. As such, I don't think it's far-fetched to think that the company could do all right with its second lease on life. It's just a question of what price you want to pay -- I always hold out for sales, but investors who don't mind paying up might feel differently.
For more couture Foolishness:
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- Bebe Is Seeing Double
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
