K-Swiss Inc. net earnings for the fourth quarter of 2005 were $11.6 million or 33 cents per diluted share, compared with $15.6 million or 43 cents per diluted share, in the prior-year. For the fourth quarter of 2005, total worldwide revenues increased 4.5% to $92.3 million compared with $88.4 million in the prior-year. Domestic revenues decreased 5.9% to $64.3 million in the fourth quarter, and international revenues increased 40.0% to $28.0 million.
Net earnings and net earnings per diluted share for the year ended December 31, 2005, increased 5.6% and 7.7%, respectively, to $75,248,000, or $2.11 per diluted share, compared with $71,251,000, or $1.96 per diluted share, at December 31, 2004.
In the fourth quarter of 2004, pursuant to the American Jobs Creation Act of 2004, the Company repatriated dividends of $22,700,000 related to foreign subsidiary earnings which were not considered indefinitely invested. The Company received an 85% dividends received deduction for eligible dividends, resulting in a tax benefit of $3,518,000 for the fourth quarter of 2004 and a lower effective tax rate of 28.7% for the year ended December 31, 2004. The repatriation yielded a one-time benefit of $0.20 per share for both periods.
Total worldwide revenues for 2005 increased 5.1% to $508,574,000 compared with $484,079,000 in 2004. Domestic revenues decreased 4.3% to $380,478,000 in 2005, while international revenues increased 47.8% to $128,096,000.
Worldwide futures orders with start ship dates from January through June 2006 decreased 2.8% to $217,895,000 at December 31, 2005, compared with $224,233,000 at December 31, 2004. Domestic futures orders decreased 12.7% to $148,698,000 at December 31, 2005, from $170,291,000 at December 31, 2004. International futures orders increased 28.3% to $69,197,000 at December 31, 2005, from $53,942,000 the previous year.
The Company purchased approximately 30,000 shares of Class A Common Stock during the fourth quarter of 2005 for a total expenditure of approximately $1,000,000 as part of its stock repurchase program. At December 31, 2005, there remains authorization to repurchase approximately 4,111,000 shares under the Company's existing stock repurchase program. Since August 1996, K-Swiss has purchased a total of 25.3 million shares of Class A Common Stock for a total expenditure of $163.3 million.
K-Swiss also issued guidance for the first quarter of 2006 and full year 2006. The Company expects revenues for the first quarter of 2006 to be approximately $148 to $153 million and earnings per diluted share to be in the range of $0.63 to $0.68. The Company expects full year revenues to be approximately $480 to $500 million and expects to report full year earnings per diluted share of approximately $1.70 to $1.85.
The Company's estimates for the first quarter of 2006 and full year 2006 reflect the continued investments in marketing, sales and product development for the Royal Elastics brand as well as the expansion of European operations. The estimates are based upon the following assumptions: gross margins will be approximately 46%; SG&A will not rise above $37 million for the first quarter of 2006 or $139 million for the full year 2006; customer order cancellations will be moderate; and the Company's growth initiatives with respect to Royal Elastics will not exceed a net loss of $0.08 per share for the full year.
Steven Nichols, Chairman of the Board and President, stated, “We are pleased with the better-than-expected revenues and earnings in the fourth quarter. Despite the large one-time gain from the Jobs Creation Act tax repatriation in 2004, we were able to deliver respectable year-over-year growth on continued improvement in margins and strong international sales.
“In 2006, we do not expect as rosy an outlook as we have enjoyed of late. Based on early indications of third quarter order patterns, we expect year-over-year declines in domestic sales during the second half of the year. We are taking steps to reignite the growth in our domestic business. However, given the timing of the development cycle, the impact from these changes would not be felt until later.”
K-Swiss Inc. Consolidated Statements of Earnings
(In thousands, except earnings per share data)
Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
(Unaudited)
2005 2004 2005 2004
-------- -------- -------- --------
Revenues $92,289 $88,356 $508,574 $484,079
Cost of goods sold 49,304 48,404 271,212 262,859
-------- -------- -------- --------
Gross profit 42,985 39,952 237,362 221,220
Selling, general and
administrative expenses 28,766 28,342 130,144 122,262
-------- -------- -------- --------
Operating profit 14,219 11,610 107,218 98,958
Interest income, net 1,242 486 3,333 1,038
-------- -------- -------- --------
Earnings before income taxes 15,461 12,096 110,551 99,996
Income tax expense (benefit) 3,904 (3,518) 35,303 28,745
-------- -------- -------- --------
Net earnings $11,557 $15,614 $75,248 $71,251
======== ======== ======== ========
Basic earnings per share $0.34 $0.45 $2.20 $2.04
======== ======== ======== ========
Diluted earnings per share $0.33 $0.43 $2.11 $1.96
======== ======== ======== ========
Weighted average number of
shares outstanding
Basic 34,163 34,473 34,220 34,917
Diluted 35,430 36,073 35,626 36,433
