K-Swiss is finally seeing a diversification in its Classics business as Foot Locker starts to represent less of the overall business while Europe and other International regions are estimated to become as much as 50% of sales as they start to represent more of the total picture for the brand in 2004.
For the fourth quarter, KSWS saw total worldwide revenues increase 51.2% to $80.4 million compared with $53.2 million in the prior-year period. Domestic revenues increased 53.2% to $68.4 million in the fourth quarter and international revenues increased 40.7% to $12.0 million. Foot Locker represented 22% of total sales for the fourth quarter versus 27% in the year-ago period, but still reflects a sales increase of roughly 23% to the retailer.
Classics category revenues were up 56% in the quarter and represented 69% of total sales for the quarter. Original Classics, which accounted for a third of Q4 sales, was up 22% compared with the prior year period. Other Classics, including the LE product, was up 110% in the quarter, accounting for 36% of the total.
The largest selling style was again the base Classic, whish sold 439,000 pair, with black classic more than doubling in Q4. The White Classic allocation program was described as “continuing and it had its desired effect” with Q4 shipments of the shoe down about 30% versus the year-ago quarter. KSWS still feels the allocation program is “in the long-term best interest of the brand”. Company chairman and CEO Steven Nichols said “business got very soft in the Northeast” in Q4 and “got very strong” in the Southwest, but was not able to point to any real reasons other than potential weather-related impact on White Classics.
At-once business for the quarter was down as a percentage of total business for the quarter, representing 6% of sales in Q4 this year versus 10% in the prior year period.
For the K-Swiss brand, the average selling price increased to $25.37 per pair in Q4 compared to $24.41 in the year-ago period due to “product category mix changes”, reflecting the allocation program. The volume of footwear sold increased to 3 million pairs in the fourth quarter from 2.1 million pairs in Q4 2002.
Gross margin was off 70 basis points to 43.5% in the fourth quarter compared with 44.2% in Q4 2002. KSWS reported that net earnings increased 81.4% to $8.7 million, or 23 cents per diluted share, compared with $4.8 million, or 12 cents per diluted share, in the prior-year period. EPS jumped 91.7%.
For full year 2003, K-Swiss brand revenues increased 48.3% to $423.7 million from $285.8 million in 2002. Royal Elastics brand revenues grew approximately 45% to $5.5 million in 2003, with 28% of the business from domestic accounts, versus $3.8 million in 2002, when 27% of sales were domestic.
Foot Locker accounted for approximately 29% of domestic revenues in 2003 versus 23% in full year 2002.
While Foot Locker futures as a whole are on the decline for the first half of the year, shrinking 4% at year-end, KSWS appears to be much more upbeat about the FL business in Europe as a foothold for future growth there. The company said that “futures from Foot Locker Europe are wonderful” and that they are “probably doubling” the business with them this year.
Total K-Swiss worldwide futures orders through June increased 33.5% to $224.9 million at year-end, with Q1 futures increasing 40.8% and Q2 futures up 22.8% when measured at year-end. Foot Locker is now just 15% of the backlog versus 21% at year-end 2002. Domestic futures grew 31.2% to $193.4 million and International futures increased 49.7% to $31.5 million.
For 2004, KWSW expects revenues for the first quarter to be approximately $142 to $150 million and earnings per diluted share to be in the range of 50 cents to 55 cents. The company estimates Q1 at-once revenue to be zero to 6% of total sales, which they say is “consistent” with the belief that the fill-in business will be less in 2004 than in 2003. The company expects full year revenues to be approximately $490 to $510 million and expects to report full year earnings per diluted share of approximately $1.50 to $1.65.
>>> With KSWS reporting that sales at U.S. retail were up 50% in December and January were up 40%, either Foot Locker knows something the rest of the industry doesnt, or…
