Apparel maker Kellwood Company is selling its Smart Shirts manufacturing operations and related real estate assets for $161m as it seeks to reduce its exposure to private labels and reposition the company to build on its higher-end lifestyle brands.

The Smart Shirts business, which makes private label men's shirts and brands such as Nautica, Claiborne, O Oscar, an Oscar de la Renta Company, and Perry Ellis, has been snapped up by Youngor Group Co Ltd for $120m.

And in a separate transaction, Bright Treasure Development Ltd is buying related real estate assets in Hong Kong for $41m.

According to Robert C Skinner Jr, chairman, president and chief executive officer: "Smart Shirts is not consistent with our long-term strategic plan, which includes developing better and above price point brands and reinvigorating our legacy businesses."

Divesting the business not only eliminates capital-intensive manufacturing from its operations, but will help reduce private brand sales from 28% to 12% of total revenues.

The sale also positions Kellwood to grow its own brand revenues from 50% to 70% of its business by allowing the company's focus on its lifestyle brands such as Vince, Hollywould and Phat Farm.

In particular, the company wants to see owned retail sales account for up to one-fifth of sales, up from 8% today, with 60 new retail stores under the Hanna Andersson planned by the end of 2012. 

Customer consolidation
Like many of its competitors, including VF Corp and Liz Claiborne, Kellwood has been stifled in recent years by the consolidation of its department store customers.

In September, the company swung to a second quarter loss of $65.8m on poor demand for some of its private label women's wear brands - sparking a $543.7m unsolicited buyout bid from private investment firm Sun Capital, its second largest shareholder.

Kellwood quickly rejected this offer as not being "in the best long-term interests" of the company or its shareholders.

Instead, the company is pinning its hopes on a reorganisation of its business.

In August it revealed plans to trim its women's sportswear unit from seven to three operating divisions - 'Lifestyle Alliance,' 'Designer Alliance' and 'Modern Alliance' - focusing on its moderate brands, better and above price point brands, and the juniors business respectively.

As part of its broader focus on women's apparel, the company yesterday (6 November) said the Phat Fashions business will be included in its women's sportswear segment, with the Phat Farm men's business transforming to a licensing model.

The shake-up is intended to create a more agile organisation that can adapt to changes in its brand or customer portfolio, improve speed to market, and reduce costs through efficiencies in scale.

Kellwood has also attempted to broaden its reach by acquiring the Vince, Hollywould and Hanna Andersson brands to shore up its higher profile, higher-priced apparel offer.

And it is attempting to meet new demand from department stores for private label, or exclusive, brands with the launch of O Oscar, an Oscar de la Renta company, exclusively at Macy's.

Debt reduction
The company says it will use the proceeds from the Smart Shirts sale to repurchase shares and reduce debt.

The company also expects to report a pre-tax gain on the sale of the Smart Shirts business and Hong Kong building of approximately $10m.

For the third quarter of fiscal 2007, Kellwood has lowered its sales expectations from ongoing operations to $400.0m to $415.0m, down from previous forecasts of $520.0m to $535.0m.

Net earnings are likely to be down to $7.5m to $9.0m, or $0.30 to $0.35 per share the company said, slashing earlier forecasts of $10.6m, or $0.41 per share.

For fiscal 2007, sales from continuing operations are expected to range from $1.5bn to $1.55bn, down from the $1.950bn to $2.0bn suggested in earlier guidance.

Net earnings for the full year will range from $17.0m to $20.0m, or $0.66 to $0.76 per share, the company said, nearly halving its previous forecasts of $33.5m to $36.5m or $1.30 to $1.40 per share.

This compares to actual earnings per diluted share, excluding Smart Shirts, of $0.90 in fiscal 2006.

By Leonie Barrie.