K-Swiss, Inc. continued to see a downturn in its domestic business but the first indications of a decline in the international business have now begun to show as well. First quarter results were said to be in line with company expectations, but revenues came in at the upper end of the plan, while profits came in at the lower end. While the international business still saw a small increase for the first quarter, the real concern has to be the international backlog numbers, which were down in low-single-digits at quarter-end, but were down in double-digits for the upcoming third quarter.
The company is no longer breaking out specific sales numbers for the Classics business, only referring now to the overall business in terms of Sports Performance and Sports Style, not unlike the European brands. For the quarter, Sports Performance, which includes all genders of tennis, running, Free Running, and training product, grew 30% and represented 19% of the portfolio, while Sports Style, which represents all genders of non-performance footwear, fell 25% for the period. Sports Style represented 75% of the total revenue picture for the quarter. Other revenue, which includes apparel and Royal Elastics and comprised 6% of the business, were up 12% when compared with the prior-year period.
The 16% revenue decline was based on a 19% decrease on the volume of footwear sold, offset a by an increase in average selling prices. The at-once business was 7.6% for the quarter, which was said to be in line with the 0% to 10% planned, compared to 10% of sales in the year-ago period. Looking into Q2 and beyond, the at-once business is forecast in the 3% to 18% range, compared to 21% of sales last year.
Europe sales were down 1% for the quarter, with a 2% decrease in backlog. Europe accounted for 40% of worldwide revenues, up from 34% a year ago. Sales in the Asia region were up 31% for the quarter, and generated a 5% increase in backlog. Asia accounted for 15% of worldwide revenues in the quarter, compared with 9% a year ago.
Sales to the Foot Locker Group were down 46% in the first quarter and represented 9% of worldwide sales, compared with 14% in the year-ago quarter. Sales to all other customers were down 11% for the quarter. Foot Locker represented approximately 8% of the backlog picture at quarter-end, compared with 15% a year ago, representing a 58% decrease in their total backlog. Worldwide backlog with all other customers is down 20%. The pain was said to be spread pretty evenly between U.S. and international for the Foot Locker business.
Royal Elastics operated at essentially break-even on a per-share basis for the quarter, compared with a loss of 2 cents per share in Q1 last year, representing the first non-loss quarter for the brand. Still, the company expects to continue to over-invest in Royal, with the net loss per share now expected to be approximately 6 cents per share for the year.
Two nascent programs, apparel and Free Running, are getting a lot of attention internally. The apparel range will be going into Barney's and Saks. They currently have two windows at Harrods in London, but K-Swiss is also partnering with JD Sports, which will carry the apparel for back-to-school this year.
For Free Running, management hinted that it is seeing mixed results so far, even though they had a “significant part” of their marketing budget invested in it for the first quarter. Foot Locker got behind the initiative, but K-Swiss said they made the decision to do more grassroots work with the brand. They are apparently getting some placement for performance running product at running specialty, but know full well they will need to pay dues here for awhile.
The total backlog picture is comprised of a 20% decrease in second quarter futures orders to $67.8 million and a 31% decrease in third quarter 2008 futures orders to $60.5 million. Domestic backlog is down 43% for Q2 and down 51% for Q3. International backlog is up 7% for Q2 and down 11% for Q3 this year.
Based on the worsening backlog picture, KSWS now expects revenues for the second quarter to be in the range of with and diluted EPS ranging from a loss of 5 cents a share to earnings of 5 cents a share. For the full year, the company now sees revenues in the range of $305 million to $330 million and earnings per diluted share in the range 5 cents to 25 cents per share.
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