Nautica Q2
|
Nautica Q2
|
|
(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Nautica Enterprises, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NAUT)") else Response.Write("(NASDAQ: NAUT)") end if %> UNION CITY, Ca., September 27, 1996/FOOLWIRE/ --- Nautica Enterprises announced record sales and earnings for Q2 this morning. Net earnings increased 43% to $11,315,000 from $7,911,000 in Q2 last year. Earnings per share increased 37% to $0.26 from $0.19 in Q2 last year, beating analyst estimates of $0.23. Sales for the quarter increased 28% to $103,343,000 compared to $80,554,000 in Q2 a year ago.
The sales increase was the result of growth in all their business segments. Nautica Wholesale experienced sales increases in existing and expanded Nautica shops and in sales from new shops. The Nautica Retail operation continued to experience sales growth from both double-digit comparable store increases and new stores. State-O-Maine sales of robes and sleepwear also increased.
Gross profit margins for the quarter increased to 45.5% from 44% due to changes in product mix and strong growth in the Nautica Wholesale and Retail segments.
Operating expenses, as a percentage of sales, decreased to 28.6% from 28.8% due to the abiliity to leverage these expenses with increased volume.
Royalty income grew due to continuing growth in existing licensees and new licensees. Boys apparel, fragrance, watches, and international wholesale licensees did very well in the quarter. International business has been good for them in certain parts of the Pacific Rim (specifically Korea and Hong Kong). The Mexican business continues to be strong for them as well as Chile. Canada is also performing well. They are in talks and hope to announce a joint venture shortly in Europe that would be for the European continent. If everything goes through that would start with Fall 1997 distribution in Europe.
Interest income was down slightly as a result of higher average cash balances being offset by lower interest rates. Inventory at the end of the quarter was $67.1 million compared to $66.7 million a year ago. Cash balance at the end of the quarter was $55.1 million compared to $34 million at the same time last year. Accounts receivable increased to $67.8 million compared to $53.6 million in the prior year as a result of increased Q2 sales.
The company opened 42 shops this quarter and expanded 43 shops. They also opened 13 Nautica Competition shops during the quarter as part of expanded shops and 1-2 that stood on their own. The company is on target with previously announced plans to open over 150 new shops and expand over 180 this year, which will include up to 59 Nautica Competition shops. They plan to add 50 additional Competition shops during the first quarter of 1997. The company opened 4 outlet stores during the quarter for a total of 7 so far this year and they are on target to open the planned 10-12 new outlet stores during the year.
The outlook for the balance of the year is excellent. Product value and brand awareness combine to create continued strong demand for the Nautica products. Holiday and Spring bookings are up over 25% year-to-year. Through license arrangements, the Fall 1996 womenswear line was launched successfully in August and several new products will be launched in calendar 1997 including women's swimwear and fragrance, men's tailored clothing, a men's denim collection, and home furnishings. They believe the company is positioned for continued strong growth in revenue and earnings.
As a part of the total Nautica sportswear collection, the Nautica Competition products are doing very well at retail. They came out with Nautica Competition cross-training sneakers that they sold into stores like Footlocker and some of the department stores and specialty stores. They are waiting to get feedback on that. They have seen the second generation of their running sneakers which they are extremely excited about. The shoes should be showing up in November in Footlocker stores. Competition, when they first started for Spring with a small piece of their business was roughly 5-10% of their bookings. Going forward and where they would like to see it settle in is roughly 25-30%. They don't look for it to grow much above that. It will be at that level by Spring 1997. The line is being very well received. They key is the way it is presented, thus the challenge for them is to get more real estate and walls within department stores so they can present it properly and get sales people who understand the concept and the products. It is something that is very exciting for them and most of the retailers are doing very well with it. It is a very competitive market and the big 3 (Nautica, Polo, and Tommy Hilfiger) are all aggressively seeking real estate, that is the biggest challenge.
September is the first full month that the women's line is on the retail selling floor. All in all, the line is doing well and getting good response. There are some areas where they would like it to be a little better. There has been talk about repositioning the line from "bridge" to "better" in terms of the retail department placement since the casual and active segments of the line are the ones they are getting the best sell-throughs on. The career segments, while they look very nice, as of today with the exception of a few accounts are not doing as well. But, they feel very good about the holiday line that they have booked in that will be shipping into the stores for October/November and they think their final report card will come around January 1st with regard to this business. They broke the Spring line about two weeks ago. It is filled with color, which Nautica is known for. It has seen good response and they are booking that line right now. The line has good retail presentation at Macy's, Lord & Taylor, and some of the Nordstrom stores.
They are very excited about the home furnishings license with towels, sheeting, and bathroom accessories. Dan River is doing the sheets, pillowcases, and bedding. Lechner is doing the towels and beach towels. Axcel is doing the bath accessories, shower curtains, etc. They are looking now to house that all in one location and look to develop that business within department stores as the main distribution channel. Towels will be out in the store, with beach towels, for Father's Day next year but the official launch will be in April and they will be shipping the complete collection by the end of June.
The denim license is with Union Bay and they are very excited about that. They don't want to come out with just another denim line. The difference between their Nautica sportswear line and the customer they target with the denim line is that the denim line will be designed to appeal to a younger customer (age range 18-35). The line will launch in Fall of 1997.
They expect royalty income to be up against their original projections based on new licensees including Chaus as well as existing licensees that are doing very well. They think that, in the years to come as they build this licensing business, they are just developing the steam and momentum that will give them a strong bottom line in their royalties. * 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. |
|
|
Copyright 1996, The Motley Fool |