K-Swiss total revenues decreased 2.1% in the quarter ended March 31, 2006 from the previous year's quarter. Net earnings and net earnings per diluted share for the first quarter of 2006 decreased 3.7% and 2.8%, respectively, to $24,910,000, or 70 cents per diluted share, compared with $25,864,000, or 72 cents per diluted share, in the prior-year period.

Overall gross profit margins, as a percentage of revenues, decreased to 46.4% for the three months ended March 31, 2006 compared to 47.0% for 2005, as a result of product mix changes. Selling, general and administrative expenses increased to 23.0% of revenues for the three months ended March 31, 2006 from 21.1% of revenues for the three months ended March 31, 2005 due mainly to increases in advertising expenses offset by a decrease in compensation and compensation related expenses.


Futures Orders

Worldwide futures orders with start ship dates from April through September decreased 1.2% to $214,723,000 at March 31, 2006, compared with $217,396,000 at March 31, 2005. Domestic futures orders decreased 15.9% to $142,770,000 at March 31, 2006, from $169,749,000 at March 31, 2005. International futures orders increased 51.0% to $71,953,000 at March 31, 2006, from $47,647,000 the previous year.

At March 31, 2006, total futures orders with start ship dates from April through September 2006 were $214,723,000, a decrease of 1.2% from March 31, 2005. Of this amount, domestic futures orders were $142,770,000, a decrease of 15.9%, and international futures orders were $71,953,000, an increase of 51.0%.

K-Swiss also issued guidance for the second quarter of 2006 and for 2006. The Company expects revenues for the second quarter of 2006 to be approximately $125 to $135 million and earnings per diluted share to be in the range of $0.43 to $0.51. 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 $1.55 to $1.70.

The company's estimates for the second quarter of 2006 and full year 2006 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 approximately 46%; SG&A will not rise above $37 million for the quarter and $137 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 $0.08 per share for the year.

Steven Nichols, Chairman of the Board and President, stated, “The first quarter results continue to reflect the negative trends we have been experiencing in our domestic business as the decline in domestic revenues and backlog more than offset the 31% increase in revenues and the 51% increase in the backlog we generated in our international business. With current backlog trends signaling no immediate turnaround in domestic sales, reigniting the domestic business is our highest priority. We have been through two other domestic downturns in the past, and fully expect to draw on that experience to develop the appropriate plan of action to affect a domestic turnaround. Realistically, we do not expect this turnaround to happen until 2007 at the earliest. However, the timing of a recent retirement and a resignation among our senior marketing and product development team present the opportunity to add fresh product and marketing talent to our team at the right time. We are also fortunate that the strength in our international business is somewhat mitigating the slowdown in our USA business and that our strong balance sheet affords us the opportunity to make the prudent decisions for the long term.”

Results of Operations

The following table sets forth, for the periods indicated, the percentage of
certain items in the consolidated statements of earnings relative to revenues.



                                                           Three Months
                                                         Ended March 31,
                                                         2006        2005
         Revenues                                         100.0 %    100.0 %
         Cost of goods sold                                53.6       53.0
         Gross profit                                      46.4       47.0
         Selling, general and administrative expenses      23.0       21.1
         Interest income, net                               0.9        0.3
         Earnings before income taxes                      24.3       26.2
         Income tax expense                                 7.7        9.3
         Net earnings                                      16.6       16.9