K-Swiss Inc. saw its reliance on its classics positioning take a bite out of its U.S. business in the fourth quarter, but the top-line came in slightly above the companys guidance thanks to continued strength in the international business and better-than-expected at-once business for the period. The at-once business, which helped improve margins and lower taxes, also helped push earnings above guidance.
Still, the company has real concerns about the health of its domestic business in the current retail atmosphere that has seen the market move to more fashion athletic, or fusion, silhouettes and away from the basic all-white classics. Chairman and CEO Steven Nichols also said Reebok has had an impact on the market, calling the adidas/Reebok merger as one of the “most disruptive factors” in their business. He indicated there is ” a tremendous amount of inventory available at all kinds of prices” in the market as Reebok moved to dump product in advance of the close of the adidas deal.
The K-Swiss at-once business was 20% of total sales in Q4, compared to 16% of sales last year. That helped push fourth quarter revenues up 4.5% for the period to $92.3 million versus $88.4 million in Q4 last year, but domestic sales were still down 5.9% for the quarter to $64.3 million from $68.4 million in the year-ago period, reflecting a sharp decline in sales to Foot Locker Inc. Mr. Nichols said that sales to the Foot Locker Inc. group were 16% of total sales in Q4, compared to 20% in the year-ago quarter, reflecting a 23% decline in sales to the worlds-largest-athletic-specialty-retailer. Sales to other retailers were up 12% for the period. Foot Locker represents 17% of the order backlog at year-end 2005, compared to 20% of backlog at the close of the previous year, which would indicate a 16% decline in forward orders from the retailer.
International sales surged 40.0% to $28.0 million from $20.0 million in Q4 last year. Europe sales were up 74% in the fourth quarter and backlog was up 40% at year-end, compared to a 104% increase at year-end 2004. Asia revenues were down 5% and backlog in the region was off one percent.
Original Classics revenues were up 6% in the quarter, while the Other Classics category, which includes the LE product, was up 1% for the period after a 45% decline in Q4 last year. Total Classics revenues were up 5% for the fourth quarter. Childrens revenues were up 8%, the Tennis business was up 1%, and Training category revenues, which includes the Basketball category, were down 18% for the quarter. The Royal Elastics business was up 69% for the quarter on top of a 103% increase in Q4 last year, thanks in large part to the launch of the L.A.M.B. line from Gwen Stefani.
The average selling price for footwear was up 5.8% to $25.88 for the fourth quarter, compared to $24.47 in the year-ago period.
Net income was down 26.0% to $11.6 million in the fourth quarter, or 33 cents per diluted share, compared to $15.6 million, or 43 cents per diluted share, in the year-ago period. Gross margins improved 140 basis points to 46.6% of sales.
>>> Any hope for the near future in this category? The Mall Specialty channel appears to be quite enamored with the Fusion/Euro Casual category right now, but Family Footwear is still seeing success with classics, albeit at the value level where K-Swiss doesnt play…
| K-Swiss, Inc. | |||
| Full-Year Results | |||
| (in $ millions) | 2005 | 2004 | Change |
| Total Sales | $508.6 | $484.1 | 5.1% |
| Domestic | $380.5 | $397.6 | -4.3% |
| International | $128.1 | $86.7 | 47.8% |
| Gross Margin | 46.7% | 45.7% | +100 bps |
| SG&A | 25.6% | 25.3% | +30 bps |
| Net Income | $75.2 | $71.3 | +5.6% |
| Diluted EPS | 2.11 | 1.96 | +7.7% |
| Backlog* | $217.9 | $224.2 | -2.8% |
| Domestic | $148.7 | $170.3 | -12.7% |
| International | $69.2 | $53.9 | +28.3% |
| Inventories* | $61.2 | $64.9 | -5.8% |
| *at year end | |||
