• Q1 profit down 18.4% to US$35.9m
  • Sales declined 7% to $615.5m
  • Gross margin fell 110 basis points to 43%

Apparel company The Warnaco Group recorded a drop in first-quarter net income, hurt by the weak economy in Europe and higher markdowns in the US.

Profit for the quarter ended 31 March was down 18.4% to US$35.9m, as sales declined 7% to $615.5m. Gross margin fell 110 basis points to 43% due to product cost inflation and increased customer allowances. Operating income declined 25% to $52.2m.

On the back of the results, the company reduced its full-year forecast and is now expecting net revenue to be flat to up 2%, down on prior forecasts of 4-6% growth.

It is also expecting that earnings from continuing operations will be in the range of $4-4.25 per share, down on the initial forecast of $4.20-4.45 per share.

"We had anticipated a year-over-year decline in net revenues in the quarter due to planned reductions to value retailers and the impact of fluctuations in foreign currency exchange rates," said president and CEO Helen McCluskey.

"However, more challenging market conditions in Europe, higher markdowns in US Sportswear and softer than expected comparable store sales in our owned retail stores, particularly in Korea, resulted in net revenues below our plan.

"We anticipate some of these trends to continue and, with better visibility to our forward bookings, we have tempered our growth expectations for the balance of the year and adjusted our guidance accordingly.

She said direct-to-consumer revenue was up 7%, while Latin American and Asian operations continued to post year-on-year growth.