Analysts: KCP Poised to Strengthen This Year

Analysts: KCP Poised to Strengthen This
Kenneth Cole

Kenneth Cole Productions Inc. did not provide guidance on Thursday after it handily topped fourth-quarter estimates, but analysts said the New York-based firm is definitely improving at a faster rate.

“All the business is poised to do better, with Paul Blum coming on [as CEO] and repositioning product,” said Jeff Van Sinderen, an analyst at B. Riley & Co. “The numbers are better than we expected, and they should most definitely be in the black next year.”

While the firm was $2.9 million, or 16 cents a share, in the red for the full year, analysts said the loss was narrower than they expected.

“[The results] support our [expectation] that Cole will likely sweeten [his bid for the company] at least once in an effort to satiate minority shareholders,” said Steven Marotta, analyst at CL King & Associates.

Cole last Friday offered to take his namesake company private for $15 a share and is currently awaiting a decision for acceptance by a special committee of independent directors. The firm did not hold a conference call with analysts after announcing its results.

Meanwhile, several securities law firms have launched investigations of a possible breach of fiduciary duty by KCP directors based on what they perceive to be an unfair offer price.

“Based on the stock activity since the announcement, it is apparent that the proposed purchase price is too low. We would not be surprised to see the price finalize above $16 [per share],” said Sterne Agee analyst Sam Poser.

Van Sinderen agreed: “The price will be, and should be, higher. Our price target is $17, but one could even argue for a higher target than that.”

For the fourth quarter, KCP earned a net income of $8 million, or 43 cents a share, versus a loss of $2.7 million, or 15 cents, in the year-ago period. Revenues advanced 8.6 percent to $131.2 million. Analysts were expecting 28 cents on revenue of $126.5 million, according to Yahoo Finance.

Wholesale revenue was a bright spot, surging 47 percent to $62.3 million. That was, in turn, buoyed by Kenneth Cole New York women’s sportswear in wholesale, increased doors in Reaction men’s sportswear and a one-time special holiday handbag program.

Licensing revenues improved about 10 percent, while selling, general and administrative expenses improved 680 basis points to 33.8 percent.

Retail revenue and gross margin suffered, however. Due to the closure of some stores, consumer-direct sales decreased 16.6 percent to $54.7 million, and comparable-store sales slipped 5 percent.

To fix the retail piece, Poser said, “many of the stores need refurbishing, and any investment in such would materially impact earnings. Also, [the firm] needs to wean itself from the department stores to properly position the brand, and such is impossible as a public company.”

Gross margin fell 230 basis points to 41.2 percent, on the back of higher sourcing costs and a shift in the revenue mix toward wholesale.

KCP ended the period with $58 million in cash and no long-term debt.

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