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Kenneth Cole Makes Progress With Turnaround

Inventory discipline and across-the-board revenue gains led to first-quarter profit.

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NEW YORK — Inventory discipline and across-the-board revenue gains, with particular strength in footwear, allowed Kenneth Cole Productions Inc. to move to a first-quarter profit.

Following increases in wholesale, direct and licensing revenues, CEO Jill Granoff said on the firm’s quarterly conference call, “This is the first time in nearly five years that we have experienced growth in each of our business segments simultaneously.”

And Kenneth Cole sees that momentum continuing. For the second quarter ending June 30, the firm expects revenues to rise between 7 percent and 10 percent, with earnings per share of about 3 cents, compared with an 18 cent loss in last year’s period.

The projections exceeded existing consensus estimates, helping to lift shares 1 percent to $13.13 in trading last Wednesday, the day of the earnings report.

Notably, the footwear business picked up sales in the first quarter. “Women think twice before spending $600 to $800 for a pair of shoes. They can get a pair at Kenneth Cole for $150,” Granoff told Footwear News, adding that the firm has focused on comfort features in both men’s and women’s footwear.

“We are seeing particular strength in both Reaction men’s and ladies’ shoes, especially Reaction men’s, which is experiencing a halo effect from the upcoming launch of our Reaction men’s exclusive sportswear collection at Macy’s,” Granoff said on the call.

While the firm noted that in-store traffic is still down slightly, sales conversion is up.

And with consumer spending improving, Kenneth Cole plans to keep inventory levels lean, hoping to migrate consumers to a buy-now mindset. While some of its items featured lower opening price points, the firm elected not to make any price changes for its higher-end merchandise.

Sam Poser, an analyst with Sterne Agee, however, told investors to take caution with Kenneth Cole. “The indications of an inflection in sales are encouraging, but not wholly indicative of a turnaround given ease of comparisons,” he wrote in a note last week.

For the three months ended March 31, Kenneth Cole reported net income of $1.8 million, or 10 cents a diluted share, against a loss of $8.2 million, or 46 cents, in the year-ago quarter. Total revenues rose 6 percent to $109.5 million, including a 12 percent increase in licensing and other revenue to $10.1 million and a 1 percent gain in wholesale volume to $62.4 million.

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