Oakley second quarter net sales increased 5.7%, to $152.0
million, a second quarter record, compared with $143.8 million in the second quarter of 2003. Net income for the second quarter totaled $16.0 million, or 23 cents per diluted share, compared with $18.2 million, or 27 cents per diluted share, in the second quarter of 2003.
Oakley Chief Operating Officer Link Newcomb commented, “While
we are disappointed with the level of overall sunglass sales
in the second quarter of 2004, we were encouraged by the
strong consumer response to two of our newest sunglass styles,
the Dartboard(tm) and Why(tm)8. Unfortunately, vendor constraints
on certain components early in the quarter limited our ability
to fulfill all of the orders for these key styles on a timely
basis. By the end of the quarter, we believe our production
team had resolved these issues and availability of these
two styles had greatly improved. Moving forward, we look
to capitalize on the strength of these two new styles, as
well as the rest of our 2004 introductions, and continue
to focus on ways to increase growth in our core sunglass
business.''
Newcomb continued, “Second quarter gross sales of our newer
categories improved by 9.2 percent to a second quarter record
$40.1 million, led by strong spring launches of the company's
apparel products internationally, together with increased
sales of watches and prescription eyewear, partially offset
by lower sales of the company's footwear products. Combined
sales from the newer categories accounted for 24.0 percent
of second quarter gross sales compared with 23.2 percent
in the second quarter of last year. Oakley-owned retail
stores generated strong positive comparable store sales
for the quarter which, combined with new store openings,
resulted in net sales growth of 37.3 percent, representing
12.3 percent of total net sales for the quarter.''
“As discussed in the press release issued on July 12, 2004,
we now expect full year 2004 net sales in the range of $575
to $585 million and earnings in the range of $0.60 to $0.65
per diluted share. This guidance is based on several assumptions,
including the agreement by Circuit City Stores, Inc. to
order a large number of Thump(tm) units as part of its exclusive
consumer electronics distribution arrangement with Oakley
for the 2004 holiday season, improving sunglass trends as
a result of this year's new introductions, and newer category
gross sales growth, excluding Thump(tm), at the lower end
of the 15-20 percent range previously announced.''
Second Quarter Financial Analysis
Total second quarter U.S. net sales increased 7.9 percent
to $82.9 million from $76.8 million during the same period
last year. U.S. net sales, excluding the company's retail
store operations, totaled $64.1 million, an increase of
1.5 percent from the comparable quarter of 2003. U.S. net
sales to Sunglass Hut increased 12.8 percent to $19.0 million,
reflecting a strong seasonal increase. Second quarter net
sales at Oakley's retail store locations increased 37.3
percent, to $18.8 million, with the greatest strength being
realized in the first two months of the quarter. At the
end of the second quarter, the company operated 30 O Store(tm)
locations, including 2 stores opened during the quarter,
and 81 Iacon stores, including 3 stores opened during the
quarter. At the end of last year's second quarter, the company
operated 20 O Stores(tm) and 67 Iacon locations. Sales from
the company's website and other direct sales declined during
the quarter as a result of a shift in direct marketing support
to the back-to-school and holiday seasons.
Second quarter international net sales increased 3.2 percent,
to $69.1 million, compared with $67.0 million in last year's
comparable period, including a benefit of 6.5 percentage
points from a weaker U.S. dollar. Strong sales increases
in Japan, the rest of Asia and South America, and a slight
increase in Europe, were partially offset by sales declines
in the South Pacific region, Canada and South Africa. Strong
international apparel sales were offset by a larger-than-expected
decline in sales of the company's existing sunglass styles,
and although sales of prescription eyewear increased slightly
over the prior year, these sales were also significantly
below expectations in the quarter.
Worldwide sunglass gross sales increased 4.6 percent in
the second quarter, to $110.2 million from $105.4 million
in last year's second quarter. Sunglass unit shipments increased
0.5 percent, combined with a 4.1 percent increase in average
selling prices driven by the effect of a weak U.S. dollar
on international sales, the strength of Oakley's retail
store operations and a higher sales contribution from polarized
styles that carry higher price points. Unit volumes were
lower than anticipated in the quarter, partially as a result
of launch delays and soft consumer reception on certain
new sunglass styles. In addition, unfulfilled orders on
the popular new Dartboard(tm) and Why(tm)8 styles adversely
affected several of the company's larger international eyewear
markets as retailers ordered fewer older sunglass styles
while they awaited delivery of the new styles. Global net
sales in the second quarter to Luxottica S.p.A., parent
company of Sunglass Hut, increased 11.3 percent to $22.3
million.
