UPDATE 3-Perry Ellis Q3 profit beats; sees strong holiday season

Wed Nov 17, 2010 2:46pm EST

* Q3 EPS $0.51 vs est $0.35

* Q3 rev up 13 pct at $201.3 mln

* Ups FY EPS view to $1.72-$1.80 from $1.53-$1.68

* Sees FY revenue surpassing $785 mln

* Shares up as much as 12 pct (Rewrites; adds CEO comments, details)

By Nivedita Bhattacharjee

BANGALORE, Nov 17 (Reuters) - Apparel maker Perry Ellis International Inc (PERY.O) said it is gearing up for a strong holiday season, after a forecast-beating third quarter, and is hedging against rising input costs by stocking up on inventory. Shares of the company rose as much as 12 percent to a near three-week high on Wednesday.

The Miami-based company said rising cotton costs won't affect it in the next two quarters, but there will be an impact in the second half of 2011.

Clothing makers have been warning that a global cotton shortage would cause prices to go up and eventually see retail price rises in 2011. [ID:nSGE6720LA] [ID:nN29105221]

"We have raised wholesale prices ... the consumer will have to pay more for apparel," Chief Executive George Feldenkries said in an interview.

The CEO said Perry Ellis has raised wholesale prices by about 5-8 percent already, and might have to raise them further if cotton prices keep going up.

Perry Ellis sells branded merchandise in department stores such as Macy's Inc (M.N) and Kohl's Corp (KSS.N) and also licenses its brand to retailers. It saw gross margins improve by 140 basis points during the quarter, helped by balanced discounting, controlled inventory and strong sales at department stores.

Margins will remain steady in the fourth quarter and the next, the CEO said.

"We believe Perry Ellis, with a strong and growing stable of key menswear brands ... improved owned store operations and a mix shift to higher margin categories and an already low dependence on China sourcing, remains one of the best positioned apparel players in our universe," Brean Murray analyst Eric Beder said in a note.

The company, whose brands include Laundry by Shelli Segal, Cubavera and Jantzen, saw inventory rise 31 percent during the quarter, but said about half of that is for goods to be shipped in fiscal 2012.

The CEO said the rise in inventory was planned to increase the receipt of goods in anticipation of possible price increases.

The company said it expects to earn between $1.72-$1.80 a share for the year. [ID:nASA013OI]

Perry Ellis earned 51 cents a share for the quarter ended Oct. 30, while analysts were expecting 35 cents a share, according to Thomson Reuters I/B/E/S.

The performance was a result of increased sales of the Perry Ellis brand, and a "substantial improvement in the ladies' business as well as a turnaround of our retail stores and European operation," the CEO said.

The company, which sees about 90 percent of revenue coming from its men's division, is still looking for acquisitions in the women's space, the CEO told Reuters.

"We can invest around $200 to 300 million for (an acquisition)," he said, and added that they are more interested in buying a company, rather than a particular brand as it had done in the past.

In 2008, Perry Ellis spent $33.1 million to acquire the women's wear lines C&C California and Laundry by Shelli Segal from Liz Claiborne Inc LIZ.N, and has been reworking those brands to resonate with shoppers.

The company is also planning to focus more on the 15-25 year old Hispanic men's space.

"We feel there is definitely a white space based on this exploding demographic age group," Chief Operating Officer Oscar Feldenkries said.

Perry Ellis has seen its shares rise some 66 percent since December. They were trading up 9 percent at $23.20 on Nasdaq. The stock touched a high of $23.86 earlier in the day. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Maju Samuel)

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