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DK is not feeling so good these days, there lies the potentials.
While other fashion houses like TOM, EL and even RL are flying off the rack, DK remains in the bargain basement. However, if one is to believe the Saudi Prince's, HRH Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, midas touch, whose positions in the old CCI, and more recently, Apple, Netscape, or even CTAL, are legendary, it is a matter of time for DK to fulfill its potentials, as the Prince has 7% position in the company.
www2.edgar-online.com
Instead of having me to rehash DK's downfall, Mr Corrigan of the Motley Fool did a remarkable job [JMHO] by producing an even piece below:
fnews.yahoo.com
Since there is no telling if the above will be archived, the following is the excerpt:
Dec 04, 1998
Donna Karan International
(NYSE:DK - news)
Phone: 212-789-1500
Website: donnakaran.com
Donna Karan's troubles began with Donna herself. The famous designer proved ill-suited
for the CEO job, no matter how nicely layered her attire. Knowing hemlines is great, but
DK needed somebody to manage the bottom line. Hello, John Idol.
A former Polo Ralph Lauren (NYSE:RL - news) executive, Idol took charge in August
1997 and made matinee moves to make Donna Karan less dependent on its core
wholesale biz. He's signed a string of licensing deals, including agreements with Liz
Claiborne (NYSE:LIZ - news) to market the DKNY Jeans and Active brands lines and
with Estee Lauder (NYSE:EL - news) to take over DK's beauty products. He's also
started opening full-price, freestanding Donna Karan retail stores in an effort to reposition DKNY as a popular lifestyle
brand a la Ralph and Tommy Hilfiger (NYSE:TOM - news) .
Still, the turnaround keeps turning back. Some observers think Liz is hurting Donna by cannibalizing sales. A larger issue is
that the DKNY lines have yet to be fully repositioned, so they still look too expensive relative to sportswear from Ralph,
Tommy, and Nautica (Nasdaq:NAUT - news) .
This mixed bag was reflected in the Q3 results, which came in at $0.35 per share, up from $0.04 last year but a nickel below
estimates. Reported revenue declined by $44 million, or 21%, to $171 million for the quarter. Excluding sales last year from
the firm's beauty products, revenue was down just 18%. Year-to-date, adjusted sales are off 3%.
The shortfall resulted from soft sales at its outlet stores (off $12 million), continued economic difficulties in Asia where it gets
18% of its revenue ($6 million), a downward trend in athletic footwear ($6 million), and lower-than-expected margins on its
excess inventory ($6 million) due to discounts as steep as 60%.
Donna Karan now expects FY98 revenues will dip to $610 million to $625 million from $639 million last year, making Idol's
call for $1.5 billion in sales by 2000 look like idle talk. The latest guidance even assumes a new $5 million licensing fee will be
booked this quarter. All that adds up to a break-even year versus the $0.30 per share analysts had been expecting.
With the worries accumulating, the stock got hit hard in the August market turmoil and has never really recovered.
BUSINESS DESCRIPTION
Donna Karan is a top fashion design house selling four seasonal collections of women's and men's clothing, sportswear,
accessories, and shoes. Last year, wholesale accounted for 84.5% of revenue (women's wear for half of revenue), licensing
royalties for 1.5%, retail outlets for 13%, and the rest from the now jettisoned beauty business.
The women's ready-to-wear apparel market is divided into five price levels: budget, moderate, better, bridge, and designer.
The Donna Karan New York and Signature brands target the designer market while its bridge collection goes by DKNY.
With the licensing deals, it now competes in the "better" segment as well.
In the last year, Donna Karan has signed licensing deals with Wacoal America for men's and women's DKNY intimate
apparel, Esprit for DKNY children's apparel, Phillips-Van Heusen for DKNY men's dress shirts, Mallory & Church for
DKNY men's ties and hosiery, Peerless Clothing for DKNY suits and sport coats, and Max Leather for belts and small
leather goods.
In March, the company sold its remaining 30% stake in Donna Karan Japan (DKJ) to Onward Kashiyama, which will
transition over three years to a licensing arrangement with DK. Japan accounted for 10.5% of FY97 revenue.
The company will soon have four new full-price U.S. retail stores. By year-end, it will have added 14 domestic outlet stores,
for a total of 63, and 13 licensed international stores, for a total of 70.
Chair Donna Karan and her husband, Vice Chair Stephan Weiss, together control 24.3% of the shares.
FINANCIAL FACTS
Income Statement*
12-month sales: $630.6 million
12-month income: ($65.1 million)
12-month EPS: ($3.03)
Profit Margin: N/A
Market Cap: $147.3 million
*Includes numerous one-time charges.
Balance Sheet
Cash: $4.1 million
Current Assets: $202.2 million
Current Liabilities: $91.5 million
Long-term Debt: None
Ratios
Price-to-earnings: N/A
Price-to-sales: 0.23
<snip>
WHERE TO FROM HERE?
After announcing the disappointing Q3 results, CEO Idol said Donna Karan was lowering its FY99 target to revenue of $610
to $650 million and earnings of $0.23 to $0.41 a share. Rather than end up a fashion victim, the analysts have toed the line
with a $0.31 per share consensus estimate. Last summer, some analysts were looking for FY99 earnings of $1.00 per share!
The good news is that even with continued difficulties, Donna Karan's adjusted gross margins rose to 29.4% in Q3 versus
26.4% a year ago. Also, SG&A (selling, general and administrative) expenses dropped by 34% in actual dollars, to 20.9% of
revenue from 25.3% last year. Cost-cutting is working.
Reducing the number of styles in the spring DKNY line to 250 from 450 a year ago will help. So, too, will cutting the number
of factories it uses from 488 to 330 by spring and to 250 by the end of 1999. DK is also concentrating on helping department
stores manage their DKNY "store within a store" area.
By 2000, Donna Karan hopes to have reduced its wholesale business to 70% to 75% of total revenues, with licensing
providing 3% to 4% and retail about 25%. The goal is to increase menswear to 25% of total sales from 19% today.
The real opportunity for Donna Karan, though, is for DKNY to compete with the likes of Ralph, Tommy, and Calvin by
offering more colorful clothes and mainstream prices. That will definitely prove a challenge. Still, with the stock beaten
down, even gradual success could make DK a fashion forward investment.
Short term, though, Donna Karan might suffer from some tax-loss selling. Also, while inventories are much improved, there
could be some more painful markdowns left as the company positions itself for lower price points.
-- Louis Corrigan |
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