Earnings to Fall Short for Innovo
Executives at Innovo Group Inc., which makes premium and moderately priced blue jeans and knit tops, said the company’s revenues and profits for 2005 will fall short of analysts’ expectations.
In a statement issued June 29, the apparel maker, based in Commerce, Calif., noted that sales of its private-label lines to retailers such as American Eagle Outfitters, Kmart and Target will most likely be lower than expected during the latter half of this fiscal year, which ends in November.
Sales of Innovo’s new Indie denim collection, a moderately priced group launched last summer at MAGIC International in Las Vegas, have been moving more slowly than analysts anticipated. As part of the development process, Innovo has switched its denim washes and treatments from Mexico to Los Angeles.
Innovo Chief Executive Jay Furrow projected that 2005 revenues will be $115 million and earnings will be 5 cents per share. Originally, analysts had expected Innovo’s 2005 revenues to be about $145.5 million, with earnings of 31 cents per share.
Neither Furrow nor Innovo President Marc Crossman returned calls seeking comment.
Vera Van Ert, a Wedbush Morgan Securities analyst in Los Angeles who follows the company, noted she had expected Innovo’s 2005 revenues to reach $152.7 million, with earnings of 38 cents a share. She has since downgraded that to $118 million.
Part of the recalibration comes from Van Ert’s estimates about the company’s private-label business, which she sees moving more toward China in 2006.
In a report, the analyst noted she is lowering the company’s overall 2005 private-label revenue estimates from $102.1 million to $75 million. That consists of a reduction in American Eagle revenues from $75 million to $58.5 million, a reduction in Target revenues from $25 million to $15 million and a reduction in Kmart revenues from $2.1 million to zero.
“We are also making a more conservative stance on Indie, due to the brand’s slower than expected start in 2005 due to fit and styling issues. After previewing the newly redesigned line, we believe these issues have been remedied but believe the initial misfire has minimized Indie’s anticipated revenue contribution for 2005,” Van Ert said in her report.
The analyst said she expects the branded apparel business to bring in $43.6 million this year instead of $50.6 million. Most of that was from lower-than-expected sales of the Indie brand.
While concerned about the private-label business, Van Ert was upbeat about the Joe’s Jeans label, the premium denim collection that Innovo launched under the guidance of designer Joe Dahan. “Joe’s is poised to increase revenues over 100 percent in 2005 to approximately $40 million, according to our estimates, and demand for the product continues to be very strong across the department store and specialty channels,” the analyst wrote.
She revised Innovo’s 2006 revenues estimate from $193.1 million, with earnings of 56 cents per share, to $147.2 million, with earnings of 28 cents per share.
Innovo has had a tough time finding the right apparel niche. Last year, it dropped its two urban fashion labels, Fetish by Eve and Shago by Bow Wow, after they failed to take off.
In 2004, Innovo had a $9.5 million net loss on $104.7 million in revenues; much of that loss came from closing the Fetish label. —Deborah Belgum
