Oakley is counting on the success of its new ‘Thump’ sunglass/MP3 player and increased military sales to meet full-year 2004 guidance after posting a small 2.2% sales gain in the third quarter that was primarily fueled by its owned-retail business. Sunglass sales declined 10.7% in units because of weak sell-through at Sunglass Hut as well as slow sales in Europe and the South Pacific region.

Global sales to Luxottica Retail declined 39.1% to $5.3 million from $8.7 million in Q3 last year. Oakley is still in negotiations with Luxottica over their contract moving forward. U.S. net sales to Sunglass Hut decreased 44.4% to $3.5 million, while net sales through other U.S. channels increased 6.9%, including sales from the company's Internet and associated telesales which increased 2.9% during the quarter.

Tom George, Oakley’s CFO, said that this sales decline to LUX was partially because they are seeing a shift in business away from Luxottica’s retail stores into the 110 Oakley retail stores. He also said that Luxottica may be seeing a shift in their customers away from the sport-orientation and more towards the fashion minded consumer.
Oakley saw “high single digit” comps sales at Oakley Retail Stores and “low single digit” comps at Iacon retail stores, pushing Owned-Retail to 12.7% of sales for the period.

The “Newer Categories” are hardly new anymore, and the company appears to have lost their excitement here as they now report them as a group rather than specific categories. Oakley did say they saw double-digit growth in Apparel and Prescription Eyewear and a “modest” increase in Watch sales, but saw a “large decline” in the Footwear business “as expected”.

In a conference call with analysts, Oakley’s COO Link Newcomb said that the New Categories growth would have been stronger, but production delays caused a shift in technical outerwear shipments from Q3 into the fourth quarter.

International sales were reportedly worse than the reported 1.7% decline since a FX rate benefits added 6.2 points of gain. Globally, Oakley saw strong sales through their surf lifestyle, golf and sporting goods distribution channels, while department stores and bike distributors were off for the quarter.

Oakley may have an opportunity to rejuvenate the bike business with the new multi-brand strategy it is pursuing. The company recently signed a licensing deal with Fox racing which could help boost their credibility among the MTB crowd.

The global ‘Thump’ launch is scheduled for November 20 when Oakley will deliver inventory to all of its accounts.

In the U.S., ‘Thump’ distribution includes Circuit City and all Oakley and Iacon stores. Internationally, it includes Virgin Megastores in the U.K., El Corte Ingles stores in Spain, Intertan stores in Canada, and Sanborns in Mexico. ‘Thump’ is the single largest driver of the increase in backlog at quarter-end. Oakley said they will be shipping product throughout the holiday season, but their inventory is “pretty much spoken for” until the first of the year.

The Military business grew about 50% this year with the introduction of Oakley’s ‘Ballistic M-Frame’ and the company achieved approved vendor status from the U.S. Military. The company has also developed a tactical footwear line, which represented about $1.0 million in sales for the quarter.

Oakley management reiterated its full year guidance for 2004 with net sales in the range of $575 to $585 million and earnings in the range of 60 cents to 65 cents per diluted share, but added the caveat that they now believe it will be at the lower end of this range.

Preliminary guidance for 2005 anticipates full-year net sales growth in the range of 10% to 15%. This guidance assumes a low-single digit increase in Sunglass sales, combined with an approximately 25% increase in the company's newer category sales, including the new electronics product category and sales to the U.S. military.

>>> Will increased Thump sales offset the thumping the brand is taking at Sunglass Hut???