Kenneth Cole falls on weak outlook, downgrade

Shares of Kenneth Cole Productions Inc. fell on Wednesday, after the company predicted a second-quarter loss and an analyst said there is no sign of a turnaround in 2008 for the footwear and handbag maker.

Kenneth Cole has been battling falling sales amid a weak wholesale business and a soft consumer spending environment.

The New York-based company, which also makes apparel and accessories, said Tuesday first-quarter profit plunged 77 percent to $807,000, or 4 cents per share, from $3.4 million, or 17 cents per share, last year. Analysts polled by Thomson Financial, on average, predicted a penny-lower profit of 3 cents per share.

Revenue fell 6 percent to $112.6 million from $119.8 million a year ago.

The company predicted a second-quarter loss of 11 cents to 13 cents per share, while analysts expect a profit of 8 cents per share. Kenneth Cole forecast second-quarter revenue between $108 million and $113 million, while analysts expect $119 million.

Kenneth Cole said it expects to return to profitability in the second half of the year.

C.L. King analyst Scott Krasik, however, said he does not expect any meaningful turnaround until the spring of 2009 at the earliest.

He expects new Chief Executive Jill Granoff, who left Liz Claiborne Inc. and started at Kenneth Cole on Monday, will need to use "operational discipline to grab any available low-hanging fruit from prior management's miscues and drive meaningful earnings growth," Krasik wrote in a client note on Wednesday.

He added that company founder Kenneth Cole, who relinquished the CEO title to Granoff but remains chairman and chief creative officer, will need to step back from his "intense management style" and "allow a new manager with considerable experience make major changes at his eponymous organization."

Krasik downgraded his rating to "Neutral" from "Strong Buy."

"Investors can wait six to 12 months and get a similar entry point in the stock without having to deal with several more sloppy quarters," he said.

Shares dropped $3.32, or 18.1 percent, to $15.03 during afternoon trading. The stock has traded between $13.20 and $25.95 over the past 52 weeks, and is up nearly 5 percent year-to-date.