Net losses at Spy Inc. more than doubled in 2011 as it cleared out inventory of slow selling licensed brands at little or no margin and ramped up investing its core Spy Optic brand of sunglasses and ski goggles. However, the Carlsbad, CA company said it reversed a sales decline earlier in the year and grew sales of its Spy branded products during the fourth quarter ended Dec. 31, 2011, which marked the third quarter of restructuring under a new management team.


Sales of Spy branded products reached $8.0 million, up 8.75 percent, from the same quarter in 2010, including $300,000 in closeout sales. Sales of licensed brands – O’Neill, Melodies by MJB and Margaritaville – substantially all of which were from closeout sales, reached $500,000, up 20.0 percent, or $100,000 over the same quarter in 2010.


On a pro-forma basis fourth-quarter net sales increased by $800,000, or 11 percent, to $8.5 million, compared to $7.7 million on a “pro forma” basis for the three months ended Dec. 31, 2010.


Gross margins plummeted to 33.1 percent of net sales during the quarter, or 760 basis points below their level a year earlier. Sales, marketing, general and administrative expenses, meanwhile, swelled to 67.1 percent of net sales, compared to 50.6 percent a year earlier as the company beefed up spending on the Spy brand. That resulted in a loss from operations of $3.01 million, compared to $1.54 million in the fourth quarter of 2010. Spy incurred a net loss of $3.4 million for the three months, compared to a net loss of $3.1 million for the three months ended Dec. 31, 2010.


On an annual basis, losses reached $10.9 million, up from $4.6 million in 2010 as the company increased inventory reserves related primarily to its licensed brands; had significant closeout sales of licensed brands at no or low margin; increased closeout sales of certain overstock and non-current Spy brand products; and took charges for buying less than agreed to from an Italian factory it divested at the end of 2010.

Increased spending on sales and marketing of Spy, including on additional staff and marketing activities, increased SG&A expenses to 62.3 percent of net sales for the year, compared to 47.9 percent in 2010.