KCP » Topics » Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

This excerpt taken from the KCP 10-Q filed May 11, 2009.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008


REVENUES:  Net revenues decreased $19.1 million, or 15.6%, to $103.4 million for the three months ended March 31, 2009 from $122.5 million for the three months ended March 31, 2008.  The decrease in revenues occurred in each of the Company’s business segments as further described below in the sections entitled “NET SALES” and “LICENSING REVENUE”.


NET SALES: Wholesale net sales (excluding sales to the Company’s Consumer Direct business segment) decreased $12.4 million, or 16.8%, to $61.7 million for the three months ended March 31, 2009 from $74.1 million for the three months ended March 31, 2008.  The decrease was primarily attributable to a decline in sales across most of the Company’s branded footwear and handbag businesses as well as exiting its Tribeca business and terminating its Bongo business.  The challenging retail environment and continued stress in the macro-economic marketplace, particularly the department store channel, resulted in declines in most of the Company’s Wholesale businesses.  


Net sales in the Company’s Consumer Direct segment decreased $5.8 million, or 15.1%, to $32.7 million for the three months ended March 31, 2009 from $38.5 million for the three months ended March 31, 2008.  Comparable store sales decreased 20.4%, or $6.9 million, while sales related to new stores opened in 2009, and that portion of 2009 sales for stores not open for all of 2008, increased by $1.5 million for the three months ended March 31, 2009 compared to the three months ended March 31, 2008.  Comparable stores are defined as new stores that are open for longer than thirteen months.  A store that stops operations is included in the comparable sales calculation through the date of closing.  The Company opened one Company Store (“outlet”) and closed two full-priced retail stores during the three months ended March 31, 2009.  The Company continues to refine its assortments, inventory levels, in-store-merchandising and the customer experience.


LICENSING REVENUE:  Royalty revenue decreased $0.9 million, or 8.9%, to $9.0 million for the three months ended March 31, 2009 from $9.9 million for the three months ended March 31, 2008.  The decrease in licensing revenues was primarily attributable to a reduction in contract initiation fees and a decrease in certain international licensee sales.


GROSS PROFIT:  Consolidated gross profit, as a percentage of net revenues, decreased to 33.9% for the three months ended March 31, 2009 from 41.0% for the three months ended March 31, 2008.  The decrease, as a percentage of net revenues, was primarily the result of a decrease in the Wholesale and Consumer Direct segment margins, partially offset by the revenue mix shifting to Consumer Direct and Licensing as a percentage of total revenues.  The Consumer Direct segment, which operates at a higher gross profit level than the Wholesale segment, had increased revenues as a percentage of net revenues to 31.7% for the three months ended March 31, 2009 compared to 31.4% for the three months ended March 31, 2008, while the Wholesale segment revenues, as a percentage of net revenues, decreased to 59.6% for the three months ended March 31, 2009 from 60.5% for the three months ended March 31, 2008.  The revenues in the Licensing segment, which carries minimal cost of goods sold, increased, as a percentage of revenues, to 8.7% for the three months ended March 31, 2009 compared to 8.1% for the three months ended March 31, 2008.  The decrease in the Wholesale segment margins was due to soft sell-thrus and higher dilution from a very promotional department store and challenging retail environment.  Consumer Direct segment margins decreased primarily from higher markdowns in a difficult retail environment, as the Company continued its promotional efforts to balance its inventories to current demand patterns.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:  Selling, general and administrative (“SG&A”) expenses, including warehousing and receiving expenses, decreased $1.4 million to $47.7 million for the three months ended March 31, 2009 from $49.1 million for the three months ended March 31, 2008.  The decrease in SG&A expenses was primarily attributable to a $4.0 million reduction in payroll and various cuts in discretionary spending offset by costs associated with new stores and other expenses associated with the Company’s strategic initiatives.  Total SG&A expenses, as a percentage of revenues, were 46.1% and 40.1% for the three months ended March 31, 2009 and 2008, respectively.  The increase was due to loss of leverage on the decrease in Wholesale and Consumer Direct sales and the greater portion of revenues from the Consumer Direct segment which carries a higher SG&A expense level than the



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Wholesale and Licensing segments due primarily to store occupancy and payroll costs.  The Company’s recent cost reduction activities are expected to result in decreased SG&A expenses in the upcoming quarter compared to last year.


INTEREST INCOME, NET:  Interest income, net decreased $0.7 million to approximately $0.2 million for the three months ended March 31, 2009 as compared to $0.9 million for the three months ended March 31, 2008.  The decrease is primarily due to the Company’s lower average cash balances and lower interest rates.


IMPAIRMENT OF INVESTMENTS:  The Company recorded an other-than-temporary impairment of auction-rate securities of $0.4 million during the three months ended March 31, 2009 as compared to $0.6 million during the three months ended March 31, 2008.


INCOME TAXES:  The Company’s effective tax rate decreased to 36.2% benefit for the three months ended March 31, 2009 from 42.6% expense for the three months ended March 31, 2008.  The decrease in the Company’s effective tax rate is a result of the tax benefit from the Company’s net loss offset by a valuation allowance reserved against tax assets for certain other-than-temporary investment impairments and the impact of interest and penalties on tax reserves for uncertain positions.


NET (LOSS)/INCOME:  As a result of the foregoing, net (loss)/income decreased by $9.0 million to $(8.2) million, or (7.9%) of net revenues, for the three months ended March 31, 2009 as compared to net income of $0.8 million. or 0.7% of net revenues, for the three months ended March 31, 2008.


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