As we come to the close of earnings season, most companies are turning their minds to thoughts of fiscal 2006. But not clothing designer Perry Ellis (NASDAQ:PERY). Perry's already done with 2006 and has started work on fiscal 2007. The company reports on the fiscal year that was tomorrow before market-open.

Wall Street Wisdom:

  • General consensus. Six analyst opinions duel over Perry. Two of them rate the stock a buy, one a sell, and the other three say hold.
  • Revenues. Analysts predict that Perry will report a 28% increase in quarterly sales versus last year's Q4, to $220.5 million.
  • Earnings. Yet profits are expected to decline. Analysts' target of $0.80 per share would represent a 4% decline in profits. Bear in mind that the analysts have underestimated Perry's profitability in each of the past four quarters.

Margin watch:
Perry's margins have taken a long slide over the past 15 months, with rolling gross, operating, and net margins falling 120, 70, and 60 basis points, respectively.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

32.3

32.4

31.7

31.9

31.3

31.2

Op.

7.6

7.7

7.3

7.5

7.1

7

Net

2.5

3.4

3.2

3.2

2.9

2.8

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Perry's acquisition of Tropical Sportswear International (TSI) back in fiscal Q1 explains much of the company's expected sales growth -- it helped boost sales 35% last quarter, for instance. But so far, the TSI acquisition hasn't done much to help the combined company's margins. That may be about to change -- for both better and worse.

In its last earnings report, Perry guided analysts toward a $35 million reduction in its expected sales for the fiscal fourth quarter, on macroeconomic concerns. Yet the company kept its profits target intact at $2.25 per share (the same figure analysts are projecting for the year). Perry cited "improved margin performance and tighter expense control" as reasons for expecting to earn the same profits despite selling 4% fewer goods than it had previously anticipated. Tomorrow we'll see whether the company can make good on both these promises and get its margins moving upwards once again.

Competitors:
Back in November, Perry mentioned "industry consolidation uncertainty" as another factor threatening its sales. But even with consolidation ongoing, Perry still faces many rivals for its customers' dollars, such as Liz Claiborne (NYSE:LIZ), Polo Ralph Lauren (NYSE:RL), and Tommy Hilfiger (NYSE:TOM).

Fool contributor Rich Smith does not own shares of any company named above.