Cole, Blum Ready to Refuel KCP Biz

Cole, Blum Ready to Refuel KCP
Kenneth Cole said his company is well positioned for growth now that Paul Blum has rejoined its ranks

NEW YORK — Kenneth Cole is feeling energized.

Four days after bringing his former right-hand man, Paul Blum, back as vice chairman, Cole told Footwear News last Thursday that an upbeat spirit has returned to the company.

“The organization had gotten somewhat polarized, but now everyone is more united and the agenda is more unified,” said Cole, chairman, chief creative officer and interim CEO of Kenneth Cole Productions Inc. “The goal now is to get back to building [the brands] and recognizing opportunities.”

Cole said he and Blum had remained in close touch since the latter left the firm five years ago, and both felt now was the right time to join forces again. Blum — who spent 15 years at Kenneth Cole in his first stint and was president from 2002 to 2006 — left the top spot at jewelry firm David Yurman last summer.

Footwear insiders believe Blum is a strong cultural fit and will be critical to the company’s success going forward.

Sterne Agee analyst Sam Poser said Blum “has intimate knowledge of the organization and may bring back some of the entrepreneurial zest that drove the company some time ago.”

By contrast, former CEO Jill Granoff, who resigned last week, “did not have the necessary grasp of company culture to … be successful, [as it was likely] Kenneth Cole felt the need to look over [her] shoulder too often, which neither [of them] could live with,” Poser wrote in a research note. He did, however, acknowledge that Granoff “was very effective at putting material cost controls in place.”

The company said the board had not begun a search for a CEO at this time, but may in the future.

Steve Marotta, analyst at C.L. King & Associates, said that going forward the company now stands to benefit from the reduced cost structure that Granoff helped install. “They just have to get the right product in the right stores at the right volumes at the right times,” he said.

Cole said in a conference call with analysts that the firm’s fourth-quarter loss, reported last week, was disappointing partly because the company “had too much product in the pipeline [while it was closing stores] and it’s hard to write that down. … The product was good product. We just had too much of it, and it was the wrong time.”

He added that the Kenneth Cole brand “has never been stronger. … It has become very apparent when you benchmark our business [against] our competitors, where our brand registers higher in almost every case, our business is often a fraction of what theirs are. So within each of our existing channels, there are very, very meaningful opportunities.”

The firm plans to grow its domestic wholesale business through the Reaction label since the Kenneth Cole brand sales have been strong, especially in women’s apparel.

“A very big part of our focus [is] to differentiate the presentation of the two brands [and] their distribution channels,” Cole said. “And [there] will be a very clear differentiation and distinction between Reaction footwear and Kenneth Cole footwear, and a lot of that will [become] more apparent in the coming couple of seasons.”

BB&T Capital Markets analyst Scott Krasik, who does not formally cover Kenneth Cole but knows it well, said what the firm has been neglecting is its core brand image.

“From a profitability standpoint, closing the full-price stores, which were losing a lot of money, was a good move in that they now seem positioned to start growing again, if not in the first half, then the second half of this year. But for this thing to really work longer term, they need to get the Kenneth Cole brand to be meaningful with consumers,” Krasik said.

Kenneth Cole’s accelerated store closures will cut the firm’s revenue stream by $23 million annually.

Meanwhile, the firm plans to open five to six new outlet stores over the course of the second and third quarter of 2011, and also to return to the runway during New York Fashion Week next February.

The New York-based firm recorded a net loss of $2.7 million, or 15 cents a diluted share, for the period ended Dec. 31, versus a year-ago loss of $52 million, or $2.88 a share.

Net revenue increased 10.5 percent to $120.8 million, from $109.4 million in the year-ago quarter.

Analysts were looking for earnings per share of 31 cents on revenue of $120.7 million, according to Yahoo.

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