KCP Q1 Leaves Analysts Wondering

KCP Q1 Leaves Analysts Wondering
Kenneth Cole

Analysts scratched their heads over Kenneth Cole Productions Inc. after the firm posted a larger-than-expected first-quarter loss and did not hold a conference call.

“Sales were not great,” said Sam Poser, analyst at Sterne Agee. “And the press release had [no explanation] in it.”

Steven Marotta, analyst at CL King & Associates, said, “Wholesale was up, but not as much as last quarter. It’s very difficult to glean what went wrong given how non-communicative they are.”

Kenneth Cole narrowed its loss to 10 cents a share, from 94 cents a year ago. The Street was expecting a loss of 3 cents.

The company is attempting to go private after founder and chief creative officer Kenneth Cole offered in February to buy out the 53 percent of the firm he does not yet own for $15 a share.

While it is unclear how far along the firm is in the process, which is now down to a vote by a special committee, analysts said the fact that the stock is trading above the offer price indicates the shareholders are betting Cole will up the bid at least once.

KCP shares hovered around $15.55 Thursday, down 2.2 percent on the first quarter’s results.

“[A deal] is more likely to happen around $16 a share,” Poser said.

B. Riley & Co. analyst Jeff Van Sinderen agreed, saying, “Kenneth Cole will increase his bid only modestly… due to [his] controlling position.”

A bright spot for the firm was gross profit improvement of 140 basis points to 36.9 percent in the first quarter, which it attributed to less clearance activity than last year. In the same period last year, the firm had to clear excess inventory from store closings.

While wholesale revenue was up 3 percent to $76.7 million, both licensing and consumer-direct sales fell, 6.3 percent and 6.7 percent, respectively.

For the quarter ended March 31, KCP lost $1.9 million, or 10 cents a share — compared with a loss of $17.2 million, or 94 cents, in the same quarter a year ago. Revenue was flat at $116.8 million.

The company ended the quarter with $48.9 million in cash and no long-term debt.

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