GOSHA Oshkosh Bgosh Cla (MM)

Oshkosh B'Gosh, Inc. Reports Third Quarter 2004 Results - Gross Margin Increases 380 Basis Points - OSHKOSH, Wis., Oct. 20 /PRNewswire-FirstCall/ -- Oshkosh B'Gosh, Inc. (NASDAQ:GOSHA), today reported financial results for its third quarter ended October 2, 2004. (Logo: http://www.newscom.com/cgi-bin/prnh/20040614/NYM031LOGO-a ) For the third quarter, net sales were $115.2 million compared to $124.1 million last year. A 2.7% decline in comparable store sales was partially offset by seven additional stores compared to the year-ago period and resulted in retail sales of $72.9 million versus $73.3 million last year. Wholesale sales contributed $41.5 million compared to $50.0 million last year. The previously announced Kids "R" Us store closings as well as tighter targeted inventory levels at certain of the Company's wholesale customers resulted in reduced Fall 2004 bookings. During the quarter, the Company opened one Family Lifestyle store, ending the quarter with 169 total retail locations, including nine Family Lifestyle stores. Gross margin increased 380 basis points to 39.8% from 36.0%. The improvement is a result of a sales mix shift towards higher margin retail sales, more efficient supply chain execution, and a lower level of "closeout" promotional sales. Selling, general and administrative expenses decreased by approximately $0.5 million to $36.9 million compared to $37.4 million despite the increased number of retail stores. This is primarily attributed to cost containment efforts in various corporate support functions. Net income increased 18.0% to $8.0 million, or $0.68 per diluted share, compared to net income of $6.8 million, or $0.57 per diluted share, last year. For the first nine months, net sales were $277.8 million compared to $307.9 million last year. Net income for the first nine months totaled $5.2 million, or $0.44 per diluted share, reflecting the aggressive promotional strategy the Company implemented in the first quarter. Excluding the $1.2 million gain on the sale of the vacant OshKosh, Wisconsin distribution facility, net income for the nine-month period was $4.5 million, or $0.38 per diluted share, versus net income of $6.2 million, or $0.52 per diluted share, in the prior nine-month period. Douglas W. Hyde, Chairman and Chief Executive Officer, said, "By staying focused on the things that we can control, we believe that we have now stabilized our core wholesale and outlet businesses and have begun to see signs of a turnaround in recent months. Through improvements in the design and marketing of our merchandise, we continue to strengthen our brand equity with our customers, which we believe in turn will help spur longer-term growth in our sales." "We are encouraged by the improved results of the third quarter and believe that this year of transition will prove to be a successful one. We are also pleased with the consumer reaction to our nine family lifestyle stores, our newest growth vehicle, and remain on target to open six more by year-end. To support both existing and future lifestyle stores, we have developed a comprehensive marketing program that includes family-focused, interactive activities designed to drive traffic in the fourth quarter. On a broader scale, we believe these marketing initiatives will ultimately strengthen the long-term emotional connection between the OshKosh B'Gosh brand and our core consumer base, thus enhancing brand loyalty and fueling future growth of the OshKosh B'Gosh brand in all of our sales channels." Given sales growth has taken somewhat longer than anticipated to return, the Company now expects annual net sales to be in the range of $383 million to $390 million, with retail sales accounting for approximately 65% of the total. Nevertheless, improvements in gross margin percentage over prior year levels are anticipated to continue to positively impact the bottom line. Taking both of these factors into account, diluted earnings per share for the full year are now expected to be $0.75 to $0.85, at the lower end of the Company's original estimate of $0.75 to $0.95 per diluted share. OshKosh B'Gosh will host a webcast of its third quarter results conference call today at 10:00 a.m., Eastern Time. Investors and the media are invited to listen to the call at the Company's web site, http://www.oshkoshbgosh.com/. An archive of the webcast will be available on the same site. OshKosh B'Gosh, Inc. is best known as a premier marketer of quality children's apparel and accessories, available in over 50 countries around the world. The Company is headquartered in Oshkosh, Wisconsin. Statements contained herein that relate to the Company's future performance including, without limitation, statements with respect to the Company's anticipated financial position, results of operations or level of businesses for 2004 or any other future period, are "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which are generally indicated by words or phrases such as "plan," "estimate," "guidance," "project," "anticipate," "reaffirm," "outlook," "the Company believes," "management expects," "currently anticipates," and similar phrases are based on current expectations only and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, projected, or estimated. Among the factors that could cause actual results to materially differ include the level of consumer spending for apparel, particularly in the children's wear segment; risks associated with competition in the market place, including the financial condition of and consolidations, restructurings and other ownership changes in, the apparel and related products industry and the retail industry, the introduction of new products or pricing changes by the Company's competitors, price deflation in the apparel industry, and the Company's ability to remain competitive with respect to product, service and value; risks associated with the Company's dependence on sales to a limited number of large department and specialty store customers, including risks related to customer requirements for vendor margin support, as well as risks related to extending credit to large customers; risks associated