K-Swiss is apparently hoping to capture a little of the European magic and bring it back home to the mall next year. With Domestic sales dipping yet again in the third quarter, primarily due to weakness in the Classics LE business, the company is now talking about more product that fits the athletic footwear consumers appetite for low-profile, euro casual looks. The move is expected to re-inject energy back into the Foot Locker business that was off again in third quarter.
K-Swiss brand sales were down 7.5% to $102.0 million in the U.S., but jumped 34.1% on the International side to $31.7 million. Royal Elastics brand sales were up 120% to $1.4 million in the U.S. and climbed 23.6% to $1.5 million in the International segment. Chairman and CEO Steven Nichols still sees the RE business potential at roughly $100 million.
Sales to Foot Locker were down 7% in the third quarter, but up 3% for all other customers. Mr. Nichols said the Locker business, which was 20% of Q3 sales compared to 22% in the year-ago period, should range from the low 20s to the high 20s, a range he said was comfortable for both companies. He said they could push the Locker business to the high 20s if they can replicate the success of the Colyer shoe.
Foot Locker represented 19% of the backlog at quarter-end, compared to 20% at the comparable time last year. Foot Lockers backlog was down 4% in absolute dollars.
The Original Classics business, which represents roughly 50% of total KSWS revenues, was actually up 20% in the quarter, but a 39% decline in the LE business, which represented 15% of total revenues, pushed total Classics revenues down 2% for the period. The Childrens category was up 5% in the quarter. On the performance side, the Tennis business was down 29% for the period, while sales in the Training category were up 21% for the quarter.
Sales for Royal Elastics were up 56% for the third quarter.
The at-once business was 22% of sales in the third quarter, compared to 35% of sales in Q3 2004.
Management said the revenue decrease for the quarter was due to a decline in pairs sold, offset a bit by a higher average selling price per pair. ASP was up 5.3% to $26.00 from $24.70 in the year-ago period, due primarily to the price increase for the Classic shoe. Volume was off roughly 4% to 5.1 million pair, compared to 5.3 million pair in Q3 last year.
International sales were up 34% and backlog at quarter-end was up 45% for the segment. Sales in Europe were up 60% to $20.3 million in the quarter and backlog increased 65% at quarter-end. Operating profit in Europe was up 23.1% to $3.8 million. Asia sales increased 11% for Q3, but the backlog in the region was flat at the end of the period.
K-Swiss said they will continue to use television as their primary branding vehicle. They plan to complement their TV schedule with a “very focused” print plan, which they feel works well with the 14- to 24-year-old consumer. The Holiday TV program will focus on dark-colored Classics in black, brown, and wheat.
Total backlog was up 1.3% to $77 million for the fourth quarter, but was off 0.5% to $116.1 million in the 2006 first quarter.
>>> While not taking as big a hit as Reebok, it appears the shift to performance at Foot Locker is in full swing
| K-Swiss, Inc. | |||
| Third Quarter Results | |||
| (in $ millions) | 2005 | 2004 | Change |
| Total Sales | $136.7 | $135.8 | 0.6% |
| Domestic | $103.5 | $110.9 | -6.7% |
| International | $33.2 | $24.9 | 33.6% |
| Gross Margin | 46.5% | 45.5% | +100 bps |
| SG&A | 24.9% | 23.1% | +180 bps |
| Net Income | $21.1 | $20.7 | +1.8% |
| Diluted EPS | 59¢ | 57¢ | +3.5% |
| Backlog* | $193.0 | $192.7 | +0.2% |
| Domestic | $136.6 | $153.9 | -11.2% |
| International | $56.4 | $38.8 | +45.4% |
| Inventories* | $52.1 | $56.6 | -7.9% |