Second quarter gross margins decreased to 59.0 percent compared
with 61.2 percent in last year's comparable period. The
decrease in gross margin resulted from lower average sunglass
margins due, in part, to increased sunglass production costs
associated with new releases, a lower mix of eyewear sales,
higher sales discounts and slightly lower newer category
margins. Foreign exchange rates made a modest positive contribution
to gross profit during the quarter.
Second quarter operating expenses totaled $65.2 million,
up 9.6 percent from last year's second quarter, and represented
42.9 percent of net sales, compared with 41.4 percent of
net sales in last year's comparable quarter. The increase
in spending was primarily due to higher foreign operating
expenses resulting from a weaker U.S. dollar, higher design
expenses, including the company's development costs for
Thump(tm), and increased retail store operating expenses.
Retail store operating expenses in the second quarter of
2004 declined significantly as a percentage of Oakley retail
store sales compared to the prior year period. The tax rate
for the quarter was 34.0 percent, compared to 35.0 percent
in last year's second quarter.
The company's order backlog as of June 30, 2004 was $74.4
million, up 11.9 percent compared with $66.5 million at
the same time last year. The backlog reflects large increases
in orders for apparel and sunglasses, modest increases in
goggles and a substantial decline in footwear. Increases
in orders from Luxottica represent a significant portion
of the increased sunglass orders.
The company's consolidated inventory totaled $109.5 million
at June 30, 2004, compared with $98.7 million at December
31, 2003 and $103.7 million at June 30, 2003. Accounts receivable,
less allowance for doubtful accounts, totaled $90.8 million
at June 30, 2004, compared with $78.0 million at December
31, 2003 and $88.8 million at June 30, 2003. Accounts receivable
days sales outstanding (DSO) improved to 54 at June 30,
2004, compared with 56 at June 30, 2003. Both inventory
and receivables grew at slower rates than did net sales.
Stock Repurchase Program
On September 10, 2002, the company's board of directors
authorized a $20 million stock repurchase program to occur
from time to time as market conditions warrant. Since the
time of this authorization, the company has repurchased
976,100 shares for $10.6 million at an average share price
of approximately $10.88. During the second quarter, the
company repurchased 146,500 shares at an average price per
share of $13.72. The company intends to remain active with
the share repurchase program subject to market conditions
remaining favorable.
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------Net sales $152,000 $143,841 $279,136 $255,031
Cost of goods sold 62,350 55,871 120,672 107,646
-------- -------- -------- --------
Gross profit 89,650 87,970 158,464 147,385Operating expenses:
Research and
development 3,864 3,368 7,570 7,090
Selling 39,851 37,160 76,963 68,851
Shipping and
warehousing 5,345 4,721 10,800 9,151
General and
administrative 16,157 14,270 31,946 28,537
-------- -------- -------- --------
Total operating
expenses 65,217 59,519 127,279 113,629-------- -------- -------- --------
Operating income 24,433 28,451 31,185 33,756Interest expense, net 247 402 600 772
-------- -------- -------- --------
Income before provision
for income taxes 24,186 28,049 30,585 32,984
Provision for income
taxes 8,223 9,817 10,399 11,544
-------- -------- -------- --------
Net income $ 15,963 $ 18,232 $ 20,186 $ 21,440
======== ======== ======== ========Basic net income per
share $ 0.23 $ 0.27 $ 0.30 $ 0.31
Basic weighted average
shares 68,397 68,030 68,256 68,081Diluted net income
per share $ 0.23 $ 0.27 $ 0.29 $ 0.31
Diluted weighted
average shares 69,160 68,332 69,093 68,234Reconciliation of Non-GAAP financial
measures to equivalent GAAP measures:Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
(dollars in thousands, unaudited)Gross sales $167,080 $157,821 $299,879 $275,699
Discounts and returns 15,080 13,980 20,743 20,668
-------- -------- -------- --------
Net sales $152,000 $143,841 $279,136 $255,031
======== ======== ======== ========Other Operating Data:
Sunglasses:
Units 1,471,719 1,464,035 2,334,490 2,359,037
Gross sales $110,222 $105,360 $174,185 $169,241Net sales:
Domestic $82,872 $76,835 $143,465 $132,480
International $69,128 $67,006 $135,671 $122,551Backlog $ 74,448 $ 66,476
