K-Swiss Q1 Earnings Rise 59.5%, But Forecast Moves Lower

K-Swiss announced net earnings for the first quarter increased 59.5% to $21.8 million, or 57 cents per diluted
share, compared with $13.6 million, or 36 cents per diluted share, in Q1 last year. Diluted EPS rose 58.3%. Total worldwide revenues increased 31.3% to $152.0 million compared with $115.8 million last year. Domestic revenues increased 28.6% to $129.6 million in the first quarter, and international revenues increased 48.9% to $22.5 million.

For the first quarter of 2004, total worldwide revenues increased 31.3% to $152,020,000 compared with $115,809,000 in the prior-year period. Domestic revenues increased 28.6% to $129,575,000 in the first quarter, and international revenues increased 48.9% to $22,445,000.

Worldwide futures orders with start ship dates from April through September 2004 increased 13.7% to $194,954,000 at March 31, 2004, compared with $171,488,000 at March 31, 2003. Domestic futures orders increased 6.6% to $162,313,000 at March 31, 2004, from $152,266,000 at March 31, 2003. International futures orders increased 69.8% to $32,641,000 at March 31, 2004, from $19,222,000 the previous year.

The Company purchased 179,000 shares of Class A Common Stock during the first quarter of 2004 for a total expenditure of approximately $4,258,000 as part of its stock repurchase program. There remains authorization to repurchase $22,457,000 of stock under the Company's existing stock repurchase programs. Since August 1996, K-Swiss has purchased under all of its repurchase programs a total of 23.2 million shares of Class A Common Stock for a total expenditure of $112.8 million.

K-Swiss also issued guidance for the second quarter of 2004 and revised guidance for 2004. The Company expects revenues for the second quarter of 2004 to be approximately $111 to $117 million and earnings per diluted share to be in the range of $0.28 to $0.33. The Company expects full year revenues to be approximately $460 to $480 million and expects to report full year earnings per diluted share of approximately $1.40 to $1.50.

The Company's estimates for the second quarter and the year reflect the continued investments in marketing, sales and product development for the Royal Elastics brand as well as the expansion of European operations. They are based upon the following assumptions: gross margins will be between 44% and 45% for the year; SG&A will not rise above $121 million for the year; cancellations will be moderate; and the Company's growth initiatives with respect to Royal Elastics will not exceed a net loss of $0.14 per share for the entire year.

Commenting on the first quarter results and outlook for 2004, Steven Nichols, Chairman of the Board and President, stated, “While the lowering of our 2004 sales and earnings forecast will no doubt overshadow the record first quarter results, we are keeping several things in perspective. This year should be the best year in K-Swiss' history with year-over-year growth in revenue and earnings per share. European operations have shown marked improvement by reaching profitability in the first quarter and posting sizable increases in backlog, while Asia is starting to show signs of renewed life with a strong backlog and a new Japanese distributor. With over $90 million of cash on our balance sheet, we will also continue to invest in these opportunities, the Royal Elastics brand and in our own stock.”

           K-Swiss Inc. Consolidated Statements of Earnings

            (In thousands, except earnings per share data)
                                                  Three Months Ended

                                                      March 31,

                                                     (Unaudited)

                                                   2004        2003

                                                ---------   ---------

Revenues                                         $152,020    $115,809

Cost of goods sold                                 82,254      61,593

                                                ---------   ---------

  Gross profit                                     69,766      54,216

Selling, general and administrative expenses       34,207      26,531

                                                ---------   ---------

  Operating profit                                 35,559      27,685

Interest income, net                                  127         187

                                                ---------   ---------

  Earnings from continuing operations

   before income taxes                             35,686      27,872

Income tax expense                                 13,918      10,972

                                                ---------   ---------

  Earnings from continuing operations              21,768      16,900

Loss from discontinued operations                      --      (3,256)

                                                ---------   ---------

  Net earnings                                    $21,768     $13,644

                                                =========   =========

Basic earnings per share                            $0.62       $0.38

                                                =========   =========

Diluted earnings per share                          $0.57       $0.36

                                                =========   =========

Weighted average number of shares outstanding

  Basic                                            35,376      35,562

  Diluted                                          37,968      37,823