Warnaco Cuts Swim to Focus on Calvin Klein
The New York–based apparel The Warnaco Group, Inc. announced it is severely whittling down its swim business, which includes Michael Kors, MICHAEL Michael Kors, four Nautica-branded lines, Catalina, Anne Cole, Cole of California, Ocean Pacific, Speedo and Calvin Klein.
Warnaco operates its $389 million swim business out of the Warnaco Swimwear Group, a division based in Commerce, Calif. The sale plan, which is a bid to bolster Calvin Klein’s business and enhance the $1.8 billion company’s profitability, calls for the sale of some of its swimwear brands—including Catalina, Anne Cole, Cole of California—and discontinuing others, including its license to produce Op’s juniors swimwear, which it kept after selling the Op brand to New York–based Iconix Brand Group last year.
Other changes at the company include shifting from owned manufacturing to outsourced production and the exit of all of Warnaco’s private-label and designer-swimwear business by the end of next June. Warnaco will sell its swimwear-manufacturing facilities in Mexico and a goggle-manufacturing facility in Canada. Once the repositioning is complete—something the company estimates will rack up $30 million to $32 million in charges—the Warnaco Swimwear Group will consist of only the Calvin Klein and Speedo brands. Financo Inc. will facilitate the sale of the swimwear brands.
“Going forward, our portfolio will consist of compelling brands that we believe are positioned for sustainable, long-term growth,” said Joseph Gromek, Warnaco’s president and chief executive, in a statement. Warnaco’s swim business is a fraction of its sportswear business. Sources tally Calvin Klein’s total business, including denim and sportswear, at $1.2 billion in net revenues.
Within Warnaco’s swim division, Speedo’s swimwear and related accessories accounted for approximately 24.6 percent of the swimwear group’s net revenues last year. Still, the swimwear group’s gross profits overall plummeted $2.7 million in 2006.
The swimwear group has seen its share of turbulence this year. In January, longtime Group President Roger Williams resigned, citing personal reasons. In his absence, Sherry Waterson, president of Speedo, and Paula Schneider, president of designer swimwear, commandeered the swimwear group. In June, Helen McCluskey, group president of intimate apparel, took responsibility for the global management of Warnaco’s swimwear brands.
Warnaco’s swim competitors didn’t welcome the news of its downsizing. Alex Bhathal, head of Tustin, Calif.–based Raj Manufacturing, which makes St. John–, O’Neill-, Tommy Hilfiger–, Guess Collection– and Guess-licensed swimwear along with its own swimwear, blamed retailers for a harsh swim environment. “In the long term, hopefully, this will show retailers that it can’t be a one-sided street,” in which retailers continue to squeeze manufacturers for increasingly high margins, Bhathal said. “It’s these high margins that drive manufacturers out of business,” he said, pointing to the demise of Baltex—Canada’s largest swim manufacturer—and Beach Patrol, which both filed for bankruptcy in the last year, and Christina Swimwear, which recently picked its assets out of bankruptcy.
More changes are expected at Warnaco. The company also announced the appointment of investment banking firm Goldman Sachs to explore “strategic alternatives” for its Lejaby business, which includes the Lejaby business, which includes Lejaby, Rasurel and Elixir intimates and swim brands. Guidance for 2007 released by the company reveals that Warnaco intends to classify its Lejaby business as a discontinued operation for financial-reporting purposes this fiscal year.
Nautica has already found a new home. Stockertown, Pa.–based Mainstream Swimsuits has signed a letter of intent with VF Sportswear, a division of VF Corp., for the license to manufacture and distribute Nautica-brand women’s swimwear and coverups.
Warnaco’s stocks rallied on news of the restructuring, jumping 8.75 percent to $36.17 at press time. —Erin Barajas