with possible deterioration in the strength of the retail industry, including, but not limited to, business conditions and the economy, natural disasters, and the unanticipated loss of a major customer; risks related to the failure of Company suppliers to timely deliver needed raw materials, risks associated with importing its products into the United States under current and future customs and quota rules and regulations which are becoming more stressed, risks associated with importing its products using a global transportation matrix including a number of ports that are experiencing capacity constraints and the Company's ability to correctly balance the level of its commitments with actual orders; risks associated with terrorist activities as well as risks associated with foreign operations including global disease management; risks related to the Company's ability to defend and protect its trademarks and other proprietary rights and other risks related to managing intellectual property issues. In addition, the inability to ship Company products within agreed time frames due to unanticipated manufacturing, distribution system or freight carrier delays or the failure of Company contractors to deliver products within scheduled time frames are risk factors in ongoing business. As a part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Africa, Mexico and Central America. If financial, political or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of product contracted for by the Company. The forward-looking statements included herein are only made as of the date of this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) October 2, January 3, 2004 2004* (unaudited) ASSETS Current assets Cash and cash equivalents $ 12,811 $ 23,931 Accounts receivable, net 18,142 16,669 Inventories 72,604 61,358 Prepaid expenses and other current assets 9,929 8,316 Deferred income taxes 7,800 10,100 Total current assets 121,286 120,374 Property, plant and equipment 75,448 72,416 Less accumulated depreciation and amortization 52,079 48,720 Net property, plant and equipment 23,369 23,696 Non-current deferred income taxes 2,350 2,000 Other assets 5,333 5,855 Total assets $ 152,338 $ 151,925 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 16,741 $ 16,961 Accrued liabilities 32,641 33,552 Total current liabilities 49,382 50,513 Employee benefit plan liabilities 12,789 13,647 Shareholders' equity Preferred stock -- -- Common stock: Class A 96 94 Class B 22 22 Additional paid-in capital 3,616 -- Retained earnings 89,062 87,649 Unearned compensation under restricted stock plan (2,629) -- Total shareholders' equity 90,167 87,765 Total liabilities and shareholders' equity $ 152,338 $ 151,925 *Condensed from audited financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three-Month Period Nine-Month Period Ended Ended October 2, October 4, October 2, October 4, 2004 2003 2004 2003 Net Sales $ 115,187 $ 124,097 $ 277,775 $307,930 Cost of products sold 69,368 79,441 169,386 191,870 Gross profit 45,819 44,656 108,389 116,060 Selling, general and administrative expenses 36,875 37,400 110,435 113,745 Royalty income, net (3,556) (3,679) (9,013) (7,845) (Gain) loss on sale of assets (60) 14 (1,161) 25 Operating income 12,560 10,921 8,128 10,135 Other income (expense): Interest expense (59) (216) (159) (473) Interest income 24 60 137 156 Miscellaneous 1 2 10 8 Other income (expense) - net (34) (154) (12) (309) Income before income taxes 12,526 10,767 8,116 9,826 Income taxes 4,523 3,984 2,922 3,636 Net income $ 8,003 $ 6,783 $ 5,194 $ 6,190 Net income per common share Basic -- Class A $ 0.70 $ 0.59 $ 0.45 $ 0.53 Basic -- Class B $ 0.61 $ 0.51 $ 0.39 $ 0.46 Diluted $ 0.68 $ 0.57 $ 0.44 $ 0.52 Weighted average common shares outstanding Basic -- Class A 9,579 9,663 9,552 9,688 Basic -- Class B 2,183 2,193 2,184 2,193 Diluted 11,815 11,968 11,798 12,001 Cash dividends per common share Class A $ 0.110 $ 0.110 $ 0.330 $ 0.250 Class B $ 0.095 $ 0.095 $ 0.285 $ 0.215 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine-Month Period Ended October 2, October 4, 2004 2003 Cash flows from operating activities Net income $ 5,194 $ 6,190 Depreciation and amortization 4,803 5,266 Deferred income taxes 1,950 (100) Income tax benefit from stock options exercised 42 302 Items in net income not affecting cash and cash equivalents (1,484) 326 Changes in current assets (14,332) (34,553) Changes in current liabilities (1,131) 2,594 Net cash used in operating activities (4,958) (19,975) Cash flows from investing activities Additions to property, plant and equipment (4,521) (2,780) Proceeds from disposal of assets 2,133 129 Changes in other assets (405) (445) Net cash used in investing activities (2,793) (3,096) Cash flows from financing activities Dividends paid (3,781) (2,893) Net proceeds from issuance of common shares 412 678 Repurchase of common shares -- (3,845) Net cash used in financing activities (3,369) (6,060) Net decrease in cash and cash equivalents (11,120) (29,131) Cash and cash equivalents at beginning of period 23,931 36,198 Cash and cash equivalents at end of period $12,811 $7,067 See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Summary of Net Sales Net Sales (dollars in millions) Domestic Wholesale Retail Other Total Three months ended: October 2, 2004 $ 41.5 $ 72.9 $ 0.8 $ 115.2 October 4, 2003 50.0 73.3 0.8 124.1 Decrease $ (8.5) $ (0.4) $ -- $ (8.9) Percent decrease (17.0%) (0.5%) -- (7.2%) Nine months ended: October 2, 2004 $ 102.6 $ 172.9 $ 2.3 $ 277.8 October 4, 2003 133.2 172.4 2.3 307.9 Increase (decrease) $ (30.6) $ 0.5 $ -- $ (30.1) Percent increase (decrease) (23.0%) 0.3% -- (9.8%) http://www.newscom.com/cgi-bin/prnh/20040614/NYM031LOGO-aDATASOURCE: Oshkosh B'Gosh, Inc. CONTACT: David L. Omachinski, President and Chief Operating Officer, +1-920-232-4140, or Michael L. Heider, Vice President Finance, Treasurer and Chief Financial Officer, +1-920-232-4418, both of OshKosh B'Gosh, Inc.; or Investor Relations: Melissa Myron, or Rachel Albert, both of Financial Dynamics, +1-212-850-5600, for OshKosh B'Gosh, Inc. Web site: http://www.oshkoshbgosh.com/

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