Kellwood downgraded to neutral

Shares of Kellwood Company (NYSE: KWD) took a beating today after Broadpoint Capital downgraded the marketer of women's and men's sportswear to a “neutral” rating from “buy,” based on corporate restructuring efforts, financial weakness in a private-label and Moody’s review of Kellwood’s debt.

Kellwood said that its corporate restructuring could take 12 to 18 months and now expects additional restructuring charges of $30 to $36 million in the second half of 2007 and fiscal year 2008. This comes after the company spent $114.3 million on restructuring charges in the second quarter.

The St Louis, Mo.-based company is also having difficulties with its private menswear label Smart Shirts. According to Broadpoint Capital analyst Randall Scherago, the recent decline in profitability in the fashion line could weigh down earnings.

“We believe there continues to be financial pressure on Kellwood's mid-market consumer, as there are no "must-have" fashion trends to drive mall traffic,” Scherago wrote in a research note today. 

Adding to difficulties facing the company, on Friday, Moody’s put Kellwood’s debt under review for a possible downgrade on concerns about the sustainability of Kellwood’s “operating margins and weak financial metrics.” According to Scherago, such a downgrade could “impair the company’s acquisition strategy,” as management continues to focus on acquisitions. Further, according to Scherago, the company is not fully integrating its acquisitions to fully capitalize on synergies.

Additionally, Scherago points out that many of the brands in each division have different target customers, retail partners and price points.

Kellwood recently downgraded its fiscal 2007 revenue and earnings guidance. The firm now expects revenues of between $1.95 billion and $2 billion down from previously forecasted levels of between $2 billion and $2.03 billion. Kellwood cut its EPS estimate to $1.30 to $1.40 from a range of $1.80 to $1.89.

Scherago is forecasting earnings of $1.30 per share on revenues of $1.93 billion, while five analysts polled by Thomson Financial on average anticipate earnings of $1.42 per share on revenues of $1.99 billion.

Shares of Kellwood (KWD) slid $0.79, or 4.95%, to close at $15.17 on Tuesday.

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