KSwiss Inc. today announced that net loss for the second quarter of 2010 was $14.5 million or 41 cents per diluted share, compared with a net loss of $11.5 million or 33 cents per diluted share, for the prior-year period. Results for the second quarter of 2010 include a one-time charge of $3.3 million for recognition of the net present value of the €3 million ($3.82 mm) future purchase price of Palladium SAS, which was revised in May 2010. Net loss for the six months ended June 30, 2010, was $19.2 million or 55 cents per diluted share, compared with a net loss of $12.6 million or 36 cents per diluted share, for the six months ended June 30, 2009.
For the second quarter of 2010, total worldwide revenues decreased 13.3% to $46.8 million compared with $54 million in the prior-year period. Domestic revenues decreased 21.0% to $22.7 million in the second quarter, and international revenues decreased 4.6% to $24.1 million for the same period. Total worldwide revenues for the first six months of 2010 decreased 12.0% to $112.7 million compared with $128 million in the first six months of 2009. Domestic revenues decreased 21.1% to $46.6 million in the first half of 2010, and international revenues decreased 4.2% to $66 million.
Futures Orders
Worldwide futures orders with start ship dates from July through December 2010 decreased 8.6% to $64.6 million at June 30, 2010. Domestic futures orders increased 17.1% to $25 million at June 30, 2010, from $21.4 million the previous year. International futures orders decreased 19.7% to $39.6 million at June 30, 2010, from $49.3 million the previous year.
Thailand Contract Sourcing
In May 2010, the Company disclosed its contract manufacturer in Thailand, one of only three manufacturers utilized by the Company in its global supply chain, ceased operations in April 2010. This manufacturer was scheduled to produce approximately 700,000 pairs during the second and third quarters of 2010. The Company has secured temporary production capacity in other facilities to partially replace this lost capacity and by October 2010, the lost capacity will be fully replaced.
FORM Athletics Acquisition and Formation of KSwiss Orange County
In July 2010, the Company announced it had acquired FORM Athletics, a progressive MMA and lifestyle apparel brand with a distinct surf-and-skate aesthetic. Terms of the acquisition were not disclosed. FORM Athletics is now a division of KSwiss and will be led by its founder, Mark Miller, who will also become President of KSwiss Orange County, a new division of the KSwiss brand focused on the youth consumer.
Steven Nichols, Chairman of the Board and President, stated, “The progress we are making to propel the KSwiss and Palladium brands forward through investments in innovation and marketing remains largely underneath the surface in our reported results so far. We are having more measurable impacts to date where it matters the most in preparing for 2011 and beyond increasing awareness of our California heritage, gaining acceptance and recognition for our running product and building on our base in tennis. The acquisition of FORM Athletics and the formation of KSwiss Orange County are part of the natural evolution of our positioning of KSwiss as the California Sports Company.”
Guidance
For 2010, the Company expects full year consolidated revenues to be 5% to 10% less than 2009.
Consolidated gross margin is expected to be approximately 41-42% compared with 35.8% in 2009 due to expected lower closeout sales during 2010 compared with 2009.
Selling, general & administrative expenses are expected to be $138 million to $144 million due to increased marketing expenditures. These expenditures will be continually evaluated and could change over time, including the possibility of even greater marketing expenditures depending on available branding opportunities.
The tax benefit rate is projected to be approximately 25%. Should the Company be unable to substantiate evidence for realizing the benefit of its deferred tax assets in the second half of the year, the Company might be required to establish a reserve of $14.9 million, plus any deferred tax assets established during the remainder of 2010, if any.
KSwiss Inc. Consolidated Statements of Earnings/Loss | ||||||||||||||||
| (In thousands, except earnings per share data) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues | $ | 46,831 | $ | 54,032 | $ | 112,701 | $ | 128,076 | ||||||||
| Cost of goods sold | 29,305 | 37,772 | 66,529 | 83,524 | ||||||||||||
| Gross profit | 17,526 | 16,260 | 46,172 | 44,552 | ||||||||||||
| Selling, general and administrative expenses | 32,980 | 30,304 | 68,303 | 60,280 | ||||||||||||
| Operating loss | (15,454 | ) | (14,044 | ) | (22,131 | ) | (15,728 | ) | ||||||||
| Other expense, net | (3,320 | ) | (763 | ) | (3,320 | ) | (763 | ) | ||||||||
| Interest income, net | 228 | 468 | 367 | 344 | ||||||||||||
| Loss before income tax benefit and discontinued operations | (18,546 | ) | (14,339 | ) | (25,084 | ) | (16,147 | ) | ||||||||
| Income tax benefit | (4,001 | ) | (3,274 | ) | (5,841 | ) | (3,477 | ) | ||||||||
| Loss before discontinued operations | (14,545 | ) | (11,065 | ) | (19,243 | ) | (12,670 | ) | ||||||||
Earnings (loss) from discontinued operations, less applicable income tax benefit | – | (432 | ) | – | 80 | |||||||||||
| Net loss | $ | (14,545 | ) | $ | (11,497 | ) | $ | (19,243 | ) | $ | (12,590 | ) | ||||
| Basic loss per share | $ | (0.41 | ) | $ | (0.33 | ) | $ | (0.55 | ) | $ | (0.36 | ) | ||||
| Diluted loss per share | $ | (0.41 | ) | $ | (0.33 | ) | $ | (0.55 | ||||||||
