K•Swiss Inc. saw both net sales and net earnings for the fourth quarter and fiscal year ended December 31 drop in the double-digits. More worrying is the heavy decreases in worldwide futures orders at year-end. Net earnings and net earnings per diluted share for the fourth quarter of 2007 dropped 94.4% to $596,000, or 2 cents per diluted share, compared with $10.7 million, or 30 cents per diluted share, in the prior-year period. Net earnings and net earnings per diluted share for the year decreased 49.2% to $39.1 million, or $1.10 per diluted share, compared with $76.9 million, or $2.17 per diluted share, for the prior-year period.


Net earnings and net earnings per diluted share for the year ended December 31, 2007, includes a third quarter 2007 one-time other income item of $5.2 million, or 12 cents per diluted share, which consists of a reversal of an estimate of the underpayment of payroll withholding liabilities in a foreign jurisdiction from January 1, 1993 through December 31, 2005.

For the fourth quarter of 2007, total worldwide revenues decreased 16.7% to $78.2 million from $93.8 million in the prior-year period. Domestic revenues decreased 34.6% to $34.3 million, and international revenues increased 6.1% to $43.9 million. Total worldwide revenues for 2007 decreased 19.9% to $410.4 million compared with $501.1 million in 2006. Domestic revenues decreased 36.5% to $202.4 million, while international revenues increased 14.0% to $208.1 million.


Futures Orders


Worldwide futures orders with start ship dates from January through June 2008 decreased 12.5% to $147.8 million at December 31, 2007, compared with $168.9 million at December 31, 2006. Domestic futures orders decreased 39.5% to $50.8 million from $84.0 million the previous year. International futures orders increased 14.3% to $97.0 million from $84.9 million the previous year.


Stock Repurchase Program


At December 31, 2007, there remains authorization to repurchase approximately 4,061,000 shares under the company's existing stock repurchase program. Since August 1996, K•Swiss has purchased a total of 25.3 million shares of Class A Common Stock for a total expenditure of $164.6 million.


Earnings Guidance


K•Swiss also issued guidance for the first quarter of 2008 and full-year 2008. The company expects revenues for the first quarter of 2008 to be approximately $95 million to $105 million and earnings per diluted share to be in the range of 18 cents to 28 cents. The company expects full-year revenues to be approximately $310 million to $340 million and expects to report full-year earnings per diluted share of approximately 10 cents to 35 cents.


The company's estimates for the first quarter of 2008 and full-year 2008 reflect a significant decline in domestic revenues; substantial investments in product development and marketing for the K•Swiss brand; continued expansion of international operations; and continued investment in the Royal Elastics brand. The estimates are based upon the following assumptions: gross margins will be approximately 47%; SG&A will not rise above $43 million for the first quarter of 2008 and $152 million for the full-year 2008; customer order cancellations will be moderate; and the company's growth initiatives with respect to Royal Elastics will not exceed a net loss of 6 cents per share for the full year.


Steven Nichols, chairman of the board and president, stated, “The fourth quarter was fairly indicative of the environment in which we are operating and the long-term plan we are executing to re-establish positive trends in our domestic business and maintain momentum internationally. As expected, we invested heavily in our premium sports branding efforts, while conservatively managing our balance sheet. We have a long road ahead of us to prove to retailers and customers that K•Swiss is a fresh and exciting premium sports brand once again, but we remain committed to get there.”


 














































































































































































































































K•Swiss Inc. Consolidated Statements of Earnings


(In thousands, except earnings per share data)


 

 

Three Months Ended


Year Ended


December 31,


December 31,

(Unaudited)

2007


2006


2007


2006

Revenues

$


78,167

$ 93,833

$


410,432

$ 501,148
Cost of goods sold  

40,972

    51,246  

220,573

  263,935
Gross profit

37,195

42,587

189,859

237,213
Selling, general and administrative expenses  

40,895

    32,102  

157,498

  137,527
Operating profit (loss)

(3,700


)

10,485

32,361

99,686
Other income


5,232

Interest income, net  

2,418

    2,073  

9,594

  7,005
Earnings before income taxes

(1,282


)

12,558

47,187

106,691
Income tax expense (benefit)  

(1,878


)

  1,888  

8,114

  29,827
Net earnings

$


596

  $ 10,670

$


39,073

$ 76,864
Basic earnings per share

$


0.02

  $ 0.31

$


1.13

$ 2.23
Diluted earnings per share

$


0.02

  $ 0.30

$


1.10

$ 2.17
Weighted average number of shares outstanding

About The Author

Teresa Hartford

Teresa Hartford Editorial & Creative Director | SGB Media teresa@sgbonline.com | 704.651.5741

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