Hartmarx chief executive Homi Patel late Wednesday (27 June) delivered on an earlier forecast as the Chicago, Illinois-based clothing and sportswear firm returned to profitability in its second quarter after enduring red ink in the first.

In the three months ended 31 May, net income grew 38.6% to $5.4m, or $0.15 a diluted share, from $3.9m, or $0.10, in the year-ago quarter. The EPS figure exceeded analysts' expectations by $0.03.

Net sales were up 2.2% to $155.9m from $152.6m a year ago. Second quarter results benefited from a shift of about $13m in orders to the more recent quarter from the first quarter last year.

Back in March, upon release of its first quarter loss, Patel commented: "We are starting to realise the benefits from the actions we initiated last year and we expected to return to profitability in the second quarter with significant favourable comparisons to the prior year occurring in the second half of the year."

Gross margins in the second quarter rose to 35.8% of sales from 32.5% in the 2006 period due to a shift in higher margin categories and a "lower percentage of moderate priced tailored clothing lines."

In a company press release, Patel pointed out that sales to mainstream department stores accounted for 13% of sales, versus 19% a year ago, and the contribution of women's revenues, which are concentrated in better and luxury lines, rose to 23% from 18%.

Speaking of moderate department stores, Patel noted: "Tailored clothing in this channel remains under intense revenue and margin pressures and continues to be a source of concern."

The CEO observed that its investments in "product lines and categories serving the better, bridge and luxury price points" had spearheaded the improvement.

"While having a significant adverse impact on our 2006 operating results and through the first quarter of fiscal 2007, the actions initiated last year to discontinue and reduce several moderate priced tailored clothing lines and to close three production facilities were necessary to address the disruptive environment prevalent in this channel," Patel said.

"Several other large apparel suppliers are now starting to report similar conditions and are beginning to take similar actions to address this trend."

The company maintained its previous earnings guidance of $0.50 to $0.56 per diluted share on revenues of $585 million to $600 million for the year.

Even with the strong second quarter, results for the six months remain well behind their year-ago pace. Net income dropped 69.6% to $2m, or $0.05 a diluted share, and sales were off 7% to $276m.
 
By Arnold J Karr.