K-Swiss Inc. reported that net earnings for the fourth quarter of 2004 increased 79.7% to $15.6 million, or 43 cents per diluted share, compared with $8.7 million, or 23 cents per diluted share, in the prior-year period. Net earnings and net earnings per diluted share for the year ended December 31, 2004, increased 42.3% to $71.3 million, or $1.96 per diluted share, compared with $50.1 million, or $1.32 per diluted share, at December 31, 2003.
In the fourth quarter of 2004, pursuant to the American Jobs Creation Act of 2004, K-Swiss repatriated dividends of $22.7 million related to foreign subsidiary earnings which were not considered indefinitely invested. K-Swiss will receive an 85% dividends received deduction for eligible dividends, resulting in a lower effective tax rate for the fourth quarter of 2004 and the year ended December 31, 2004. The repatriation resulted in a tax credit of 29.1% for the quarter and tax rate of 28.7% for the year, which amounted to a one-time benefit of $0.20 per share for both the quarter and the year. We will use these funds on qualified expenditures in the United States in accordance with our approved Domestic Reinvestment Plan.
For the fourth quarter of 2004, total worldwide revenues increased 9.9% to $88.4 million compared with $80.4 million in the prior-year period. Domestic revenues decreased 0.1% to $68.4 million in the fourth quarter, and international revenues increased 66.2% to $20.0 million. Total worldwide revenues for 2004 increased 12.8% to $484.1 million compared with $429.2 million in 2003. Domestic revenues increased 6.7% to $397.4 million in 2004, while international revenues increased 52.8% to $86.7 million.
Worldwide futures orders with start ship dates from January through June decreased 0.3% to $224.2 million at December 31, 2004, compared with $224.9 million at December 31, 2003. Domestic futures orders decreased 11.9% to $170.3 million at year-end from $193.4 million at year-end 2003. International futures orders increased 71.4% to $53.9 million from $31.5 million the previous year.
The Company purchased 169,000 and 1,343,000 shares of Class A Common Stock during the fourth quarter and all of 2004, respectively, for a total expenditure of approximately $3,371,000 and $27,000,000, respectively, as part of its stock repurchase program. There remains authorization to repurchase approximately 4,990,000 shares under the Company’s existing stock repurchase program. Since August 1996, K-Swiss has purchased a total of 24.4 million shares of Class A Common Stock for a total expenditure of $136.3 million.
K-Swiss also issued guidance for the first quarter of 2005 and for 2005. The Company expects revenues for the first quarter of 2005 to be approximately $138 million to $143 million and earnings per diluted share to be in the range of 52 cents to 57 cents. The Company expects full year revenues to be approximately $480 million to $500 million and expects to report full year earnings per diluted share of approximately $1.70 to $1.80.
The Company’s estimates for the first quarter of 2005 and full year 2005 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%; SG&A will not rise above $32 million for the quarter and $127 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 7 cents to 8 cents per share for the year.
Steven Nichols, Chairman of the Board and President, stated, “In a year filled with many notable accomplishments, the fourth quarter lived up to our expectations. We noted with pleasure the recent improvement in sales to our largest customer, yet another quarter of company-leading sales from our Classic shoe and the increasingly significant contribution from our international business. We also successfully executed a fourth quarter television campaign – our largest in that time period – that resulted in a sizable increase in at-once business and improvement in margin.
“Excluding the one-time repatriation credit, our earnings grew by 28% for the year – a strong report by any measure. Looking ahead to 2005, we are modeling flat revenue growth in the first half of the year and 7% growth in the second half. Utilizing our existing backlog as the primary source for our full year forecast, we expect international operations to be the key growth driver until the return to historical sales levels by our largest customer and improvements to our Limited Edition offerings take hold in domestic operations. In summary, 2005 holds great potential for us to deliver a well-diversified sales and earnings performance, particularly in the second half of the year.”
Discontinued operations are comprised of the results of the National Geographic brand.
K-Swiss Inc. Consolidated Statements of Earnings
(In thousands, except earnings per share data)
Three Months Ended Year Ended
December 31, December 31,
------------------ ------------------
(Unaudited)
2004 2003 2004 2003
-------- -------- -------- --------
Revenues $88,356 $80,432 $484,079 $429,162
Cost of goods sold 48,404 45,436 262,859 235,603
-------- -------- -------- --------
Gross profit 39,952 34,996 221,220 193,559
Selling, general and
administrative expenses 28,342 23,542 122,262 106,267
-------- -------- -------- --------
Operating profit 11,610 11,454 98,958 87,292
Interest income, net 486 248 1,038 699
-------- -------- -------- --------
Earnings from continuing
operations before income
taxes 12,096 11,702 99,996 87,991
Income tax expense (benefit) (3,518) 4,140 28,745 34,199
-------- -------- -------- --------
Earnings from continuing
operations 15,614 7,562 71,251 53,792
Income (loss) from
discontinued operations -- 1,125 -- (3,736)
-------- -------- -------- --------
Net earnings $15,614 $8,687 $71,251 $50,056
======== ======== ======== ========
Basic earnings per share $0.45 $0.25 $2.04 $1.41
======== ======== ======== ========
Diluted earnings per share $0.43 $0.23 $1.96 $1.32
