Upscale kids clothier OshKosh B'Gosh (NASDAQ:GOSHA) took a nasty fall on Wednesday, reporting negative sales and earnings growth for both the fourth quarter of 2003 and for the full year. Adding to the pain were negative comparable store sales for the quarter and gross margins that fell substantially from their 2002 levels.
So it's no surprise that OshKosh is out of fashion this year, with its earnings marked down a whopping 76% for 2003, from $2.54 a share to $0.60.
But just as winter fashions change in time for spring, OshKosh could turn out to be one of the better-dressed retailers in 2004.
Much of the pressure on margins, and the decreased profitability in 2003, was due to the company clearing out old inventory. Looking ahead, OshKosh predicts that 2004 earnings will undergo a growth spurt of as much as 58%, with earnings between $0.75 and $0.95 a share.
I am inclined to believe the company. OshKosh sports a strong brand and a devoted following among parents of young children. And while 2003 was certainly a bad year, it was the first year out of the past four that the company was free cash flow negative -- and just barely negative at that. OshKosh was free cash flow positive, and growing free cash flow strongly, throughout 2000, 2001, and 2002 before it stumbled in 2003.
Moreover, the company is demonstrating confidence in its own prospects. It bought back 4.5% of shares outstanding in 2003 (continuing a trend that has seen more than 50% of its shares retired over the past six years), and is on track to buy back more. The company has a small but sufficient pile of cash in its war chest and no long-term debt.
OshKosh has stumbled, but the company picked itself up, brushed itself off, and is moving on. With its exceptional brand, lack of long-term debt, sufficient cash, and prospects for growth, this misstep should prove to be just a growing pain.
Rich Smith owns no shares in OshKosh, but his daughter loves their fleece coveralls. Have your own opinion on children's clothes -- or children themselves? Then visit the Parents and Expecting Parents discussion board. The Fool has a disclosure policy .
