While posting a steeper loss in its fourth quarter, K-Swiss Inc. indicated that slowing backlog orders would cause its revenues to decline in the current year.
Domestic futures orders with ship dates from January through June tumbled 51.6 percent to $21.9 million, which Steven Nichols, chairman, president and CEO, said reflected poor sell-throughs at retail of Micro Tubes in the second half of 2011. Domestic futures orders are down 44.4 percent for the first quarter and down 60.5 percent for the second quarter.
“We are doing well in several areas of the business, namely Performance and International, and not so well in others,” said Nichols on a call with analysts. “At-once orders were strong again in the quarter but we were not able to reduce inventories to a level I would like, and domestic futures orders are headed in the wrong direction.”
For 2012, revenues are expected to decline between 7 and 11 percent to $240 million to $250 million. Worldwide futures are down 21.3 percent to $73.1 million versus the previous year. International futures increased 7.5 percent to $51.3 million; up 27.7 percent for the first quarter and down 33.2 percent for the second. Palladium backlog is up 16.7 percent.
The loss in the quarter came to $25.2 million, or 71 cents a share, compared with a loss of $20.6 million, or 58 cents, a year ago. Quarterly revenues increased 17.8 percent to $50.2 million. Domestic revenues advanced 10.3 percent to $20.4 million while international increased 23.6 percent to $29.7 million.
By category, sales of Lifestyle product, representing 38 percent of revenues, were down 15 percent. The biggest sellers in Lifestyle were Classic with 131,000 pair, RV 1.5 with 62,000 pair and California Tennis with 24,000 pair. Performance segment revenues was up 72 percent to also make up 38 percent of revenues. The top-performing sellers in Performance were Tubes Run 100, which sold 154,000 pair; Clear Tubes, 50 with 65,000 pair and the ST 329 with 56,000 pair. Other revenues, which include Palladium and apparel, were up 26 percent to represent 24 percent of sales.
Internally, European sales were up 20 percent in the quarter with a 14 percent increase in future orders. Sales in Asia were up 23 percent but futures in the region were down 19 percent. Europe accounted for 27 percent of revenues with Asia at 24 percent.
Fourth-quarter volume was up 33.8 percent. For the K-Swiss brand, the average wholesale price per pair decreased to $23.66 for the fourth quarter of 2011 compared with $28.65 in the prior-year period, due to the higher promotion of closeout sales in the quarter. Its at-once business was 83 percent versus 74.3 percent a year ago.
Gross margin eroded to 25.6 percent in the quarter compared with 32.4 percent in the prior-year period due to higher product costs without the benefit of higher selling price, greater customer discounts, unused mold reserves and greater closeout sales, partially offset by lower inventory reserves. SG&A reached 65.8 percent of revenues, down from 80 percent a year ago and was reduced $33 million in total, down from $34.1 million a year ago. Due to the decline in its stock price in the latter part of 2011, the latest quarter includes a $2.99 million goodwill impairment charge.
Inventories were up 35 percent as of Dec. 31 but down approximately 4 percent compared with Sept. 30. Its domestic K-Swiss inventory was down approximately 16 percent compared with Sept. 30.
For 2012, gross margin is expected to be approximately 40 percent to 41 percent, up from 34.5 percent in 2011, due to a price increase and cleaner inventory. SG&A expenses are expected to be about $110 million to $112 million, down from $153.6 million, reflecting cost reduction efforts.
David Nichols, EVP, said the Kwicky Blade-Light is “still performing very well” at running specialty accounts while the Blade-Max Glide and Blade-Max Stable series received “glowing reviews” in the Runners World spring shoe review. At the Ironman World Championships held in early December, K-Swiss ranked as the third most popular brand in in-race shoe count, which he remarked was “a long way from where we started.” The New Year, New You campaign, starring celebrity trainer Jillian Michaels, began on Jan. 2 and is designed to bring Blades technology to a broader consumer base.
In its Lifestyle segment, the preliminary response during consumer research to its Clean Classics collection, which features multiple colors and will launch in Q3 2012, “has been very encouraging,” David Nichols added.
Management said Palladium worldwide is expected to slightly profitable in 2012. Regarding Blades, Steven Nichols said the line faced challenges this past season selling at Lady Foot Locker at $100. At $75, Tubes had been “very, very successful” the prior year. A program for Blades at Finish Line at $100 starts in March and Nichols said the company is being “told that the $100 price point in men's is still viable and we feel better that that could be successful, but we still have to find out.”
The CEO was likewise enthused at the reception Clean Classic is receiving at trade shows but noted that stores are buying “very, very cautiously.” Said Nichols, “We are going to get placement, and then it has to retail. And if that works, we will be in very good shape. If it doesn't work, we will not.”
