FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

St. John Knits, Inc.
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17422 Derian Avenue
Irvine, CA 92714
(714) 863-1171

UNION CITY, CA (June 20, 1997)/FOOLWIRE/ --- St. John Knits reported their second quarter 1997 results on June 6th. The company reported net income of $8.9 million or $0.52 per share for the quarter versus $6.8 million or $0.40 per share last year, an increase of 31%. Net sales for the quarter increased 19% to $59.6 million. Their retail division reported sales of $16 million, an increase of $3.9 million or 32%. Same store sales for the quarter were 23.4% and were 16.7% for the six month period. The 23.4% is comparing against a weak 1.4% last year. Last year, comp store sales improved dramatically in May, so this May they are going against very strong year-ago numbers, so 23% will not carry forward into May, but by the same token they don't have a problem. Gross profit margins for the second quarter were 60.2% versus 55.2% last year.

CONTRIBUTING FACTORS TO GROSS MARGIN IMPROVEMENTS. There are a number of factors that contribute to the gross margin. One is their own retail stores. They also have their own outlet stores; their volume is growing and they are very profitable for St. John. That is reflected in the gross margin because they are selling the product directly to the customer. They continue to improve their efficiency. Eveningwear was up 42% and that is basically due to the paillettes. Their gross margins in that area are much better and they are representing a large percentage of their business. During the last conference call they mentioned they were going to focus on gross margin because they really felt they could get more efficient. They aren't going to push to get gross margins above 60%, but if they go above it naturally they aren't going to fight it. They think they can continue in the high 50s on an annual basis and are targetting 60% rather than mid-50s.

EXPENSES. SG&A as a percent of net sales increased 3% to 35.3%. The increase of 300 basis points is due primarily to the following: higher occupancy costs due to the expansion of the New York boutique and the opening of the Beverly Hills boutique, higher legal expenses because of their decision to actively defend the St. John name, an increase in sample expense due to product line extensions, and higher rent expense from a new airplane leased in March of 1996 and the additional operating expenses on that plane. Most of these, except the airplane due to a new lease in March, will be ongoing for the next few quarters. The legal issue mentioned is a dispute with JCPenney over the usage of the name St. John's Bay. The lawsuit has been filed and it looks like they will probably go to court over it and that won't happen for about a year.

SIX MONTH RESULTS. For the six month period ended May 4th, the company reported net income of $16.3 million or $0.95 per share versus $12.5 million or $0.73 per share last year, an increase of 30.4%. Net sales for the six month period increased 21.5% to $115.7 million. Their retail division reported sales of $32.4 million, an increase of 28%. Gross profit margins for the six month period were 58.4% versus 54.8% last year. SG&A as a percent of net sales increased 180 basis points to 34.9%.

BALANCE SHEET. The cash balance at May 4th was $17 million versus $10 million at year end. The current cash balance is about $19 million. Accounts receivable balance at the end of the second quarter decreased to $27.6 million from the $28.1 million at year end. The accounts receivable balance at the end of the second quarter last year was $21.1 million.

INVENTORIES. Inventories are $23.9 million, an increase of $250,000 since year end. The inventory balance at the end of the second quarter last year was $16 million. The increase in inventory or $7.9 million or 49% is primarily due to the following factors. Increased sales; sales were up 21% for the first six months. Higher inventory levels because of the expansion of their New York boutique. The addition of raw material inventory used in the production of paillettes. This operation was brought in house in October of 1996. Additional shoe inventory they picked up when they took over the wholesale distribution of the St. John's shoe line commencing in November. A higher level of sport inventory needed to support a growing operation. The line was introduced in November of 1996. Finally, an increase in the inventory levels of G&G sport, small leather goods, and shoes carried in their own retail stores. Previously these product lines were not carried in all of their company-owned stores.

LIQUIDITY. No amounts are outstanding under the line of credit which is $25 million. The company had $58.4 million in working capital at the end of the quarter. They purchased property and equipment of approximately $12 million during the first six months. The primary components of that were construction costs incurred in connection with the new 130,000 square foot design center and production facility located on Armstrong Avenue in Irvine. The relocation was completed during the first quarter and the facility is now 100% operational. The company purchased 15 additional electronic knitting machines net of 18 machines which were traded in, bringing the current total to 164 machines at the end of the second quarter. Finally, construction costs incurred in connection with the new 28,000 square foot production facility in Van Nuys, California. Production was moved from a leased facility in San Fernando to the company-owned facility during the first quarter. Their capital expenditure budget for the remainder of fiscal 1997 is approximately $5 million. The primary expenditures will be: the continuation of a program to upgrad computer systems, construction costs incurred with the relocation of the Dallas boutique to a larger space resulting in a net increase of 2500 square feet, and the construction of a new 27,000 square foot production facility in San Ysidro, California. The relocation from a leased facility in San Ysidro to the new company-owned facility is planned to occur this Summer.

DIVIDEND. On June 2nd the board of directors declared a regular cash dividend of $0.025 per share to be paid on July 29th to shareholders of record on June 30th.

STRONG RETAIL SALES. They are happy to report that sales at retail for St. John are very strong at this time. The sell-throughs have been excellent at retail. Their business is very strong. They are running at 24% increase with their major accounts (that includes May). The backlog fluctuates depending on the time of year and where they are in the booking cycle. At the present time they have an adequate backlog for 5 months of business to meet their numbers and that obviously takes them through the end of this fiscal year. Not only are their core accounts doing an excellent job and showing nice increases but they have a group of new accounts -- Macy's West has turned into a very strong account and is growing nicely. They have opened the Duty Free shops in Hawaii and they will be opening a new St. John boutique the latter part of this year. They have opened an account in Birmingham, Alabama called the Parisian which really dominates that city and they did not have an account in that city. While they have been somewhat negative on thought that they could open new accounts, there are still accounts and doors out there that they can open and increase their account base.

INTERNATIONAL GROWTH. International is moving along just great. They are continuing to grow internationally and they expect that to probably outstrip percentage-wise theyr domestic growth within the next year. They have added representatives in various parts of Europe.

NEW LOCATIONS. Dallas is opening June 26th with a new 4,000 square foot store. They are close to completing negotiations for a new location in Palm Beach which will also be 4,000 square feet. They are under negotiation in the Ala Moana shopping center to increase their space there from 2800 to 6000 square feet.

LICENSE DIVISIONS. Their license divisions are on track as expected. The eyewear will be delivered the latter part of this year. Watches will be introduced in the Fall of 1998.

MARGINS IMPROVING. Their margins continue to improve with their new factories coming online - this is definitely helping them. They are planning sometime the latter part of this year to open a facility in Mexico to manufacture parts of their accessories (primarily the jewelry) which, there's no question, will again furnish a dramatic increase in their gross margins. Nothing will be totally be produced in Mexico. It will be produced in part there so that it will not carry a "Made in Mexico" label. As far as the gross margins, they are looking at savings in some of the areas of accessories of up to 50% because of the labor savings.

NEW PROJECTS. They are working on new projects and expect to have some announcements in the next 30 days about new projects which St. John will be involved in. They are not acquisitions. The company is not looking at acquisitions. These will be products they will be handling in-house.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.