Katrina, CAFTA and Wal-Mart impact Russell Corp.

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September 19, 2005
Katrina, CAFTA and Wal-Mart impact Russell Corp.

Russell Corp. has lowered its earnings expectations for the year following the effects of Hurricane Katrina, delays in the full implementation of CAFTA and other ongoing operational issues.


The Atlanta-based sports apparel and equipment company (NYSE: RML) expects earnings of $1.25 to $1.35 a share in 2005. It previously projected earnings between $1.40 and $1.48 a share. Katrina alone will reduce earnings by 16 cents to 20 cents a share, the company said

Russell did not suffer major direct losses to production facilities or distribution operations from the hurricane. However, Gulfport, Miss., which was devastated by the storm, had been Russell's primary port of entry for finished goods and for shipment of fabric and cut parts for assembly in other countries. More than 40 containers of product were lost or damaged in the storm. Russell said the lost product cannot be replaced for customers in time for the fall season.

Russell is now using other ports, such as Miami. But this has raised shipping costs substantially, it said.

Further, polyester fiber manufacturers have declared Force Majeure due to disruptions to supply. This has nullified existing polyester contracts, creating an immediate 20 percent increase in the cost of polyester fiber.

CAFTA is also putting a squeeze on Russell. The company said that despite the passage of the CAFTA legislation, it still must pay duties, which has caused it additional unanticipated costs in the quarter.

Beyond this year, Wal-Mart has indicated that its JERZEES brand of sweatshirts and sweatpants will be featured only in its Men's Department beginning in the second half of 2006. The sales loss from the boys' program represents between 2 percent and 3 percent of the company's total revenues.

"We are disappointed that some of the operational issues impacting our business have lingered into the third quarter," said Jack Ward, Russell chairman and CEO. "Attempts to eliminate these issues have now been delayed or reduced by the devastation of Hurricane Katrina. We continue to make operational improvements while minimizing the impact of Katrina on both our business and our ability to serve our customers."

Russell's net income dropped 54 percent to $4.7 million in the second quarter, dragged down by increased costs from ramping up production to meet increased demand.