Warnaco Group Inc. ( ) registered first quarter 2012 adjusted earnings of 90 cents per share, which missed the Zacks Consensus Estimate by two cents. It also missed the prior-year earnings of $1.10 per share.

The adjusted earnings excludes restructuring expenses, pension expenses, tax related items and other items. On a GAAP basis, the company reported earnings per diluted share from continuing operations of 78 cents compared with 98 cents in the prior-year quarter.

Consolidated Revenue and Margins

Warnaco’s quarterly net sales slipped 7% to $615.5 million compared with $662.2 million in the prior-year period, driven by macro-economic headwinds in Europe, higher markdowns in U.S. Sportswear and lower-than-expected comparable store sales in owned retail stores, particularly in Korea.

Direct-to-consumer net revenue increased 7% year on year in the first quarter, in spite of a 2% decrease in comparable-store sales.

Gross profit decreased 9.0% to $267.5 million in the first quarter from $295.2 in the prior-year quarter, while gross margin declined 110 basis points to 43% on the back of increased product costs, increasing level of customer allowances and weak business environment in select markets. Year-over-year, operating income declined 25.0% to a negative $52.2 million.

Segment by Details

Net sales in the Sportswear Group went down 10.0% year over year (on a constant currency basis) to $300.8 million during the first quarter. Net sales at Swimwear Group also declined 9% year over year to $91.9 million. However, Intimate Apparel Group edged up 1.9% year over year to $222.9 million.

Operating income of the Sportswear Group segment came down to $13.6 million in the first quarter, representing 4.5% of net revenue compared with $38.6 million or 11.4% of net revenue in the prior-year quarter.

Operating income of the Intimate Apparel Group segment came down to $30.0 million in the first quarter, representing 13.4% of net revenue compared with $30.5 million or 13.8% of net revenue in the prior-year quarter.

Swimwear Group operating income was at $14.8 million in the first quarter, representing 16.2% of net revenue compared with $14.1 million or 13.8% of net revenue in the prior-year quarter.

Other Financial Updates

The company exited the quarter with cash and cash equivalents of $224.2 million as on March 31, 2012, which was higher than $174.1 million as on April 2, 2011.

Inventories increased to $380.1 million in the first quarter from $364.3 million the previous year driven by the company’s expansion of direct-to-consumer business and rise in product costs coupled with lower revenues during the quarter.

Guidance

Based on the first quarter 2012 results, Warnaco continues to anticipate its fiscal 2012 adjusted earnings per share to be $4.00-$4.25. Including one-time expenses and based on foreign currency exchange rates, Warnaco expects its reported earnings per share to be in the range of $3.32-$3.40 for fiscal 2012.

The current Zacks Consensus Estimate is pegged at 81 cents per share for the second quarter of 2012. The estimate forfull year 2012 is $4.37.

Warnaco anticipates total revenue growth to be flat to up 2% year over year in 2012.

Warnaco designs, sources, markets, licenses, and distributes a range of intimate apparel, sportswear, and swimwear worldwide. The company offers its products primarily under the Calvin Klein, Speedo, Chaps, Warner’s, and Olga brand names.

The company operates in a highly competitive apparel industry with tough competitors like Limited Brands, Inc. ( LTD - Analyst Report ) and Maidenform Brands, Inc. ( MFB - Snapshot Report ) . Moreover, Warnaco depends on license agreements with third parties for generating a significant portion of its revenues, which have inherent risks.

Warnaco currently holds a Zacks #3 Rank, which translates into a short-term Hold rating. On a long-term basis, we have a Neutral rating for Warnaco.